_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934. [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBERS 0-676 AND 0-16626
__________________
THE SOUTHLAND CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-1085131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2711 NORTH HASKELL AVE., DALLAS, TEXAS 75204-2906
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code,
214-828-7011
__________________
Securities registered pursuant to Section 12(b) of
the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
None N/A
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 Par Value
Warrants to Purchase Common Stock at $1.75 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $522,873,796 at March 3, 1995, based upon
130,718,449 shares held by persons other than officers, directors and the
parties to the Shareholders Agreement.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No __
409,922,935 shares of Common Stock, $.0001 par value (the registrant's
only class of Common Stock), were outstanding as of March 3, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into
the listed Parts and Items of Form 10-K: Definitive Proxy Statement for
April 26, 1995 Annual Meeting of Shareholders: Part III, a portion of Item 10
and Items 11, 12 and 13.
______________________________________________________________________________
ANNUAL REPORT ON FORM 10-K
For the year ended December 31, 1994
TABLE OF CONTENTS
PAGE
REFERENCE
FORM 10-K
PART I
Item 1. Business 1
Executive Officers of the Registrant 17
Item 2. Properties 21
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 25
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 26
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of Financial 28
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 37
Independent Auditors' Report of Coopers & Lybrand L.L.P. 64
on The Southland Corporation and Subsidiaries' Financial
Statements for each of the three years in the period ended
December 31, 1994
Item 9. Changes in and Disagreements with Accountants on Accounting 65
and Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant *
and see Part I, Item 1, above
Item 11. Executive Compensation *
Item 12. Security Ownership of Certain Beneficial Owners and Management *
Item 13. Certain Relationships and Related Transactions *
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 66
Signatures 72
________________________
*Included in Form 10-K by incorporation by reference to the Registrant's Proxy
Statement, dated March 22, 1995, for the April 26, 1995 Annual Meeting of
Shareholders.
PART I
ITEM 1. BUSINESS.
GENERAL
The Southland Corporation ("Southland," the "Company" or
"Registrant"), conducting business principally under the name 7-Eleven,
is the largest convenience store chain in the world, with over 14,600
Company-operated, franchised and licensed locations worldwide, and is
among the nation's largest retailers.
The 7-Eleven trademark has been registered since 1961 and is well
known throughout the United States and in many other parts of the
world. The Company believes that 7-Eleven is the leading name in the
convenience store industry. Notwithstanding its divestitures of stores
and other businesses since 1987, the Company remains geographically
diversified. The Company has, over the past several years,
implemented its strategic plan to divest all its non-convenience store
operations, and has trimmed its store operations by consolidating its
efforts in certain market areas and by closing less profitable stores.
Convenience retailing is now the Company's only business focus.
The Company, with executive offices at 2711 North Haskell Avenue,
Dallas, Texas 75204 (telephone 214/828-7011), was incorporated in
Texas in 1961 as the successor to an ice business organized in 1927.
Unless the context otherwise requires, the terms "Company,"
"Southland" and "Registrant" as used herein include The Southland
Corporation and its subsidiaries and predecessors. In 1994, Southland's
operations (for financial reporting purposes) were conducted in one
business segment: the Operating and Franchising of Convenience Food
Stores.
At December 31, 1994, the Company's operations included 5,541 7-
Eleven convenience stores in the United States and Canada, 38 High's
Dairy Stores, and 51 Quik Mart and Super-7 high-volume gasoline
outlets with mini-convenience stores. The Company also has an equity
interest in 213 convenience stores in Mexico (most of which are now
using the 7-Eleven name). Area licensees, or their franchisees, operate
additional 7-Eleven stores in certain areas of the United States, in 18
foreign countries and the U.S. territories of Guam and Puerto Rico. As
of the end of 1994, the Company has an equity interest in three of the
licensees whose area licenses cover six foreign countries and Puerto
Rico.
During 1994, the Company continued to focus on its business
concept of providing superior service to its customers through better
merchandising, with item-by-item control of inventory at each store,
emphasizing the importance of ordering the right products, on an
individual store level, to remain in stock, at all times, on each particular
store's best-selling items. Through proper ordering and successful
implementation of other store functions, the Company continues to work
toward providing convenience-oriented customers with the SPEED,
QUALITY, SELECTION, PRICE and shopping ENVIRONMENT that will
give the Company a sustainable competitive advantage.
THE RESTRUCTURINGS. During the past eight years, the
Company has gone through two financial restructurings -- a leveraged
buyout in 1987 (the "LBO") and a voluntary bankruptcy reorganization,
emerging from a four-month Chapter 11 proceeding in March 1991, with
1
a $430 million infusion of capital from its new majority owner, IYG
Holding Company, which is jointly owned by Ito-Yokado Co., Ltd. ("Ito-
Yokado") and Seven-Eleven Japan Co., Ltd. ("Seven-Eleven Japan"),
both Japanese corporations. Seven-Eleven Japan is the Company's
largest area licensee.
On February 21, 1991, the U.S. Bankruptcy Court for the Northern
District of Texas issued an order (the "Confirmation Order") confirming
the Company's Plan of Reorganization (the "Plan") and on March 4,
1991, the Confirmation Order became final and non-appealable. (See
"Legal Proceedings," below.) The Plan provided for holders of the
Company's then outstanding debt and equity securities (the "Old
Securities") to receive new debt securities, common stock and, in certain
cases, cash, in exchange for their Old Securities and, pursuant to a
Stock Purchase Agreement, for Ito-Yokado and Seven-Eleven Japan to
acquire approximately 70% of the Company for $430 million in cash. In
addition, among other things, the Plan provided for the amendment and
restatement of the Company's Credit Agreement with its Senior Lenders
(the "Credit Agreement") and for the Company to effect a one-for-ten
reverse stock split of its common stock (the "Stock Split"). The closing
(the "Closing") under the Stock Purchase Agreement (the "Stock
Purchase Agreement"), occurred on March 5, 1991, and the Company
issued 286,634,619 shares of common stock, $.0001 par value (the
"Common Stock"), to IYG Holding Company, a Delaware corporation,
jointly owned by Ito Yokado and Seven-Eleven Japan, and received
$430 million in cash. In connection with the Closing, the Company
entered into a Shareholders Agreement, a Warrant Agreement and
Employment Agreements with the Thompsons (described below, see
"Other Business Information").
Pursuant to the Plan, holders of the Company's Old Securities were
entitled to exchange, until March 5, 1993, their Old Securities for new
debt, equity and, in some cases, cash, and newly issued warrants (the
"Thompson Warrants"), exercisable (through February 23, 1996) to
acquire certain shares of common stock owned by the Thompsons and
certain other old common stock shareholders of the Company (the
"Warrant Shareholders"), at $1.75 per share pursuant to a Warrant
Agreement with Wilmington Trust Company as Warrant Agent (the
"Warrant Agreement").
THE PURCHASER. IYG Holding Company, a Delaware corporation
(the "Purchaser" or "IYG"), is a jointly owned subsidiary of Ito-Yokado
and Seven-Eleven Japan, formed for the specific purpose of purchasing
the Common Stock of the Company pursuant to the Stock Purchase
Agreement. Ito-Yokado owns 51% and Seven-Eleven Japan owns 49%,
respectively, of IYG.
ITO-YOKADO. Ito-Yokado is among the largest retailing companies
in Japan. Its principal business consists of the operation of 153
superstores that sell a broad range of food, clothing and household
goods. In addition, its activities include operating two restaurant chains
doing business under the names "Denny's" and "Famil" and a chain of
supermarkets. All of Ito-Yokado's operations are located in Japan
except for some limited purchasing activities. Prior to the execution of
the March 21, 1990 stock purchase agreement, Ito-Yokado had no
affiliation with the Company, other than through its majority-owned
subsidiary, Seven-Eleven Japan (see below). On July 18, 1990,
however, the Company borrowed $25 million pursuant to a term loan
agreement with Ito-Yokado in order to obtain short-term liquidity. This
term loan, plus interest, was repaid on March 5, 1991. In addition, in
1992 Ito-Yokado guaranteed the Company's $400 million commercial
paper facility.
2
SEVEN-ELEVEN JAPAN. Seven-Eleven Japan is the largest
convenience store chain in Japan. Seven-Eleven Japan is a 50.3%-
owned subsidiary of Ito-Yokado. Seven-Eleven Japan is the largest area
licensee of the Company with 5,809 stores in Japan and owns Seven-
Eleven (Hawaii), Inc., which, as of year-end 1994, operated an additional
47 7-Eleven stores in Hawaii under a separate area license agreement
covering that state.
REFINANCING OF BANK DEBT. On December 21, 1994, the Company
refinanced all of its remaining debt under the Credit Agreement,
originally entered into in 1987, pursuant to an amendment to the Credit
Agreement with a modified group of lenders. The bank group, led by
Citicorp North America, Inc., as Agent, and The Sakura Bank, Limited, as
Co-Agent, is comprised of six Japanese banks, four American banks and
one Canadian bank. The amended Credit Agreement, which will mature
at the end of 1999, provides for a $300 million term loan, $150 million
letter of credit facility and a $150 million revolving credit facility. There
are no scheduled term loan principal repayments until the first quarter of
1996. The term loans and any revolver borrowings carry a floating
interest rate of either the Citibank, N.A. base rate or a reserve-adjusted
Eurodollar rate plus .975%.
OPERATING AND FRANCHISING OF CONVENIENCE FOOD STORES
7-ELEVEN STORES. On December 31, 1994, there were 5,541 7-
Eleven convenience stores included in the Company's operations and
694 stores (in the United States) operated by area licensees. Such
stores are operated principally under the name 7-Eleven and are located
in 41 states, the District of Columbia, and five provinces of Canada.
During 1994, the Company opened 18 convenience stores (of which 10
were rebuilds or relocations of existing stores) and closed 184
convenience stores, due to changing market patterns, lease expirations
and the closing of selected stores that were not profitable. The
Company may, and currently intends to, close approximately 150
additional stores in 1995.
The Company's convenience stores are extended-hour retail stores,
emphasizing convenience to the customer and providing groceries, take-
out foods and beverages, gasoline (at many locations), dairy products,
non-food merchandise, specialty items and incidental services.
Generally, the Company's stores are open every day of the year and are
located in neighborhood areas, on main thoroughfares, in shopping
centers, or on other sites where they are easily accessible and have
ample parking facilities for quick in-and-out shopping. Stores are
generally from 2,400-3,100 square feet in size and carry 2,300-2,600
items. The vast majority of the stores operate 24 hours a day, with
virtually all of the Company's stores open at least from 7 a.m. until 11
p.m. The stores attract lunch-time customers, early and late shoppers,
weekend and holiday shoppers and customers who may need only a few
items at any one time and desire rapid service. The Company has been
emphasizing its new product mix of fresher, higher quality foods to
encourage existing customers to increase their shopping frequency and
to appeal to new customers, and has taken a new approach to providing
fresh food merchandise to the stores, through the introduction of daily
delivery of freshly made sandwiches and bakery products from
commissaries and newly opened baking facilities operated to serve the
needs of 7-Eleven stores and distributed from local area combined
distribution centers that serve only 7-Eleven stores. In addition, there
has been an increased focus on novelty and seasonal items to spur
impulse buying around each holiday, sport season or other types of
occasions, such as graduation or Mother's Day, which are designed to
appeal to a broader mix of customers.
3
Substantially all convenience store sales are for cash (including
sales for which checks are accepted), although major credit cards, along
with the "Citgo Plus" credit card, are accepted in most markets, for
purchases of both merchandise and gasoline. Credit card sales
currently account for approximately 6% of sales, including gasoline.
REMODELING OF STORES. During 1994, the Company
remodeled approximately 1,200 stores, and anticipates remodeling an
additional 1,400 stores in 1995. By the end of 1995, over 4,000 stores
will have been remodeled, with virtually all stores scheduled to be
completed by the end of 1996, to conform to the new store image which
includes increased interior and exterior lighting, wider aisles, shopper-
friendly aisle markers, lower shelf heights to help shoppers locate items
faster, less cluttered aisles and counters, upgraded gasoline island
equipment, and a new tri-striped exterior store facade that replaces the
mansard roofs of many existing stores. The remodeling process was
streamlined in 1994, both to be less disruptive of the store's business
and to focus on the changes that customers notice and appreciate
most, such as brighter lighting and more user-friendly store layouts.
MERCHANDISING. During 1994, the Company further intensified its
focus on better inventory control at the store level and provided all levels
of its field organization with training and constant reinforcement of the
principles necessary to accomplish accurate order forecasting to avoid
lost sales opportunities. Through case studies and other examples, the
entire field organization has been kept informed on ways to identify and
track each store's best-selling items in each product category and avoid
out-of-stock conditions by proper order forecasting. Store employees
are responsible for placing orders with a view toward forecasting the
demand for the highest selling items in the store, based on specific local
conditions.
Each store's merchandise must include a selection of core items as
well as optional items selected by store operators to meet their
customers' local needs and preferences. During 1994, the Company
assisted the store operators by providing a new approach to seasonal
and novelty items, taking advantage of each holiday or other identifiable
event (such as graduation time, start of the football or baseball season,
etc.) with a preplanned mix of merchandise made available to the stores
on attractive end cap merchandisers in anticipation of possible impulse
or last-minute shopping at such times as Valentine's Day, Mother's Day
and Halloween. These new items were provided in a different
merchandising format during 1994 to appeal to a broader range of
customers and further enhance 7-Eleven's image as a convenient place
to shop for last-minute needs.
During 1994, as part of the Company's new merchandising focus,
between 25 and 30 new items were made available to the stores each
week. Store operators were encouraged to try new items and, through
case study experiments, store operators were able to see the
incremental benefits derived by offering the new items in the stores.
In addition, during 1994 the Company continued to implement its
everyday-fair-price strategy, which minimizes discounting, but lowers
prices on some items to provide consistent, competitive prices
throughout the store. The Company is applying a more flexible
approach to pricing on different products in different markets, while
working with suppliers to find ways to lower costs to the Company, so
that any savings can be reflected in the price to the customer.
4
NEW PRODUCTS. During 1994, the Company continued its
programs to introduce more fresh food products of a higher quality into
the stores. In addition, the Company continued to expand its "New Age"
beverages with the introduction of its own corporate brand "Classic
Selection" spring water and soft drinks which were introduced
nationally during 1994. In addition, as a complement to its gourmet-
flavored coffees, the Company introduced its own proprietary regular
and sugar-free "Cafe Select"-TM- gourmet hot chocolate and cappuccino,
which added hot beverages that had appeal throughout the day, in
addition to the traditional peak morning coffee hours. By year-end 1994,
approximately 95% of the stores were offering the new hot chocolate
and cappuccino products.
During 1994, Prime Deli Corporation opened a fresh food
commissary in Dallas, Texas to serve 7-Eleven stores. This commissary
is designed to provide a wide range of freshly prepared food, using the
new "Deli Central" name, including fresh sandwiches, salads and
desserts that are delivered daily to the stores. By year-end, this
commissary was servicing approximately 240 stores. (See "Distribution - Fresh
Products," below). In late 1994, with the help of Pillsbury,
"World Ovens"-TM- fresh bakery products were developed and introduced to
7-Eleven stores in Texas. These high-quality products are proprietary to
7-Eleven and are manufactured in a new bakery facility in Texas specifically
opened and operated to serve 7-Eleven's needs.
In addition, during 1994, deliveries began from a newly built
commissary facility in the Philadelphia/New Jersey market area to
approximately 400 stores (both corporate and franchised) in that market
area. A commissary is also servicing approximately 160 franchised
stores in the Long Island, New York market area. In addition, "World
Ovens"-TM- products are also being supplied to stores in the
Philadelphia/New Jersey market area from a bakery facility in Baltimore.
During 1994, 7-Eleven increased the range of non-food services
available when it began offering prepaid telephone cards, for long distance
use, which were introduced in November. By year end, over 5,000 stores were
selling the "phone cards" for prepaid long distance calling in 15-, 30- and
60-minute increments, and the Company plans to introduce a 90-minute card,
as well as a collector card, during 1995.
During 1993, the Company entered into a ten-year agreement with
Electronic Data Systems Corporation ("EDS") for the installation and operation
of automated teller machines (ATMs) in 7-Eleven stores, nationwide, in
areas not already covered by other ATM agreements. As of year-end
1994, ATMs had been installed in over 3,200 stores under this
agreement, with a total of approximately 4,500 ATMs in 7-Eleven stores
around the country. EDS pays the Company a flat fee per month per
ATM as well as transaction-based fees dependent upon the number of
transactions per month.
GASOLINE. In 1994, the Company sold approximately 1.40 billion
gallons of gasoline at retail at approximately 2,000 7-Eleven stores and
other Southland self-serve outlets. The Company monitors gasoline
sales to maintain a steady supply of petroleum products to the
Company's stores, to determine competitive retail pricing, to provide the
appropriate product mix at each location and to manage inventory levels,
based on market conditions. During 1994, the Company continued its
program to upgrade the gasoline pump area of the stores, by adding
canopies and new equipment. Approximately 700 stores are now
equipped to accept credit cards for the purchase of gasoline at the
pump, which makes gasoline shopping at 7-Eleven even more
5
convenient for the credit customer. Almost all of the Company's stores
offer CITGO-branded gasoline.
During 1994, the Company discontinued the sale of gasoline at
approximately 40 locations (due, in many cases, to the closing or
divestiture of the entire store, with the others eliminated due to the
strategic decision to discontinue the sale of gasoline at the particular
location). The Company currently anticipates that gasoline sales may be
discontinued at about 30 additional locations in 1995.
The Company has a long-term product purchase agreement with
Citgo Petroleum Corporation ("Citgo") under which Southland purchases
substantially all its U.S. gasoline requirements from Citgo at market-
related prices through the year 2006.
Holders of the "Citgo Plus" credit card can use the card to finance
purchases of gasoline, as well as other merchandise, at 7-Eleven stores.
At year-end, there were over 1.33 million active "Citgo Plus" credit card
accounts.
DISTRIBUTION. Fresh Products - During 1994, the Company began to
utilize a local distribution system for delivery of fresh food products (such
as Deli Central-TM- sandwiches and salads and World Ovens-TM- bakery
products) as well as for fresh produce, dairy products, bread and other
packaged bakery items and items that had previously been provided to
the store by vendors through "store door delivery." The Company
entered into a five-year agreement with E. A. Sween Company for E.A.
Sween to provide distribution services through operation of (i) a
Combined Distribution Center ("CDC") facility in the Dallas/Fort Worth
area to service approximately 250 stores in that area and (ii) a CDC
facility in the Austin market area to service approximately 50 stores in
that area. Included in the products distributed by E.A. Sween through
the CDCs are those produced by Prime Deli Corporation from its
commissary and the World Ovens-TM- products from Southbury Bakery,
both in the Dallas area, and products from the commissary facility in
Austin, which has now been open and serving 7-Elevens since 1992. In
addition, pending finalization of long-term arrangements, the Company
has entered into interim agreements with (i) AMR Distribution Systems
(an operating division of AMR Services Corporation) to provide
distribution services, through operation of a CDC facility, to
approximately 400 (both corporate and franchised) stores in the
Philadelphia/New Jersey market area, for distribution of the products
produced by the commissary in that market area and (ii) The Constance
Food Group, Inc., to provide distribution services, through operation of a
CDC facility, to the approximately 160 stores it supplies with commissary
products in the Long Island, New York area.
Warehouse Products - The Company continued to utilize the
distribution services of McLane Company Inc., pursuant to a ten-year
contract entered into in 1992, for delivery of warehouse products to all of
the Company's corporate stores and those franchise stores that utilize
McLane for distribution services. McLane serves Southland using two
former Southland distribution centers and eight additional distribution
centers throughout the country. The Company has worked with McLane
to minimize out of stocks and be increasingly responsive to individual
store's needs.
Franchisees are required only to carry merchandise of a type,
quality, quantity and variety consistent with the 7-Eleven image. Except
for consigned merchandise and certain proprietary items, franchisees
6
are not required to purchase merchandise from the Company or vendors
it recommends, or to sell their merchandise at prices suggested by the
Company.
SUPPLY AGREEMENTS. In connection with the sale of the
Company's Reddy Ice and Dairies Group divisions, both in 1988, the
Company entered into long-term contracts to purchase the products
historically supplied to the Company's stores by such divested
operations.
PRODUCT CATEGORIES. The Company does not record sales on
the basis of product categories. However, based upon the total dollar
volume of store purchases, management estimates that the percentages
of its 7-Eleven convenience store sales in the United States by principal
product categories for the last five years were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
PRODUCT CATEGORIES 1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Gasoline 24.2% 23.5% 22.5% 21.5% 22.3%
Tobacco Products 17.2 18.0 19.2 19.1 18.0
Beer/Wine 9.4 9.5 10.0 10.7 10.4
Soft Drinks 8.8 9.7 10.0 10.3 10.4
Groceries 9.6 9.2 8.5 8.1 8.2
Food Service 8.5 8.5 8.4 8.4 8.7
Non-Foods 6.2 5.8 5.8 5.8 5.7
Dairy Products 4.6 4.8 4.9 5.0 5.2
Candy 3.8 3.7 3.8 3.9 3.7
Baked Goods 3.6 3.5 3.4 3.4 3.5
Customer Services 2.4 2.1 1.9 1.8 1.8
Health/Beauty Aids 1.7 1.7 1.6 2.0 2.1
------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>
LOCAL REGULATIONS. In certain areas where stores are located,
state or local laws limit the hours of operation or the sale of certain
products, the most significant of which limit or govern the sale of
alcoholic beverages. State and local regulatory agencies have the
authority to approve, revoke, suspend or deny applications for and
renewals of permits and licenses relating to the sale of alcoholic
beverages or to seek other remedies. In most states, such agencies
have discretion to determine if a licensee is qualified to be licensed, and
denials may be based on past noncompliance with applicable statutes
and regulations as well as on the involvement of the licensee in criminal
proceedings or activities which in such agencies' discretion are
determined to adversely reflect on the licensee's qualifications. Product
categories that are affected by these types of regulations are alcoholic
beverages, tobacco, lottery tickets and other similarly state-regulated
products. Such regulation is subject to legislative and administrative
change from time to time. The Company is the largest seller,
nationwide, of state-sponsored lottery tickets.
FRANCHISES. At December 31, 1994, 2,962 7-Eleven stores were
operated by independent franchisees under the Company's franchise
program for individual 7-Eleven stores. Sales by stores operated by
franchisees (which are included in the Company's net sales) were
$2,820,685,000 for the year ended December 31, 1994.
In its franchise program for individual 7-Eleven stores, the Company
selects qualified applicants and trains the individuals who will participate
personally in operating the store. The franchisee pays the Company an
initial fee, which varies by store, and is generally calculated based upon
gross profit experience for the store or market area, to cover certain
costs including: training; an allowance for travel; meals and lodging for
7
the trainees; and other costs relating to the franchising of the store.
Under the standard form of franchise agreement, the Company leases or
subleases, to the franchisee, a ready-to-operate 7-Eleven store that has
been fully equipped and stocked. The Company bears the costs of
acquiring the land, building and equipment, as well as most utility costs
and property taxes.
Under the standard franchise arrangement, which typically has an
initial term of 10 years, the franchisee pays for all business licenses and
permits, as well as all in-store selling expenses, including: payroll;
inventory and cash variations; supplies; inventory, payroll and other
business taxes; certain repairs and maintenance; and other controllable
in-store expenses, and is required to invest an amount equal to the cost
of the store's inventory and cash register fund. The Company finances a
portion of the cost of business licenses and permits and of the
investment in inventory, as well as the ongoing operating expenses and
purchases of inventory.
Under the standard franchise agreements currently in effect, the
Company shares in the gross profit of the store (ranging from 50% to
58%, depending on the hours of store operation, adjusted if necessary to
assure the franchisee a specified gross income before selling expenses),
based on all sales of merchandise and services except those on which
the Company pays the franchisee a commission (such as consigned
gasoline). The Company's share of gross profit, called the "7-Eleven
Charge," is its continuing royalty charge to the franchisee for the license
to use the 7-Eleven operating system and trademarks, for the lease and
use of the store premises and equipment and for continuing services
provided by the Company. These services include merchandising,
advertising, recordkeeping, store audits, contractual indemnification,
business counseling services and preparation of financial statements.
Other optional services are available from or through the Company for
additional fees.
The Company is currently offering agreements that provide a three-
tiered structure for calculating the 7-Eleven Charge, in Washington,
Idaho and Oregon, under which the 7-Eleven Charge is based on the
particular store's level of gross profit for the preceding 12 months. In
March 1993, the Company also announced that it intends to revise its
standard form of franchise agreement, but has postponed the
anticipated roll-out of a new agreement indefinitely as a result of
currently pending litigation (see "Legal Proceedings," below).
Under Southland's standard franchise agreement, the franchise may
be terminated by the franchisee at any time or by the Company for the
causes, and upon the notices, as specified in the franchise agreement
and as provided by applicable law. In the event of expiration or
termination of the franchise, the Company has the right to (i) acquire the
franchisee's interest in inventory of a type, quantity, quality and variety
consistent with the 7-Eleven image and the other tangible assets in the
franchise business; and, (ii) take possession of the real property on
which the store is located, and the franchisee has no continuing lease
obligations.
Many states in which the Company franchises individual 7-Eleven
stores have enacted legislation governing the offer, sale, termination
and/or renewal of franchises, and the Federal Trade Commission has a
trade regulation rule regarding required disclosures to prospective
franchisees. These requirements are subject to amendment and similar
legislation is contemplated at the federal level and pending at the state
level.
8
AREA LICENSES. As of December 31, 1994, the Company had
granted domestic area licenses to ten companies which were operating
694 convenience stores using the 7-Eleven system and name in certain
areas of Alaska, Arkansas, Hawaii, Indiana (using the name Super-7 in
Indianapolis), Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri,
Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma,
Pennsylvania, South Dakota, Texas, Utah, West Virginia and Wyoming.
Although parts of both Nevada and Virginia are also covered by area
licenses, there are no stores currently operated under the area licenses
in those states. The 47 stores in Hawaii are operated under an area
license agreement with Seven-Eleven (Hawaii), Inc. (a subsidiary of
Seven-Eleven Japan).
As of the end of 1994, foreign area license agreements covered the
operation of 5,809 7-Eleven stores in Japan, 925 in Taiwan, 399 in
Thailand, 310 in Hong Kong, 153 in Australia, 87 in Malaysia, 84 in
Singapore, 75 in South Korea, 69 in Spain, 66 in the Philippines, 51 in
the United Kingdom, 37 in Norway, 22 in Sweden, 19 in China, 14 in
Brazil, 13 in Puerto Rico, 10 in Turkey, nine in Guam and eight in
Denmark. In connection with the granting of area licenses in Brazil,
Norway (which license now also includes Denmark, Finland and
Sweden), the Philippines and Puerto Rico, the Company acquired an
equity interest in those area licensees.
During 1994, the area license covering Panama was terminated. In
addition, a license covering Guangdong Province in China is now in
effect, and stores there should be under construction and open within
the next year.
Stores operating under area licenses are not included in the number
of Company operating units, and their sales are not included in the
Company's revenue. Revenues from initial fees paid for area licenses
and continuing royalties based on the sales volume of the stores are
included in Other Income.
INTERNATIONAL AFFILIATES. The Company also has an equity
interest in 213 convenience stores in Mexico operated by an affiliate.
These stores, which feature merchandise and services essentially the
same as 7-Eleven, had been operating under the name "Super Siete"
until 1991, when a program began to change their name to 7-Eleven,
and now almost all stores are using the 7-Eleven name.
Sales from the stores in Mexico are not included in Southland's
revenues, but Southland's equity in their operating results is included in
Other Income and has not been material.
HIGH'S DAIRY STORES. As of December 31, 1994, the Company
operated 38 High's Dairy Stores located primarily in Maryland and
Virginia, which are similar in size and location to 7-Eleven stores and
feature a product mix that emphasizes a variety of dairy products.
QUIK MART AND SUPER-7. At December 31, 1994, 51 Quik Mart
and Super-7 units were in operation in nine states. A typical Quik Mart is
a high-volume gasoline outlet combined with a mini-convenience store
ranging in size from 300 to 1,600 square feet of sales space stocked
primarily with snack food, candy, cold drinks and other immediately
consumable items, while a Super-7 is a high-volume, multi-pump, self-
service gasoline-dispensing operation.
9
CORPORATE
CITYPLACE. The Company's headquarters are located in
"Cityplace Center East," its 42-story office tower located on the east side
of Dallas' Central Expressway north of Dallas' central business district.
The Company currently occupies approximately 600,000 square feet,
about one-half of Cityplace Center East.
During 1994, leases covering approximately 281,000 square feet
were signed with third party tenants, for occupancy to commence under
such leases in 1994 and 1995. The building is now 97% leased or
reserved for expansion under current leases.
DIVESTITURES
During 1994, the Company sold its former distribution centers in
Champaign, Illinois and Tyler, Texas.
OTHER INFORMATION ABOUT THE COMPANY
CREDIT AGREEMENT AND DEBT COVENANTS. The Company's
Amended Credit Agreement contains a number of financial and
operating covenants requiring, among other things, the maintenance of
certain financial ratios, including interest coverage, fixed-charge
coverage, and senior indebtedness to EBITDA (defined in the Credit
Agreement as earnings before interest, income taxes, depreciation and
amortization, with adjustments for certain extraordinary and unusual
gains and losses). The covenant levels established by the Credit
Agreement generally require a continuing improvement in the Company's
financial condition. The Credit Agreement also contains various
covenants which, among other things, (a) limit the Company's ability to
incur or guarantee indebtedness or other liabilities other than under the
Credit Agreement, (b) restrict the Company's ability to engage in asset
sales and sale/leaseback transactions, (c) restrict the types of
investments the Company can make and (d) restrict the Company's
ability to pay cash dividends, redeem or prepay principal and interest on
any subordinated debt and certain senior debt. These covenants
contain exceptions that are customary in credit agreements associated
with financings of companies having creditworthiness similar to
Southland's, as well as exceptions consistent with the specific nature of
the business and financial operations of the Company.
The Company's outstanding Debt Securities contain certain
covenants which, among other things, (i) limit the payment of dividends
and certain other restricted payments by both the Company and its
subsidiaries, (ii) require the purchase by the Company of the
Debt Securities at the option of the holder upon a change of control (as
defined in the indentures governing the Debt Securities), (iii) limit
additional indebtedness, (iv) limit future exchange offers, (v) limit the
repayment of subordinated indebtedness, (vi) require board approval of certain
asset sales, (vii) limit transactions with certain stockholders and affiliates
and (viii) limit consolidations, mergers and the conveyance of all or
substantially all of the Company's assets.
10
In addition, the warrants that were issued by the Company in 1987
in connection with the LBO (the "Old Warrants"), expired in 1992 without
becoming exercisable. Pursuant to the terms of the Warrant Agreement
relating to the Old Warrants, the Company offered to repurchase such
Old Warrants at their independently determined fair value of $0. The
repurchase offer expired, and all of the Old Warrants were cancelled as
of March 15, 1993.
SHAREHOLDERS AGREEMENT. Upon the Closing, the Company,
the Purchaser, Ito-Yokado and various holders of the Company's
common stock who held the common stock prior to the Closing (the
"Existing Shareholders") entered into a shareholders agreement (the
"Shareholders Agreement") pursuant to which the parties may not offer,
sell, assign, transfer, grant a participation in, pledge or otherwise dispose
of any shares of Common Stock except in compliance with the
Shareholders Agreement. Although transfers are permitted to certain
permitted transferees or pursuant to Rule 144 under the Securities Act of
1933, other transfers are subject to the Purchaser's right of first refusal.
The Shareholders Agreement provides each of the Existing
Shareholders (and any persons who hold employee options or employee
convertible debentures to purchase shares of Common Stock as a result
of employment with the Company) with the right and option to require the
Purchaser to purchase up to all of the shares of Common Stock held by
such person on the fifth anniversary of the date of the Shareholders
Agreement at the fair market value (to be determined in accordance with
the terms of the Shareholders Agreement) of such shares on such date.
In addition, the Shareholders Agreement, as amended on December 30,
1992, provides that the parties to the agreement shall cause Southland's
Board of Directors to consist of, and shall vote their shares as to the
election of directors so that the Board shall consist of, (i) two individuals
designated by Existing Shareholders holding a majority of shares held by
the Existing Shareholders, (ii) ten individuals selected by the Purchaser,
(iii) two individuals initially designated by the Official Committee of
Bondholders appointed by the Bankruptcy Court and, from and after the
next annual or special meeting of the Company's shareholders at which
the election of directors occurs, designated by the holders (the "Other
Shareholders") of shares of Common Stock other than the Purchaser
and the Existing Shareholders (the "Other Shareholder Nominees") and
(iv) although no such obligation currently exists, two independent
directors if, and to the extent, required to meet the listing or quotation
requirements of any exchange or quotation system upon which the
Common Stock is or shall be listed or traded (and only if, and to the
extent that, the Other Shareholder Nominees fail to qualify as such
independent directors).
In addition, the Shareholders Agreement provides the Existing
Shareholders with certain registration rights (if no exemption from
registration is applicable for their sales), parallel exit rights and
preemptive rights in certain circumstances.
Moreover, under the Shareholders Agreement, Ito-Yokado has
provided the Thompsons and certain of the parties to the Shareholders
Agreement (other than participants in the Company's Grant Stock Plan
with respect to shares acquired pursuant to participation in such Grant
Stock Plan) with certain loans (the "Loans") based on the pledge of
shares of Common Stock as collateral for the Loans (the "Collateral
Shares"). Such loans are a nonrecourse obligation of the borrower
except to the extent of the Collateral Shares. Such Collateral Shares
may not be sold unless the Loan secured by such Shares is repaid
simultaneously with such sales.
11
THE WARRANT AGREEMENT. As part of the Plan and the Closing
on March 5, 1991, Thompson Brothers, L.P., The Hayden Company, The
Philp Co., The Williamsburg Corporation and Thompson Capital
Partners, L.P. (collectively, the "Warrant Shareholders") entered into a
Warrant Agreement with Wilmington Trust Company as Warrant Agent,
the Company and Ito-Yokado. Pursuant to the Plan, the Company
agreed to issue, on behalf of the Warrant Shareholders, the Thompson
Warrants exercisable by the holder thereof to purchase up to an
aggregate of 10,214,842 shares of Common Stock owned by the
Warrant Shareholders.
Under the Warrant Agreement, each Thompson Warrant entitles the
holder to purchase, at the exercise price (the "Exercise Price") of $1.75
per Thompson Warrant, one of the underlying common shares, subject
to adjustment as provided in the Warrant Agreement, during the period
beginning three months after the date of the Warrant Agreement and
ending on February 23, 1996. As of March 3, 1995, a total of 5,843,785
Thompson Warrants had been exercised.
Until the termination of the Warrant Agreement, the underlying
common shares will be issued to and held by the Warrant Agent (i) as
trustee for the benefit of the appropriate Warrant Shareholder and the
holders of the Thompson Warrants or (ii) if a secured loan is made
pursuant to the terms of the Shareholders Agreement, as collateral
agent solely on behalf of Ito-Yokado.
Until the termination or expiration of the Warrant Agreement, neither
a Warrant Shareholder nor the Warrant Agent may, among other things,
dispose of or pledge the underlying common shares except in
connection with (i) the exercise of the Thompson Warrants, (ii) a secured
loan to a Warrant Shareholder or (iii) a sale of any pledged underlying
common shares pursuant to, and in accordance with, a Pledge
Agreement (the "Pledge Agreement").
At all times during the term of the Warrant Agreement, all underlying
common shares held by the Warrant Agent as trustee, unless an event
of default shall occur under a Pledge Agreement, shall be voted, on any
matters submitted to the holders of record of Common Stock, in the
same manner as a majority of the votes cast by the holders of record of
the Common Stock other than Ito-Yokado and the Warrant
Shareholders. If an event of default occurs under a Pledge Agreement,
all underlying common shares held as security shall be voted, pursuant
to the terms of such pledge agreement, in accordance with the
instructions of Ito-Yokado.
12
THE EMPLOYMENT AGREEMENTS. As a condition to the Closing,
the Company entered into five-year Employment Agreements with
Messrs. John P. Thompson, Jere W. Thompson and Joe C. (Jodie)
Thompson, Jr. As of December 30, 1992, the Employment Agreement
with Joe C. Thompson, Jr. was terminated and Mr. Thompson was paid
the present discounted value of the remaining balance payable to him
under the Employment Agreement. The Employment Agreements were
effective upon the Closing and provide for an annual base salary of
$600,000 and an annual bonus equal to $360,000 under each
agreement. In addition, under the Employment Agreements the
Thompsons will have such duties and responsibilities as are agreed
upon from time to time by them and the Board. In addition, John P.
Thompson and Jere W. Thompson will participate in employee benefit
plans and arrangements offered to key management employees of the
Company during the term of the agreement. The Employment
Agreements also provide vacation, holidays and expense reimbursement
in accordance with current Company policy. In early 1995, the
Thompsons' Employment Agreements were modified to provide for them
to relinquish their office space in Cityplace but retain certain personal
property used in their offices.
RESEARCH AND DEVELOPMENT
The Company did not incur any significant expenses for product
testing or traditional research and development activities in 1993 or
1994. During 1994, the Company's Strategic Planning Department
conducted certain market research studies, which include concept tests,
consumer preference tests, and tracking of changes in image and store
usage patterns. In addition, the Company's test kitchen spent
approximately $60,000 for new product development and taste testings
and to test equipment used for cooking and displaying food products.
RETAIL AUTOMATION
In December 1993, the Company signed agreements with Electronic
Data Systems Corporation, AT&T Global Information Solutions Company
(formerly NCR Corporation) and Canmax Retail Systems, Inc. for the
automation of certain business functions for both corporate and
franchisee-operated convenience stores and to provide an automated
information link among the stores, Southland's division and accounting
offices and its corporate headquarters. The retail automation project is
expected to be completed in phases over the next four years, and, when
completed, will be specifically designed to provide information about
every important detail of the store's operations and to facilitate inventory
tracking. The first phase, implementation of which began at the end of
1993, provided for the roll out of hardware with application software to
automate certain store accounting functions and other store level tasks.
By year-end 1994, the hardware was installed in about 35% of the
Company's stores.
TRADEMARKS
The Company's 7-Eleven-R- trademark has been registered since
1961 and is well known throughout the United States and in many other
parts of the world. Other trademarks and service marks owned by the
Company include Super-7-R-, Slurpee-R-, Big Gulp-R- and Big Bite-R-, as
well as many additional trade names, marks and slogans relating to
other individual types of food and beverage items. In connection with
the Company's emphasis on the introduction of more fresh food items,
the "Deli Central"-TM- and "World Ovens"-TM- trademarks are being
13
introduced in stores nationwide, along with the "Classic Selection"-TM-
trademark, covering the Company's corporate brand spring water and
soft drink products, and "Cafe Select"-TM-, covering the Company's
gourmet coffees, cappuccino and hot chocolate products. As part of the
collateral securing the Credit Agreement, the Company granted the
lenders a security interest in its various trademarks.
ADVERTISING
During 1994, the Company continued its very successful
"Comedians" campaign, which first aired in December 1993. This
campaign delivered the message of "So many changes it"s not even
funny" and emphasized the store remodeling program and daily
distribution of fresh food items. The Company also utilized several
promotional and seasonal advertising campaigns such as the "Monsters
of the Gridiron" during the football season, the Slurpee Brain Freeze
commercials during the Summer selling season, the Super Bowl Bash
Contest, in which the lucky winner was awarded ten consecutive annual
trips to the Super Bowl, various radio promotions that highlighted specific
promotions for ATMs, fountain soft drinks, gasoline pay-at-the-pump
convenience, hot dogs and the introduction of 7-Eleven's proprietary
phone card, and, beginning in early 1995, promotions that reminded
customers that there are a "hundred ways to start the day" at 7-Eleven.
Advertising to support the introduction of new items was provided
both on television and radio in 1994 and, in 1995, the Company is
planning to continue this advertising and to add a new focus to highlight
the "convenience" aspects of finding fresh food at 7-Eleven rather than
at any of the Company's competitors, such as traditional delis or bakeries.
COMPETITION
During the past few years the Company, like other traditional
convenience retailers, has experienced increased competitive pressures
from supermarkets and drug stores offering extended hours and
services, as well as from an increasing number of convenience-type
stores built by the oil companies. The convenience retailing industry is
also being negatively impacted by demographic factors (such as an
aging population) and an erosion of demand for certain of its traditional
core products, including cigarettes, soft drinks and beer.
The Company's convenience retailing operations represent only a
very small percentage of the highly competitive food retailing industry.
Independent industry sources estimate that in the United States annual
sales in 1993 for the convenience store industry were approximately
$86.3 billion (including $43.9 billion of gasoline) and that over 66,300
store units were in operation. The industry traditionally has narrow net
profit margins. In addition, the Company's stores compete with a
number of national, regional, local and independent retailers, including
grocery and supermarket chains, grocery wholesalers and buying clubs,
other convenience store chains, oil company gasoline/mini-convenience
"g-stores," independent food stores, and fast food chains as well as
variety, drug and candy stores. In sales of gasoline, the Company's
stores compete with other food stores and service stations and generate
only a very small percentage of the gasoline sales in the United States.
Each store's ability to compete is dependent on its location, accessibility
and individual service. Growing competitive pressures from new
participants in the convenience retailing industry and the rapid growth in
numbers of convenience-type stores opened by oil companies over the
past few years have intensified competitive pressures for the Company.
14
Cityplace Center East, the Company's headquarters office building
in Dallas, Texas, is occupied by the Company and other third party
tenants, with the Company having the right to sublease the remaining
space (see "Cityplace," above). During 1994, the Company entered into
subleases with new tenants covering about 281,000 square feet. The
building is now approximately 97% leased or reserved for expansion
under current leases. In seeking tenants, this project competes with
other downtown, Oak Lawn, North Dallas and North Central Expressway
luxury office space developments. The Dallas real estate market
currently has many office and retail sites available for lease. It is
anticipated that competition for tenants will remain strong in the Dallas
commercial real estate market.
ENVIRONMENTAL MATTERS
The operations of the Company are subject to various federal, state
and local laws and regulations relating to the environment. Certain of
the more significant federal laws are described below. The
implementation of these laws by the United States Environmental
Protection Agency ("EPA") and the states will continue to affect the
Company's operations by imposing increased operating and
maintenance costs and capital expenditures required for compliance.
Additionally, the procedural provisions of these laws can result in
increased lead times and costs for new facilities.
The Resource Conservation and Recovery Act ("RCRA") of 1976, as
amended, affects the Company through its substantial reporting,
recordkeeping and waste management requirements. In addition,
standards for underground fuel storage tanks and associated equipment
may increase operating expenses and the costs of marketing petroleum
products. In response to this legislation, and various state and local
regulations, the Company has developed a comprehensive tank and
associated equipment management program that established
procedures for tank testing, repair and corrective action.
The Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), as amended, creates the potential for
substantial liability for the costs of study and clean-up of waste disposal
sites and includes various reporting requirements. This Act may result in
joint and several liability even for parties not primarily responsible for
hazardous waste disposal sites. As a consequence of past waste disposal, the
Company may be potentially liable for cleanup costs at several sites
which are being considered or which may be considered for federal
clean-up action under CERCLA. Additional requirements imposed by
the Superfund Amendments and Reauthorization Act of 1986 also have
resulted in additional reporting duties.
Violation of any federal environmental statutes or regulations or
orders issued thereunder, as well as relevant state and local laws and
regulations, could result in civil or criminal enforcement actions.
CURRENT ENVIRONMENTAL PROJECTS AND PROCEEDINGS.
As previously reported, in December 1988, the Company closed its
chemical manufacturing facility in Great Meadows, New Jersey ("Great
Meadows"). The Company had previously been issued an
Administrative Consent Order relating to groundwater conditions at this
facility by the New Jersey Department of Environmental Protection
("NJDEP"). The Administrative Consent Order required the Company to
15
pay a civil penalty of $50,000, to conduct a remedial
investigation/feasibility study ("RI/FS") and to provide financial assurance
for the ultimate clean-up.
The Company has submitted a proposed clean-up plan to the
NJDEP, which provides for remediation at the site for an approximate
three- to five-year period as well as continued groundwater treatment for
a projected 20-year period. While the Company has received initial
comments from the NJDEP, a final clean-up plan has not been finalized.
At December 31, 1994, the Company's recorded liability is $39.3 million,
which represents its best estimate of the clean-up and treatment costs to
be incurred. Some remedial actions have commenced.
As previously reported, the Company filed suit in the United States
District Court for the District of New Jersey against a large chemical
company that formerly owned the Great Meadows property. In 1991, the
parties executed a final settlement agreement pursuant to which the
former owner agreed to pay a substantial portion of the cleanup costs
described above. The Company has recorded a receivable of $23.0
million, at year-end 1994, representing the former owner's portion of the
accrued clean-up costs.
As of December 31, 1994, the Company had approximately 2,000
operating retail outlets involved in the sale of gasoline and other motor
fuels. In the ordinary course of business, the Company occasionally
discovers and repairs leaks in the underground storage tanks and piping
systems associated with these retail outlets. The Company has
established a comprehensive program to manage underground storage
tanks and associated equipment and to ensure compliance with
applicable laws.
The Company anticipates that it will spend approximately $14 million
in 1995 on capital improvements required to comply with environmental
regulations relating to below-ground gasoline storage tank systems as
well as above-ground vapor recovery equipment at store locations and
approximately an additional $25 million on such capital improvements
from 1996 through 1998.
Additionally, the Company accrues for the anticipated future costs of
environmental clean-up activities (consisting of contamination
assessment and remediation) relating to detected releases of regulated
substances at its existing and previously operated sites at which
gasoline has been sold (including store sites and other facilities that
have been sold by the Company). At December 31, 1994, the Company
has an accrued liability of $63.4 million for such activities and anticipates
that all such expenditures will be incurred within the next five years. This
estimate is based on the Company's prior experience with gasoline sites
and its analysis of such factors as the age of the tanks, location of tank
sites and experience with contractors who perform contamination
assessment and remedial work.
The Company is eligible to receive reimbursement for a large portion
of these remediation costs under state reimbursement programs and has
recorded a gross receivable of $76.1 million (a net receivable of $57.2
million after an allowance of $18.9 million) for the estimated probable
state reimbursement of paid and accrued assessment and remediation
expenses. The Company reduced the estimated net environmental cost
reimbursements at the end of 1994 by approximately $6.0 million as a
result of the Company's ongoing review of state reimbursement
programs. There is no assurance of the timing of the receipt of state
reimbursement funds; however, based on its experience, the Company
expects to receive state reimbursement funds within one to four years
16
after incurring eligible assessment and remediation expenses, assuming
that the state administrative procedures for processing such
reimbursements have been fully developed. The estimated future
remediation expenditures and related state reimbursement amounts
could change as governmental requirements and state reimbursement
programs change in future years.
In general, the Company's capital expenditures for environmental
matters will continue to be affected by federal, state and local
environmental laws and regulations. It is possible that future
environmental requirements may be more stringent than current
requirements, thereby requiring additional expenditures. As described
above, the Company also anticipates future maintenance expenditures
in connection with environmental requirements relating to continuing
upkeep of gasoline storage tank systems at store locations.
EMPLOYEES
At December 31, 1994, the Company had 30,417 employees, of
whom approximately 29 percent were considered to be either temporary
or part-time employees. None of the Company's employees were
subject to collective bargaining agreements at year-end, although a few
employees in one store in Canada have joined a union.
The Company has in the past been able to satisfy substantially all of
its requirements for managerial personnel from within its organization.
The Company's store managers and supervisory staff personnel are
compensated on some form of incentive basis.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and offices with the registrant of all
current executive officers of the Company are shown in the following
chart. The term of office of each executive officer is at the pleasure of
the board of directors. The business experience of each such executive officer
for at least the last five years, and the period during which he or she served
in office, as well as the date each was employed by the Company, are reflected
in the applicable footnotes to the chart. All executive officers of Southland
named herein (other than Mr. Ito and Mr. Suzuki) were officers or
employees of the Company at the time Southland filed its voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code, as
described above.
<TABLE>
<CAPTION>
AGE AT
NAME 3/01/95 CURRENT POSITIONS AND OFFICES WITH REGISTRANT
--------------------- ------- --------------------------------------------------------
<S> <C> <C>
Masatoshi Ito 70 Chairman of the Board and Director (1)
Toshifumi Suzuki 62 Vice Chairman of the Board and Director (2)
Clark J. Matthews, II 58 President, Chief Executive Officer and Director (3)
Stephen B. Krumholz 45 Executive Vice President and Chief Operating Officer (4)
Rodney A. Brehm 47 Senior Vice President, Distribution and Foodservice (5)
James W. Keyes 39 Senior Vice President, Finance (6)
Paul L. Bureau, Jr. 53 Vice President, Corporate Tax (7)
Adrian O. Evans 58 Vice President, Construction and Maintenance (8)
David M. Finley 54 Vice President, Human Resources (9)
Stephen B. LeRoy 42 Vice President, International and Real Estate (10)
Vernon P. Lotman 55 Vice President and Controller (11)
Bryan F. Smith, Jr. 42 Vice President and General Counsel (12)
David A. Urbel 53 Vice President, Planning and Treasurer (13)
</TABLE>
________________________
17
(1) Chairman of the Board and Director of the Company since
March 5, 1991. Founder, Director and Advisor of Ito-Yokado Group,
which includes Ito-Yokado Co., Ltd., Seven-Eleven Japan Co., Ltd. and
Denny's Japan Co., Ltd., as well as other companies. Ito-Yokado Co.,
Ltd. is one of Japan's leading diversified retailing companies which,
together with its subsidiaries and affiliates, operates superstores,
convenience stores, department stores, supermarkets, specialty shops
and discount stores. President of Ito-Yokado Co., Ltd. from 1958 to
1992. Chairman of Seven-Eleven Japan Co., Ltd. from 1978 to 1992,
and President from 1973 to 1978. Chairman of Denny's Japan Co., Ltd.
from 1981 to 1992, and President from 1973 to 1981. Chairman of
Famil Co., Ltd. since 1979. Chairman of York Mart Co., Ltd. since 1979.
President of York Matsuzakaya Co., Ltd. since 1979. President of
Robinson's Japan Co., Ltd. since 1984. Chairman of Maryann Co., Ltd.
since 1977. President of Oshman's Japan Co., Ltd. since 1984.
Chairman of Steps Co., Ltd. since 1981. Chairman of York-Keibi Co.,
Ltd. since 1977. President of Union Lease Co., Ltd. since 1975.
Statutory Auditor of Daikuma Co., Ltd. since 1982. Chairman of Marudai
Co., Ltd. since 1989. Director of Seven-Eleven (Hawaii), Inc. since
1989. Chairman of Umeya Co., Ltd. since 1977. Director of Shop
America Limited since 1990. Director and Chairman of the Board of IYG
Holding Company since 1990.
(2) Vice Chairman of the Board and Director of the Company since
March 5, 1991. President and Chief Executive Officer of Ito-Yokado Co.,
Ltd., one of Japan's leading diversified retailing companies which,
together with its subsidiaries and affiliates, operates superstores,
convenience stores, department stores, supermarkets, specialty shops
and discount stores, since October 1992 and Director since 1971;
Executive Vice President from 1985 to 1992; Senior Managing Director
from 1983 to 1985; Managing Director from 1977 to 1983; employee
since 1963. Chairman of the Board and Chief Executive Officer of
Seven-Eleven Japan Co., Ltd. since October 1992 and Director since
1973; President from 1975 to 1992; Senior Managing Director from 1973
to 1975. Statutory Auditor of Robinson's Japan Co., Ltd. since 1984.
Chairman of Daikuma Co., Ltd. since 1978. President of Seven-Eleven
(Hawaii), Inc. since 1989. President of Shop America Limited since
1990. President and Director of IYG Holding Company since 1990.
(3) Director since March 5, 1991, and from 1981 until December 15,
1987; President and Chief Executive Officer since March 5, 1991;
Executive Vice President (or Senior Executive Vice President) and Chief
Financial Officer from 1979 to 1991; Vice President and General
Counsel from 1973 to 1979; employee of the Company since 1965.
(4) Executive Vice President and Chief Operating Officer since
June 1993; Senior Vice President, Operations, from August 1992 to
June 1993. Senior Vice President, 7-Eleven Stores Operations, from
1990 to August 1992; Vice President, Marketing, from 1989 to 1990;
Vice President, Northern Region, 7-Eleven Stores, from January 1989 to
October 1989; Vice President, Northwest Region, 7-Eleven Stores, from
1987 to 1988; Division Manager, Mountain Division, 7-Eleven Stores,
from 1986 to 1987; Regional Marketing Manager from 1981 to 1986;
employee of the Company since 1972.
(5) Senior Vice President, Distribution and Foodservice, since June
1993; Vice President, Merchandising, from February 1992 to June 1993;
Vice President, Marketing, from 1990 to 1992; Vice President, Northwest
Region, 7-Eleven Stores, from 1989 to 1990; National Marketing
Manager from 1986 to 1989; Division Manager, Central Pacific Division,
7-Eleven Stores, from 1979 to 1986; employee of the Company since
1972.
18
(6) Senior Vice President, Finance, since June 1993; Vice
President, Planning and Finance, from August 1992 to June 1, 1993;
Vice President and/or Vice President, National Gasoline, from August
1991 to August 1992; General Manager, National Gasoline, from 1986 to
1991; employee of the Company since 1985.
(7) Vice President, Corporate Tax, since May 1993; Corporate Tax
Manager from March 1983 to May 1993. Partner, Touche Ross & Co.,
from 1978 to 1983; employee of the Company since 1983.
(8) Vice President, Construction and Maintenance, since August
1992. Vice President, Stores Development, from January 1989 to
August 1992; Vice President, Mid-America Region, 7-Eleven Stores,
from 1987 to 1988; Vice President, Central Stores Region, from 1980 to
1987; Central Stores Regional Manager from 1978 to 1980; Division
Manager, Canada, from 1976 to 1978; employee of the Company from
1962 to 1972 and since 1975.
(9) Vice President, Human Resources, since December 1987;
Manager, Stores Human Resources, January 1987 to December 1987;
Manager, Organizational Research & Development, from 1985 to 1987;
Department Manager, Organizational Research and Development, from
1984 to 1985; Manager, Organizational Research and Development,
from 1982 to 1984; employee of the Company since 1977.
(10) Vice President, International and Real Estate, since May 1,
1994; Vice President Real Estate and Licensed Operations, from August
1992 until May 1994; Vice President, Atlantic Region, 7-Eleven Stores,
from 1990 to 1992; Vice President, Chesapeake Region, 7-Eleven
Stores, from 1987 to 1990; Regional Manager, Chesapeake Stores
Region, in 1987; Division Manager, Capitol Stores Division, from 1986 to
1987; Division Manager, Great Lakes Stores Division, from 1984 to
1986; Operations Manager, Great Lakes Stores Division, from 1981 to
1984; employee of the Company since 1975.
(11) Vice President since April 1992. Controller since December
1987; Assistant Corporate Controller from 1977 to 1987; employee of the
Company since 1973.
(12) Vice President and General Counsel since August 1992.
Assistant General Counsel from January 1990 to July 1992; Associate
General Counsel from January 1987 to December 1989; employee of
the Company since 1980.
(13) Vice President, Planning and Treasurer since August 1992;
Vice President since April 1992 and Treasurer since December 16,
1987; Deputy Treasurer from 1984 to 1987; Assistant Treasurer from
1983 to 1984; employee of the Company since 1970.
FORMER OFFICERS.
The names, ages, positions and offices formerly held with the
registrant and the business experience for at least the five years
preceding their departure from Southland of all persons who served as
officers of the Company during 1994 but who no longer serve as such
are shown below. Also shown for each such person is the period during
which he or she served in his or her office, as reflected in the footnotes
to the following chart.
19
<TABLE>
<CAPTION>
NAME AGE AT 3/01/95
------------------- --------------
<S> <C>
John H. Rodgers (1) 51
Michael K. Roemer (2) 46
Cecilia S. Norwood (3) 41
</TABLE>
(1) Executive Vice President from June 1993, Chief Administrative
Officer from 1991 and Secretary of the Company from 1987 until
February 1995; Senior Vice President from 1987 to June 1993; General
Counsel from 1979 to 1992; Vice President from 1980 to 1987;
employee of the Company from 1973 to 1995.
(2) Senior Vice President, Merchandising, from June 1993 until
February 1995; Vice President, Line Management, from August 1992 to
June 1993. Vice President, Central Region, 7-Eleven Stores, from
October 1990 to August 1992; Vice President, Northeast Region or
Eastern Region, 7-Eleven Stores, from 1987 to 1990; Division Manager,
Northeast Stores Region, from 1984 to 1987; Vice President, Retail
Marketing, of Citgo Petroleum Corporation from 1983 to 1984; Marketing
Manager, Eastern Stores Region, 7-Eleven Stores, from 1981 to 1983;
employee of the Company from 1966 to 1995.
(3) Vice President, Corporate Communications, from August 1991
until July 1994; Manager, Corporate Communications, from 1989 to
1991; employee of the Company from 1982 to 1994.
20
ITEM 2. PROPERTIES
Under the Credit Agreement, virtually all the Company's assets, not
previously subject to liens, are encumbered, including both tangible and
intangible property rights, as well as stock in the Company's non-foreign
subsidiaries, where such encumbrance is not otherwise prohibited. As of
December 31, 1994, there were approximately 3,898 operating 7-Eleven
stores, 182 non-operating stores and 13 other properties throughout the
United States subject to mortgages (including both owned and leased
properties). The lien against the Company's ownership or leasehold interest
in any property will be released, with the consent of the Company's Senior
Lenders, if the Company sells the property, the lease to the Company
terminates or upon payment by the Company of the amounts due under the
Credit Agreement.
OPERATING AND FRANCHISING OF CONVENIENCE FOOD STORES
7-ELEVEN. At the end of 1994, the 7-Eleven stores group utilizes 93
offices in 21 states and Canada. The following table shows the location and
number of the Company's 7-Eleven convenience stores (excluding stores
under area licenses and of certain affiliates) in operation on December 31,
1994.
<TABLE>
<CAPTION>
STATE/PROVINCE OPERATING 7-ELEVEN CONVENIENCE STORES
OWNED LEASED(A) TOTAL
<S> <C> <C> <C>
U.S.
Arizona 40 57 97
California 227 966 1,193
Colorado 60 184 244
Connecticut 7 32 39
Delaware 10 17 27
District of Columbia 4 14 18
Florida 240 207 447
Idaho 6 8 14
Illinois 50 91 141
Indiana 6 10 16
Kansas 7 11 18
Maryland 96 231 327
Massachusetts 10 24 34
Michigan 51 47 98
Missouri 35 52 87
Nevada 87 100 187
New Hampshire 1 7 8
New Jersey 74 129 203
New York(b) 43 179 222
North Carolina 2 5 7
Ohio 10 5 15
Oregon 38 99 137
Pennsylvania 59 110 169
Rhode Island 0 9 9
Texas 110 195 305
Utah 37 81 118
Virginia 194 428 622
Washington 62 191 253
West Virginia 11 14 25
Canada (b)
Alberta 19 103 122
Manitoba 13 39 52
Ontario 30 84 114
British Columbia 21 115 136
Saskatchewan 14 23 37
----- ----- -----
Total 1,674 3,867 5,541
===== ===== =====
</TABLE>
21
(a) Of the 7-Eleven convenience stores set forth in the foregoing
table, 818 are leased by the Company from The Southland Corporation Employees'
Savings and Profit Sharing Plan (the "Savings and Profit Sharing Plan"). As
of year-end 1994, the Company also leased one location under construction and
81 closed convenience stores or office locations from the Savings and Profit
Sharing Plan.
(b) The above numbers include 17 stores in Canada that operate
under a management contract and five stores in New York operating under a new
franchise agreement ("Genesis"), one of which has subsequently closed. The
Company has no interest in the real property on which those stores are located.
OTHER RETAIL. As shown in the following table, at year-end 1994, the
Company operated 48 Quik Mart stores in Illinois, Indiana, Maryland,
Massachusetts, Missouri, New Hampshire, Texas, Virginia and Wisconsin
and 38 High's Dairy Stores located in Maryland, Virginia, Pennsylvania and
West Virginia. As of December 31, 1994, the Company also operated three
Super-7 gasoline stations in California, which are all owned by the Company.
The following table shows the location and number of the Company's
Quik Mart, High's and Super-7 locations in operation on December 31, 1994.
<TABLE>
<CAPTION>
OPERATING OTHER RETAIL LOCATIONS
STATE OWNED LEASED TOTAL
<S> <C> <C> <C>
California 3 0 3
Illinois 10 0 10
Indiana 3 1 4
Maryland 1 18 19
Massachusetts 2 0 2
Missouri 2 0 2
New Hampshire 2 1 3
Pennsylvania 0 5 5
Texas 3 0 3
Virginia 7 10 17
West Virginia 0 4 4
Wisconsin 17 0 17
-- -- --
Total 50 39 89
== == ==
</TABLE>
OTHER INFORMATION ABOUT PROPERTIES AND LEASES. At December 31, 1994,
there were four 7-Eleven stores in various stages of construction (on property
leased by the Company), and the Company owned 19, and had leases on 9,
undeveloped convenience store sites. In addition, the Company held 183
7-Eleven, High's and Quik Mart properties available for sale consisting of 100
unimproved parcels of land, 65 closed store locations and 18 parcels of excess
property adjoining store locations. At December 31, 1994, 43 of these
properties were under contract for sale.
On December 31, 1994, the Company held leases on 504 closed store or
other non-operating facilities, 78 of which were leased from the Savings and
Profit Sharing Plan. Of these, 357 were subleased to outside parties.
Generally, the Company's store leases are for primary terms of from 14
to 20 years, with options to renew for additional periods. Many leases
contain provisions granting the Company a right of first refusal in the event
the lessor decides to sell the property. Many of the Company's store leases,
in addition to minimum annual rentals, provide for percentage rentals based
upon gross sales in excess of a specified amount and for payment of taxes,
insurance and maintenance.
22
OTHER PROPERTIES. The Company leases a 10,700-square-foot satellite
commissary constructed in 1991 in Austin, Texas, for fresh deli-style food
preparation and distribution. The Company also leases 102,000-square-feet of
office/warehouse space and an additional 43,600-square-feet of land in Denver,
Colorado, for a regional equipment warehouse and service center.
The Company owns residual property from its distribution and food
processing operations that were divested in late 1992 and plans to dispose of
the following properties: (1) a five-acre tract of land in Delanco, New
Jersey, on which is located a 19,000-square-foot branch distribution facility
and (2) a 21.5-acre tract of land in Salt Lake City, Utah, on which is located
a leased 77,000-square-foot food processing plant (which includes 6,930 square
feet of office space). The Salt Lake City, Utah, location is currently
subleased to McLane on an interim basis and the Company intends to dispose of
the facility in 1995.
The Company also owns a 287-acre tract in Great Meadows, New Jersey,
with a closed chemical plant, a part of which is currently involved in
environmental clean-up. (See "Current Environmental Projects and Proceedings,"
pages 15 through 17, above.)
CORPORATE
The Company's corporate office headquarters is in Dallas, Texas in a 42-
story office building, known as Cityplace Center East. The Company's lease
covers the entire Cityplace Tower, but gives the Company the right to
sublease to other parties. As of early 1995, subleases had been signed with
third parties so that (including the space leased by Southland) the building is
97% leased or reserved for expansion under current leases. The Company
currently utilizes other office space in and around Dallas (although most
corporate office space is consolidated in Cityplace Center East). The
Company also holds tracts in Dallas, Texas, not included in Cityplace, totaling
about 30 acres.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, on October 24, 1990, the Company filed a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in
the U.S. Bankruptcy Court for the Northern District of Texas, Dallas Division,
Case No. 390-37119-HCA-11. The Company's Plan of Reorganization was
confirmed by the Court on February 21, 1991. Subsequent to the Company's
bankruptcy filing, the Company's senior lenders under the Credit Agreement
filed a proof of claim demanding, among other things, default interest, as a
result of the Company's failure to make an interest payment due June 15,
1990. The Bankruptcy Court issued its opinion, on March 17, 1992, awarding
approximately $12.2 million in additional interest to the Credit Agreement
Banks. The Company has appealed this decision but recognized the
approximately $12.2 million of additional interest expense in its financial
statements for 1991. There were no material developments in this matter in
1994. However, during 1994 and in connection with the amendment of the
Credit Agreement, the Company and the Old Senior Lenders negotiated an
out-of-court arrangement whereby a letter of credit was issued for the
account of the Company to provide to the Old Senior Lenders assurance of
payment of such additional interest expense if the Old Senior Lenders are
successful in the appeal.
23
As previously reported, on September 23, 1993, the Company was
served with a Summons and Complaint in a purported class action lawsuit
entitled 7-Eleven Owners for Fair Franchising, et, al. v. The Southland
Corporation, et al., Case No. 722272-6, in the Superior Court for Alameda
County, California. Also named as defendants in the Complaint are
Southland's majority owners and approximately 16 vendors who supply
goods to 7-Eleven franchisees in the State of California. The named
plaintiffs purportedly represent all current 7-Eleven franchisees in the State
of California and all former 7-Eleven franchisees in the State of California
for the past six years. The Complaint alleges a variety of violations of
California state antitrust laws, breaches of contract and other claims relating
to discounts and allowances, vendor-supplied equipment, Southland's accelerated
inventory management program and the 24-hour operation of 7-Eleven stores.
Discovery in this matter is proceeding. The Company intends to contest the
certification of a class in this litigation and to defend vigorously against
all of the plaintiffs' allegations.
On August 17, 1990, the Superior Court for Alameda County, California
approved the settlement of a class action suit filed against the Company.
The suit was consolidated under the title Market Franchise Cases (Jud.
Council Dkt. No. 387). The plaintiff class consisted of all persons who owned
7-Eleven franchises in California at any time from May 24, 1973, to June 15,
1990. To date, the Company has made settlement payments and credits
(including attorneys' fees and litigation expenses awarded to class counsel)
totalling $16.5 million. Class members' claims totalling less than $50,000
remain to be resolved.
On June 11, 1993, the Company filed a lawsuit in the United States
District Court for the Northern District of Texas, Dallas Division, against
Occidental Petroleum Corporation and OXY Oil and Gas USA, Inc. ("OXY"),
seeking damages pursuant to contractual indemnification provisions for
present and future expenses that have been incurred (or are anticipated) by
the Company associated with pre-existing environmental conditions at Quik
Mart locations which the Company acquired from OXY in 1983. The lawsuit
is still in the discovery phase and the Company is diligently prosecuting its
claim.
In the second quarter of 1994, Southland was served with a lawsuit
(which was subsequently amended in July 1994) entitled Emil V. Sparano, et
al., Plaintiffs, v. The Southland Corporation, a Texas corporation, IYG
Holding Company, a Delaware corporation, Ito-Yokado, Ltd., a foreign
corporation, Seven-Eleven Japan Co., Ltd., a foreign corporation, John P.
Thompson, Jere W. Thompson, Joe C. (a/k/a "Jodie") Thompson, Jr., Clark J.
Matthews, II, Walton Grayson, III, John H. Rodgers, and Frank Gangi,
Defendants, Case No. 94 C 2098, in the U.S. District Court for the Northern
District of Illinois. The plaintiffs, several current or former 7-Eleven
franchisees, seek to represent a class, purportedly consisting of all persons
or entities who owned one or more 7-Eleven convenience store franchises
since 1987.
Of the named defendants, Clark J. Matthews, II is a current officer and
director of the Company; John H. Rodgers, Walton Grayson, III and Frank
Gangi are former officers of the Company, and Mr. Grayson is also a former
director; John P. Thompson and Jere W. Thompson have been directors both
prior to, and at all times since, 1987; Joe C. Thompson is a former director of
the Company (hereafter John P. Thompson, Jere W. Thompson and Joe C.
Thompson, Jr., collectively, the "Thompsons"); IYG Holding Company holds
approximately 64% of the shares of the Company and is a jointly owned
subsidiary of Ito-Yokado Co., Ltd. and Seven-Eleven Japan Co., Ltd.
24
The second amended complaint alleges that, starting with the leveraged
buyout of Southland in 1987, and continuing until the present time, Southland
has breached its contractual obligations to 7-Eleven franchisees under the 7-
Eleven Franchise Agreements by failing to spend adequate sums of money
for advertising and other services and for maintaining and remodeling 7-
Eleven stores and the equipment therein. In addition to alleging breach of
contract, the second amended complaint includes claims against Southland
for alleged breach of fiduciary duty, breach of an alleged covenant of good
faith and fair dealing, fraudulent conveyance of corporate assets, fraudulent
misrepresentations, conversion and unjust enrichment. Additional claims
have been asserted against the individual defendants for alleged breach of
fiduciary duty and breach of duties of competence, due care and loyalty. The
second amended complaint requests damages, interest, costs and attorneys'
fees "in excess of $1 billion."
Southland has filed a motion to dismiss all claims asserted against it,
except the breach of contract claim. The individual defendants and the
foreign companies have filed motions to dismiss for lack of personal
jurisdiction and for failure to state any claims upon which relief could be
granted. None of these motions have been decided by the court, and the
court has not yet decided whether the case will be permitted to proceed as a
class action.
Southland intends to contest plaintiffs' effort to prosecute the
lawsuit as a class action, and it also intends to defend vigorously all of the
claims on the merits. Southland believes that it has meritorious defenses to
each of the claims.
Information concerning other legal proceedings is incorporated herein
from "Environmental Matters," pages 15 through 17, above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1994.
25
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER
MATTERS
The Company's Common Stock, $.0001 par value per share, is the only
class of common equity of the Company and represents the only voting securities
of the Company. There are 409,922,935 shares of Common Stock issued and
outstanding and, as of March 3, 1995, there were 3,060 record holders of the
Common Stock. The Company's Common Stock is traded on the NASDAQ Small-Cap
Market.
<TABLE>
<CAPTION>
PRICE RANGE
QUARTERS BID ASK
1993 (A) HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First $3 1/2 $2 31/32 $3 9/16 $3 1/16
Second 5 1/2 3 1/2 5 19/32 3 9/16
Third 6 1/16 4 1/4 6 1/8 4 3/8
Fourth 7 5/8 5 5/16 7 11/16 5 3/8
<CAPTION>
PRICE RANGE
QUARTERS BID ASK
1994 (A) HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First $6 11/16 $3 13/16 $6 3/4 $3 15/16
Second 6 3/16 3 7/8 6 1/4 3 15/16
Third 6 9/32 4 1/2 6 3/8 4 5/8
Fourth 5 3/4 4 1/4 5 13/16 4 3/8
</TABLE>
(a) These quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
The indentures governing the Company's outstanding debt securities do
not permit the payment of cash dividends except in limited circumstances.
The Credit Agreement also restricts the Company's ability to pay cash
dividends on the Common Stock.
Under Texas law, cash dividends may only be paid (a) out of the surplus
of a corporation, which is defined as the excess of the total value of the
corporation's assets over the sum of its debt, the par value of its stock and
the consideration fixed by the corporation's board of directors for stock
without par value, and (b) only if, after giving effect thereto, the corporation
would not be insolvent, which is defined to mean the inability of a corporation
to pay its debts as they become due in the usual course. Surplus may be
determined by a corporation's board of directors by, among other things, the
corporation's financial statements or by a fair valuation or information from
any other method that is reasonable in the circumstances. No assurances
can be given that the Company will have sufficient surplus to pay any cash
dividends even if the payment thereof is not otherwise restricted.
26
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
<CAPTION>
Years Ended December 31
--------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ------------ ------------ ----------- -----------
(Dollars in Millions, Except Per-Share Data)
<S> <C> <C> <C> <C> <C>
Net sales ....................................... $6,684.5 $6,744.3 $7,425.8 $8,009.5 $8,347.7
Other income .................................... 75.3 69.9 73.6 73.8 60.1
Total revenues .................................. 6,759.8 6,814.2 7,499.4 8,083.3 8,407.8
LIFO charge (credit) ............................ 3.0 (8.7) 1.5 (7.2) 27.9
Depreciation and amortization ................... 162.7 154.4 180.3 200.1 227.6
Interest expense ................................ 108.6 (a) 94.6 (a) 123.6 (a) 189.3 (a) 459.5
Earnings (loss) before income taxes,
extraordinary items and cumulative effect
of accounting changes ......................... 73.5 (2.6) (119.9)(d) (66.3) (430.0)(f)
Income taxes (benefit) .......................... (18.5)(b) 8.7 11.5 8.0 (128.5)
Earnings (loss) before extraordinary items
and cumulative effect of accounting changes ... 92.0 (11.3) (131.4) (74.3)
(301.5)
Net earnings (loss) ............................. 92.0 71.2 (c) (131.4) 82.5 (e) (276.6)(g)
Earnings (loss) per common share
(primary and fully diluted):
Before extraordinary items and
cumulative effect of accounting
changes ................................. 0.22 (0.03) (0.32) (0.22) (15.14)
Net earnings (loss) applicable to
common shares ........................... 0.22 0.17 (0.32) 0.24 (13.93)
Total assets .................................... 2,000.6 1,990.0 2,039.7 2,607.7 2,813.6
Long-term debt, including current portion ....... 2,351.2 (a) 2,419.9 (a) 2,560.4 (a) 3,037.1 (a)
3,705.2
Redeemable preferred stock ...................... - - - - 148.5
------------------------
(a)The Notes and Debentures are accounted for in accordance with SFAS No. 15 as explained in Note 9 to
the
Consolidated Financial Statements.
(b)Income taxes (benefit) includes a $30,000,000 tax benefit from recognition of a portion of the
Company's net
deferred tax assets as explained in Note 15 to the Consolidated Financial Statements.
(c)Net earnings include an extraordinary gain of $98,968,000 on debt redemption and a charge for the
cumulative
effect of an accounting change for postemployment benefits of $16,537,000 as explained in Notes 9 and
13 to the
Consolidated Financial Statements, respectively.
(d)Loss before income taxes. extraordinary items and cumulative effect of accounting changes includes a
$45,000,000 loss on the
sale and closing of the distribution and food centers as explained in Note 6 to the Consolidated
Financial Statements.
(e)Net earnings include an extraordinary gain on debt restructuring of $156,824,000 .
(f)Loss before income taxes, extraordinary items and cumulative effect of accounting changes reflects a
loss of $41,000,000
on Cityplace assets sold.
(g)Net loss includes an extraordinary tax benefit from utilization of net operating loss carryforwards of
$52,040,000
and a charge for the cumulative effect of an accounting change for postretirement benefits of
$27,163,000.
</TABLE>
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SUMMARY OF RESULTS OF OPERATIONS
The Company's net earnings for 1994 were $92.0 million, compared
to net earnings of $71.2 million in 1993 and a net loss of $131.4 million in
1992. The Company showed marked improvement in its earnings before
income taxes, extraordinary gain and cumulative effect of accounting change as
reflected below:
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------
1994 1993 1992
---- ---- ----
(Dollars in Millions, Except Per-Share Data)
<S> <C> <C> <C>
Earnings (loss) before income taxes,
extraordinary gain and cumulative
effect of accounting change $ 73.5 $ (2.6) $ (119.9)
Income tax (expense) benefit 18.5 (8.7) (11.5)
Extraordinary gain from redemption of
the Company's 12% Senior Notes
(refinanced in August 1993) 99.0
Cumulative effect of accounting
change for postemployment benefits (16.5)
--------- --------- ----------
Net earnings (loss) $ 92.0 $ 71.2 $ (131.4)
========= ========= ==========
Earnings (loss) per common share
(primary and fully diluted) $ .22 $ .17 $ (.32)
========= ========= ==========
</TABLE>
Each years' results included a number of special or unusual items which
included among other things:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C>
Loss for store closings
and dispositions of properties $ (3.7) $ (48.2) $ (44.3)
Severance and related costs (7.4) (7.2) (17.5)
Deferred income tax benefit 30.0
Disposition of Citijet, a fixed-base
operation at Dallas Love Field Airport (10.8)
Loss on the sale and closing of
the Company's distribution and food
processing centers (45.0)
</TABLE>
In addition to the special and unusual items noted above, the Company's
improvement in 1994 earnings was primarily due to savings in selling, general
and administrative expenses, offset by lower merchandise gross profit due to
fewer stores. Although merchandise gross profit declined in total, merchandise
sales and gross profits per store were favorable in 1994 compared to 1993 and
1992 and have been improving each quarter during 1994 over 1993.
(EXCEPT WHERE NOTED, ALL PER-STORE NUMBERS BELOW REFER TO AN AVERAGE OF
ALL
STORES RATHER THAN ONLY STORES OPEN MORE THAN ONE YEAR)
28
SALES
The Company recorded net sales of $6.68 billion for the year ended
December 31, 1994, compared to sales of $6.74 billion in 1993 and $7.43
billion in 1992. The 1994 sales decline is primarily the result of fewer
convenience stores due to closures (see Management Strategies). Sales also
declined in 1993 and 1992, primarily due to fewer stores, lower same-store
(stores open more than one year) merchandise sales and the September 1992
disposition of the Company's distribution and food center assets (see Liquidity
and Capital Resources-Other). Merchandise sales for 1994 and 1993 were also
affected by the deflationary effect of cigarette price reductions (on certain
premium brands) associated with manufacturers' cost reductions starting in
August 1993. Merchandise sales increases or (decreases) as compared to the
prior year and inflation information is detailed below:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Same-store sales 2.0 % (2.7)% (3.9)%
Same-store real growth;
excluding inflation/(deflation) 2.8 % (4.7)% (5.6)%
7-Eleven inflation/(deflation) (.7)% 2.2 % 1.9 %
</TABLE>
Until 1994, same-store merchandise sales real growth (adjusted to
exclude inflation) had declined since early 1989 primarily due to competitive
pressures. This negative trend began to reverse in 1993, and in 1994 the
Company achieved its first full year of same-store real growth in merchandise
sales since 1988. The 1994 results also reflect the first four consecutive
quarters of positive same-store merchandise sales growth (including the effects
of deflation or inflation) since the third quarter of 1990. The Company
believes the improvement is a result of its new merchandising processes,
everyday-fair-pricing and store-remodeling strategies (see Management
Strategies).
Gasoline sales dollars per store increased 8.7%, 9.1% and 6.5% in
1994, 1993 and 1992, respectively. This increase is primarily due to per store
gallonage improvement of 7.8% in 1994, 11.1% in 1993 and 6.3% in 1992.
This continuing improvement reflects favorable market conditions, as well as
the impact of several successful business strategies: ongoing remodeling to
enhance the appeal and convenience of the Company's gas facilities; promoting
the high quality of CITGO-brand gasoline; the closing of low-volume
locations; and managing gasoline prices, inventories and product mix on a by-
store basis.
<TABLE>
SOUTHLAND CONVENIENCE STORE SALES BY CATEGORY
<CAPTION>
(Percentages are estimates based on purchases)
PRODUCT CATEGORIES 1994
------------------ ------
<S> <C>
Gasoline 24.2%
Tobacco Products 17.2
Beer/Wine 9.4
Soft Drinks (includes Slurpee -R-) 8.8
Groceries 9.6
Food Service (includes coffee) 8.5
Non-Foods 6.2
Dairy Products 4.6
Candy 3.8
Baked Goods 3.6
Customer Services (includes lottery gross profits) 2.4
Health/Beauty Aids 1.7
------
Total 100.0%
======
</TABLE>
29
MANAGEMENT STRATEGIES
Since 1992, the Company has been committed to several key
strategies that it believes, over the long term, will further differentiate it
from its competitors and allow 7-Eleven to maintain its position as the premier
convenience store chain in the industry. These strategies include: the extensive
remodeling of its store base; a customer-driven approach to product selection;
an everyday-fair-pricing policy on all items; the daily delivery of fresh
perishable items; the introduction of quality, ready-to-eat fresh foods; and
the implementation of a retail automation system.
The Company has been devoting the majority of its capital resources
over the last couple of years toward the most extensive remodeling of its
existing store base ever undertaken. In conjunction with the remodeling
program, the Company has been pruning its store base as it identifies stores,
which can be closed or disposed of, that are not expected to achieve an
acceptable level of profitability in the future or meet minimum image
standards. As a result, the Company closed 184 stores in 1994, 401 in 1993
and 358 in 1992. However, as the Company approaches completion of the
remodeling program, it plans to strengthen its position in existing markets by
expanding its store base. The planning process for this new store development
is underway and new store openings should outpace store closures by 1997.
The customer-driven approach to merchandising, which was adopted by
the Company in 1992, continues to focus on providing the customer an expanded
selection of quality products at a good value. This is being accomplished by
prioritizing the importance of ordering at the store level, removing slow-
moving items and aggressively introducing new products in the early stages of
their life cycle. This process, which has contributed to improved sales and
profits, will be an ongoing part of managing our business in order to satisfy
the ever-changing preferences of our customers.
The Company's everyday-fair-pricing strategy has provided consistent
prices on all items by reducing its reliance on discounting of some products
and lowering prices on others since its inception in 1992. Going forward, the
Company will continue to migrate toward lower retail prices as the Company
achieves decreased product costs through strategic alliances with its suppliers
and distributors.
Daily delivery of fresh perishable items and high-quality ready-to-eat
foods is another key management strategy. Implementation of this strategy
includes third-party development and operation of combined distribution
centers, fresh-food commissaries and bakery facilities in most of the
Company's markets around the country. The commissary and bakery ready-to-
eat items, like fresh sandwiches and pastries, along with goods from multiple
vendors such as dairy products, produce and other perishable goods, are
"combined" at a distribution center and delivered daily to each store. In
addition to providing fresher products and improving in-stock conditions from
daily deliveries, the combined distribution is also intended to lower product
costs in part from vendor's savings on direct store deliveries. The Company
expects the freshness and flexibility of the products from these operations to
improve sales and gross profits.
The implementation of a retail automation system was begun by the
Company in 1994. The initial phase involves installing in-store processors,
which will automate accounting and other store-level tasks. After future phases
are complete, the system will provide each store and its suppliers and
distributors with information to make better decisions in anticipating customer
30
needs. The in-store processors currently being installed will meet the demands
of future phases of the automation process.
GROSS PROFITS
Consolidated gross profits were $1.54 billion for 1994, $32.9 million
below 1993, which was $32.4 million below 1992, reflecting lower merchandise
gross profits because of fewer stores. Even though total merchandise gross
profits have declined, merchandise gross profit per store has consistently
improved over prior year results for the last eight quarters. Also, the fourth
quarter of 1994 showed growth in total merchandise gross profits over prior
year results, for the first time since the first quarter of 1990. The following
chart highlights the percent change in merchandise gross profit per store and
the components thereof:
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------
Increase/(decrease) from prior year 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Average per store gross
profit dollar change 2.1% 2.2% (.3)%
Margin percentage point change (.38) 1.16 .75
Same-store sales growth 2.0% (2.7)% (3.9)%
</TABLE>
Merchandise gross profit margins were greatly affected, beginning in
1992, by the implementation of the everyday-fair-price strategy, which reduced
discounting and promotional activities, increasing the margins in 1992 and 1993
(see Management Strategies). The margins also benefited from lower cigarette
costs (beginning in August 1993) and lower costs of products under the
Company's supply agreement with McLane (see Liquidity and Capital Resources -
Other). In 1994, with the reduction of discounting in place, the Company tested
lower prices in certain parts of the country as part of a more aggressive
everyday-fair-price strategy. These lower prices, combined with increased costs
for disposal of slow moving merchandise was primarily responsible for the
decrease in 1994 merchandise margins.
Gasoline gross profits per store were 12.8%, 29.8% and 28.0% higher,
compared to the preceding year, for 1994, 1993 and 1992, respectively. Gross
profits improved due to the combination of an increase in gallons sold and
higher margins. Gross profit margin on gasoline sales was 14.5 cents per gallon
for 1994, an increase of .6 cents compared to 1993, which was 2.0 cents higher
than 1992. The increase in margins is attributed to favorable market
conditions, the positive impact of capital expenditure programs and the
continued improvement in by-store management of gasoline merchandising
strategies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------
1994 1993 1992
---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C>
Total selling, general and
administrative expenses $ 1,422.3 $ 1,538.7 $ 1,615.8
Ratio of reported SG&A to sales 21.3% 22.8% 21.8%
(Decrease)/increase in reported
SG&A compared to prior year $ (116.4) $ (77.1) $ 22.7
Decrease in adjusted SG&A compared
to prior year* $ (61.3) $ (81.5) $ (24.7)
</TABLE>
* ADJUSTED TO EXCLUDE SEVERANCE AND RELATED COSTS AND THE LOSS FOR STORE
CLOSINGS AND DISPOSITIONS OF PROPERTIES, INCLUDING CITIJET (SEE SUMMARY OF
RESULTS OF OPERATIONS).
31
The majority of the decrease in SG&A expense, as adjusted, resulted
from cost savings realized from reductions in force that began late in 1992 and
continued through 1994, combined with the effect of having fewer stores (see
Management Strategies). Also, in the fourth quarter, the Company included
1994 year-to-date amounts of certain expenses, totaling approximately $20
million (approximately $15 million through September 30th) in selling, general
and administrative expenses rather than in cost of goods sold where they had
been included in prior periods.
In 1993 and 1992, after reviewing the functions necessary to enable its
stores to respond faster, more creatively and more cost efficiently to rapidly
changing customer needs and preferences, the Company implemented certain
reorganization plans. During the third quarter of 1994, the Company began a
similar review that was completed in December. The Company anticipates that
the latest review will result in approximately $18 million in annual savings
beginning in 1995. The resultant plan will both realign and reduce personnel
and will require changes in the location and size of office facilities.
Approximately 335 employees throughout the Company will be terminated during
1995. In addition, one office facility will be sold at a loss and space at
several leased facilities will be terminated or subleased. The $7.4 million
cost of the plan was accrued in SG&A expense, and is comprised of $5.7 million
for severance benefits and $1.7 million for changes in office facilities.
Management intends for the review process to be ongoing, but currently can
not predict what further recommendations will be made nor the timing of their
implementation.
INTEREST EXPENSE
The Company's total interest expense in 1994 increased $14.0 million
over 1993, primarily due to the refinancing of the 12% Senior Notes with
working capital and bank debt in August 1993. Unlike the interest on the bank
debt, interest on the 12% Senior Notes was subject to SFAS No. 15 treatment
with interest payments recorded as a reduction of principal rather than
interest expense (see Note 9 of "Notes to Consolidated Financial Statements").
Interest expense in 1993 and 1992 declined $29.1 million and $65.6
million as compared to prior years, respectively. The decline in interest
expense in 1993 and 1992 was primarily due to declining interest rates on
floating rate debt and lower term loan balances, combined with greater use of
commercial paper in 1993, which has lower interest rates than other debt
instruments.
On December 21, 1994 the Company refinanced its bank debt under the
senior bank credit agreement ("Credit Agreement") and obtained, among other
things, a reduction in its borrowing spreads. As a result of this refinancing,
the Company expects to save approximately $7 million in interest expense in
1995 over what it would have incurred under the previous terms of the facility.
In February 1995, the Company extended the repayment of the debt relating to
its headquarters facilities (Cityplace) at a lower interest rate, which will
result in approximately $2.8 million of cash interest savings in 1995 (see
Liquidity and Capital Resources - Financing Activities).
The weighted average interest rate on the Company's floating rate
debt was 5.51% in 1994, 4.52% in 1993 and 6.56% in 1992. Approximately
31% of the Company's debt contains floating rates that will be unfavorably
impacted by rising interest rates. However, overall interest expense in 1995 is
expected to decline when compared to 1994, as a result of factors noted above.
32
INCOME TAXES
The Company recorded a tax benefit of $18.5 million in 1994, compared to
a tax provision of $8.7 million and $11.5 million in 1993 and 1992,
respectively. The 1994 tax benefit is primarily due to the realization of a
portion of the Company's net deferred tax asset. Based on a one-year projection
of taxable income, the Company has recognized a portion of its net deferred tax
asset through a $30.0 million reduction in the valuation allowance with $13.9
million recorded in other current assets and the remainder in other assets.
Taxable income for 1995 was projected by utilizing steady state assumptions
defined as only inflationary increases in sales and no increase in gross profit
margins. If the Company's current trend of profitability continues, then
additional deferred tax assets of up to approximately $175 million could be
recognized.
LIQUIDITY AND CAPITAL RESOURCES
The majority of the Company's working capital is provided from three
sources: i) cash flows generated from its operating activities, ii) a $400
million commercial paper facility (guaranteed by Ito-Yokado Co., Ltd.), and
iii) short-term seasonal borrowings of up to $150 million from its revolving
credit facility. The Company believes that its operating activities coupled
with its available short-term working capital facilities will provide
sufficient liquidity for it to fund its current operating and capital
expenditure programs and service debt requirements.
FINANCING ACTIVITIES
In December 1994, the Company amended its Credit Agreement,
refinancing its old term loans ($281.7 million) and revolving credit facility,
with a new term loan ("Term Loan") and new revolving credit facility. The
new revolving credit facility was extended through December 31, 1999 and
contains both a revolving loan ("Revolver") and letter of credit subfacility;
these two facilities each have a maximum limit of $150 million. The Term
Loan ($300 million) has scheduled quarterly repayments of $18.75 million
commencing March 31, 1996 through December 31, 1999. Interest on the
Revolver and Term Loan is generally based on a variable rate equal to the
administrative agent bank's base rate or, at the Company's option, at a rate
equal to the Eurodollar rate plus .975% per year (see Results of Operations -
Interest Expense).
The amended Credit Agreement has eliminated certain financial and
operating covenants required under the old agreement. These include, among
other things, the attainment of certain levels of earnings before interest,
taxes, depreciation and amortization ("EBITDA") and the ratio of senior
indebtedness to subordinated indebtedness.
Although certain covenants and the required levels have been
modified under the amended Credit Agreement, they continue to require
ongoing improvement in the Company's financial condition. For the period
ended December 31, 1994, the Company was in compliance with all of the
covenants required under the Credit Agreement as amended. The Company
complied with the principal financial and operating covenants, which are
calculated over the latest 12-month period, as follows:
33
<TABLE>
<CAPTION>
Requirements:
---------------------------
Covenants Actuals Minimum Maximum
--------- ----------- ----------- -----------
<S> <C> <C> <C>
Interest coverage* 2.61 to 1.0 2.35 to 1.0
Fixed charge coverage .82 to 1.0 .55 to 1.0
Senior indebtedness to EBITDA 4.35 to 1.0 4.85 to 1.0
</TABLE>
* INCLUDES EFFECTS OF THE SFAS NO. 15 INTEREST PAYMENTS.
In 1994, the Company paid $400.6 million of debt principal of which
$281.7 million related to the amendment of the Credit Agreement. Other
principal reductions during the course of the year were $118.9 million of
which $83.7 million was for secured indebtedness ($47.3 million on the old
term loans) and $35.2 million was SFAS No. 15 interest. Outstanding balances
on December 31, 1994 for the commercial paper, the Revolver and the Term
Loan were $391.3 million, $50.0 million and $300.0 million, respectively. As
of December 31, 1994, outstanding letters of credit related to the Credit
Agreement totaled $119.9 million.
As a result of an agreement reached in conjunction with the
Company's bankruptcy proceedings in 1990, on February 15, 1995, the 7-7/8%
Cityplace notes, issued by Cityplace Center East Corporation ("CCEC"), a
wholly owned subsidiary of the Company, were repaid under a drawing of a letter
of credit issued by The Sanwa Bank, Ltd. Under such agreement, the term of
maturity of the indebtedness of CCEC resulting from such draw has been extended
by ten years to March 1, 2005. New terms include monthly payments of principal
and interest over the ten year period, based upon a 25-year amortization at
7-1/2%, with the remaining principal due upon maturity.
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $271.6 million for 1994
compared to $232.1 million in 1993 and $172.6 million in 1992. In 1994, the
majority of cash was provided by operations, combined with a $24.3 million
decrease in other assets primarily due to a reduction in cash collateral
required for payment of anticipated insurance claims (see Results of
Operations).
CAPITAL EXPENDITURES
During 1994, net cash used in investing activities consisted primarily
of payments of $171.6 million for property, plant and equipment, the majority
of which was used for remodeling stores, upgrading retail gasoline facilities,
replacing equipment and complying with environmental regulations. The
Company expects 1995 capital expenditures to be approximately $200 million,
primarily to complete remodels started in 1994 and to remodel about 1,400
additional stores. In addition, the Company is expected to use approximately
13% of 1995's capital expenditures on the retail automation project (see
Management Strategies).
Through December 31, 1994, approximately 2,700 stores had been
remodeled. As in 1994, the 1995 average-per-store capital expenditures and
associated upfront expenses will be less than 1993 levels and will focus on the
features that are most noticeable to customers and have the most immediate and
positive impact on store performance, such as lighting and security, food
service equipment, necessary maintenance and consistent image. Reducing the
scope of the remodels has also virtually eliminated the need to close stores
during construction, which negatively affected merchandise sales at stores
remodeled in 1993.
34
CAPITAL EXPENDITURES - GASOLINE EQUIPMENT
The Company anticipates that it will spend approximately $14 million
in 1995 on capital improvements required to comply with environmental
regulations relating to below-ground gasoline storage tank systems as well as
above-ground vapor recovery equipment at store locations and approximately
an additional $25 million on such capital improvements from 1996 through
1998.
ENVIRONMENTAL COMPLIANCE - STORES
The Company accrues for the anticipated future costs of environmental
clean-up activities (consisting of contamination assessment and remediation)
relating to detected releases of regulated substances at its existing and
previously operated sites at which gasoline has been sold (including store
sites and other facilities that have been sold by the Company). At December 31,
1994, the Company has an accrued liability of $63.4 million for such activities
and anticipates that substantially all such expenditures will be incurred
within the next five years. This estimate is based on the Company's prior
experience with gasoline sites and its analysis of such factors as the age of
the tanks, location of tank sites and experience with contractors who perform
contamination assessment and remedial work.
The Company is eligible to receive reimbursement for a large portion
of these costs under state reimbursement programs and has recorded a gross
receivable of $76.1 million (a net receivable of $57.2 million after an
allowance of $18.9 million) for the estimated probable state reimbursement of
paid and accrued assessment and remediation expenses. The Company reduced
the estimated net environmental cost reimbursements at the end of 1994 by
approximately $6.0 million as a result of completing a review of state
reimbursement programs. There is no assurance of the timing of the receipt of
state reimbursement funds; however, based on its experience, the Company
expects to receive state reimbursement funds within one to four years after
payment of eligible assessment and remediation expenses, assuming that the
state administrative procedures for processing such reimbursements have been
fully developed.
The estimated future assessment and remediation expenditures and
related state reimbursement amounts could change as governmental
requirements and state reimbursement programs change in future years.
ENVIRONMENTAL COMPLIANCE - CHEMICAL PLANT
In December 1988, the Company closed its chemical manufacturing
facility in New Jersey. As a result, the Company is required to conduct
environmental remediation at the facility and has accrued a liability for this
purpose. As required, the Company has submitted a clean-up plan to the New
Jersey Department of Environmental Protection (the "State"), which provides
for remediation of the site for approximately a three-to-five year period, as
well as continued groundwater treatment for a projected 20-year period. While
the Company has received initial comments from the State, the clean-up plan
has not been finalized. The Company has recorded liabilities representing its
best estimates of the clean-up costs of $39.3 million and $38.9 million at
December 31, 1994 and 1993, respectively. Of this amount, $34.2 million and
$33.8 million are included in deferred credits and other liabilities and the
remainder in accrued expenses and other liabilities for the respective years.
In 1991, the Company entered into a settlement agreement with a large chemical
company that formerly owned the facility. Under the settlement agreement, the
former owner agreed to pay a substantial portion of the clean-up costs
35
described above. The Company has recorded a receivable of $23.0 million at
December 31, 1994, representing the former owner's portion of the clean-up
costs.
None of the amounts related to environmental liabilities, for the stores
or the chemical plant, have been discounted.
OTHER
In November 1992, the McLane Company, Inc. ("McLane"), acquired certain
of the Company's distribution and food center assets. In addition, Southland
ceased operations in December 1992 at its distribution and food centers in
Orlando, Florida and Tyler, Texas and in April 1993 at Champaign, Illinois. The
Company disposed of its facility in Orlando in November 1993, its facility in
Tyler in March 1994 and the Champaign facility in December 1994. These
transactions did not have a material impact on 1994 or 1993 earnings, since
they were included in the $45.0 million loss recognized in 1992 resulting from
the sale to McLane and related plant closings. Since the transaction, the
Company has benefited from lower cost of products purchased under a supply
agreement with McLane. In addition to the $141.8 million in gross proceeds
received from McLane in connection with the acquisition of the Company's
distribution and food processing assets in 1992, $44.9 million of cash was
received in 1993, primarily from the sale of inventories to McLane and $6.3
million was received in 1994 related to the sale of the Tyler facility.
In 1993, the Company disposed of its last non-convenience retailing
business, the Citijet fixed-base operation at Dallas Love Field Airport, and
recognized a loss of $10.8 million on the transaction.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
37
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except Per-Share Data)
-------------------------------------------------------------------------------
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 59,288 $ 13,486
Accounts and notes receivable 102,230 90,934
Inventories 101,468 109,363
Other current assets 40,411 31,954
------------- -------------
Total current assets 303,397 245,737
PROPERTY, PLANT AND EQUIPMENT 1,314,499 1,328,793
OTHER ASSETS 382,698 415,422
------------- -------------
$ 2,000,594 $ 1,989,952
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable $ 203,315 $ 196,026
Accrued expenses and other liabilities 316,183 327,570
Commercial paper 41,322 41,220
Long-term debt due within one year 123,989 149,503
------------- -------------
Total current liabilities 684,809 714,319
DEFERRED CREDITS AND OTHER LIABILITIES 245,807 253,626
LONG-TERM DEBT 2,227,209 2,270,357
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value; 1,000,000,000
shares authorized; 409,922,935 shares issued
and outstanding 41 41
Additional capital 625,574 625,574
Accumulated deficit (1,782,846) (1,873,965)
------------- -------------
Total shareholders' equity (deficit) (1,157,231) (1,248,350)
------------- -------------
$ 2,000,594 $ 1,989,952
============= =============
See notes to consolidated financial statements.
38
</TABLE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands, Except Per-Share Data)
-------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net sales (including $992,970, $962,955 and $986,962
in excise taxes) $ 6,684,495 $ 6,744,333 $ 7,425,844
Other income 75,312 69,902 73,570
------------ ------------ -----------
6,759,807 6,814,235 7,499,414
COST OF GOODS SOLD AND EXPENSES:
Cost of goods sold 5,144,916 5,171,806 5,820,817
Selling, general and administrative expenses 1,422,311 1,538,719 1,615,799
Loss on sale and closing of distribution and food centers - - 45,000
Interest expense 108,588 94,559 123,647
Contributions to Employees' Savings and Profit Sharing Plan 10,496 11,731 14,100
------------ ------------ -----------
6,686,311 6,816,815 7,619,363
------------ ------------ -----------
EARNINGS (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY GAIN AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 73,496 (2,580) (119,949)
INCOME TAXES (BENEFIT) (18,500) 8,700 11,500
------------ ------------ -----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY
GAIN AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 91,996 (11,280) (131,449)
EXTRAORDINARY GAIN ON DEBT REDEMPTION - 98,968 -
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR POSTEMPLOYMENT BENEFITS - (16,537) -
------------ ------------ -----------
NET EARNINGS (LOSS) $ 91,996 $ 71,151 $ (131,449)
============ ============ ===========
EARNINGS (LOSS) PER COMMON SHARE (PRIMARY
AND FULLY DILUTED):
Before extraordinary gain and cumulative effect
of accounting change $.22 $(.03) $(.32)
Extraordinary gain - .24 -
Cumulative effect of accounting change - (.04) -
----- ------ ------
Net earnings (loss) $.22 $ .17 $(.32)
===== ====== ======
See notes to consolidated financial statements.
39
</TABLE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands, Except Share Amounts)
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK TOTAL
------------------- ADDITIONAL ACCUMULATED
SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT
EQUITY(DEFICIT)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 410,022,481 $ 41 $ 599,588 $ (1,809,912) $ (1,210,283)
Net loss - - - (131,449) (131,449)
Adjustment for redeemable common
stock purchase warrants - - 26,136 - 26,136
Foreign currency translation adjustments - - - (3,163) (3,163)
--------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 410,022,481 41 625,724 (1,944,524) (1,318,759)
Net earnings - - - 71,151 71,151
Cancellation of shares (99,546) - (150) 112 (38)
Foreign currency translation adjustments - - - (704) (704)
--------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 409,922,935 41 625,574 (1,873,965) (1,248,350)
Net earnings - - - 91,996 91,996
Foreign currency translation adjustments - - - (877) (877)
--------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 409,922,935 $ 41 $ 625,574 $ (1,782,846) $ (1,157,231)
=========== ==== =========== ============= ==============
See notes to consolidated financial statements.
40
</TABLE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 91,996 $ 71,151 $ (131,449)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Extraordinary gain on debt redemption - (98,968) -
Cumulative effect of accounting change for postemployment benefits - 16,537 -
Depreciation and amortization of property, plant and equipment 143,670 134,920 160,502
Other amortization 19,026 19,430 19,778
Deferred income taxes (30,000) - -
Noncash interest expense 11,384 8,497 12,429
Other noncash expense 614 3,393 4,874
Net loss on property, plant and equipment 274 48,017 46,064
Loss on sale and closing of distribution and food centers - - 45,000
(Increase) decrease in accounts and notes receivable (3,066) 24,937 5,190
Decrease in inventories 7,895 16,347 12,252
Decrease in other assets 24,273 3,344 6,052
Increase (decrease) in trade accounts payable and other liabilities 5,501 (15,528) (8,102)
------------ ------------ ------------
Net cash provided by operating activities 271,567 232,077 172,590
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant and equipment (171,636) (195,146) (88,575)
Proceeds from sale of property, plant and equipment 15,867 22,809 15,827
Net currency exchange principal transactions (5,133) (8,894) (6,635)
Payments on notes from sales of real estate 2,105 1,152 1,317
Cash received from other investments 266 3,830 822
Cash utilized by distribution and food center assets (2,790) (17,739) (54,020)
Proceeds from sale of distribution and food center assets 6,305 44,889 141,793
------------ ------------ ------------
Net cash (used in) provided by investing activities (155,016) (149,099) 10,529
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit facilities 4,451,774 4,111,500 2,007,239
Payments under commercial paper and revolving credit facilities (4,418,693) (3,927,234) (1,785,717)
Proceeds from issuance of long-term debt 300,000 150,000 -
Principal payments under long-term debt agreements (400,580) (403,125) (624,527)
Debt issuance costs (3,250) (2,437) (5,329)
------------ ------------ ------------
Net cash used in financing activities (70,749) (71,296) (408,334)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 45,802 11,682 (225,215)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,486 1,804 227,019
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 59,288 $ 13,486 $ 1,804
============ ============= ===========
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS No.15 Interest $ (98,157) $ (87,631) $ (116,931)
============ ============= ============
Net income taxes (paid) refunded $ (7,810) $ (7,969) $ 3,323
============ ============= ============
See notes to consolidated financial statements.
41
</TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
-------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The Southland Corporation and
subsidiaries ("the Company") is owned approximately 64% by IYG Holding
Company, which is jointly owned by Ito-Yokado Co., Ltd. ("IY") and
Seven-Eleven Japan Co., Ltd.("SEJ").
The consolidated financial statements include the accounts of The
Southland Corporation and its subsidiaries. Intercompany transactions
and account balances are eliminated. Prior-year amounts have been
reclassified to conform to current-year presentation.
The Company's net sales are comprised of sales of products and
services. Net sales and cost of goods sold of stores operated by
franchisees are consolidated with the results of Company-operated
stores. Net sales of stores operated by franchisees are $2,820,685,000,
$2,810,270,000 and $2,931,494,000 from 2,962, 2,998 and 3,011 stores for
the years ended December 31, 1994, 1993 and 1992, respectively. Under
the present franchise agreements, initial franchise fees are recognized
in income currently and are generally calculated based upon gross profit
experience for the store or market area. These fees cover certain costs
including training, an allowance for travel, meals and lodging for the
trainees and other costs relating to the franchising of the store.
The gross profit of the franchise stores is split between the Company
and its franchisees. The Company's share of the gross profit of
franchise stores is its continuing franchise fee, generally ranging from
50% to 58% of the gross profit of the store, which is charged to the
franchisee for the license to use the 7-Eleven operating system and
trademarks, for the lease and use of the store premises and equipment,
and for continuing services provided by the Company. These services
include merchandising, advertising, recordkeeping, store audits,
contractual indemnification, business counseling services, training
seminars and preparation of financial statements. The gross profit
earned by the Company's franchisees of $517,955,000, $530,436,000 and
$539,835,000 for the years ended December 31, 1994, 1993 and 1992,
respectively, are included in the Consolidated Statements of Operations
as selling, general and administrative expenses.
Sales by stores operated under domestic and foreign area license
agreements are not included in consolidated revenues. All fees or
royalties arising from such agreements are included in other income.
Initial fees, which have been immaterial, are recognized when the
services required under the agreements are performed.
OTHER INCOME - Other income is primarily comprised of area license
royalties and interest income. The area license royalties include
amounts from area license agreements with SEJ of approximately
42
$42,000,000, $39,000,000 and $37,000,000 for the years ended December
31, 1994, 1993 and 1992, respectively.
COST OF GOODS SOLD - Cost of goods sold includes buying and occupancy
expenses.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include temporary
cash investments of $3,028,000 and $11,345,000 at December 31, 1994 and
1993, respectively, stated at cost, which approximates market. The
Company considers all highly liquid investment instruments purchased
with maturities of three months or less to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market.
Cost is generally determined by the LIFO method for stores in the United
States and by the FIFO method for stores in Canada.
DEPRECIATION AND AMORTIZATION - Depreciation of buildings and equipment
is based upon the estimated useful lives of these assets using the
straight-line method. Amortization of capital leases, improvements to
leased properties and favorable leaseholds is based upon the remaining
terms of the leases or the estimated useful lives, whichever is shorter.
Foreign and domestic area license royalty intangibles were recorded in
1987 at the fair value of future royalty payments and are being
amortized over 20 years using the straight-line method. The 20-year
life is less than the estimated lives of the various royalty agreements,
the majority of which are perpetual.
STORE CLOSINGS - Provision is made on a current basis for the write-down
of identified owned-store closings to their net realizable value. For
identified leased-store closings, provision is made on a current basis
if anticipated expenses are in excess of expected sublease rental
income. The recorded value of assets for certain stores with marginal
financial results is periodically evaluated, and, if necessary, the
carrying value of the asset is adjusted.
BUSINESS SEGMENT - The Company operates in a single business segment -
the operating and franchising of convenience food stores, primarily
under the 7-Eleven name.
43
2. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
<CAPTION>
December 31
----------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Notes receivable (net of long-term
portion of $15,309 and $18,310) $ 5,773 $ 3,030
Trade accounts receivable 42,856 48,609
Franchisee accounts receivable 47,682 38,823
Environmental cost reimbursements
(net of long-term portion of
$67,546 and $72,038) - see
Note 14 12,709 8,294
---------- ---------
109,020 98,756
Allowance for doubtful accounts (6,790) (7,822)
---------- ---------
$ 102,230 $ 90,934
========== =========
</TABLE>
3. INVENTORIES
Inventories stated on the LIFO basis that are included in inventories
in the accompanying Consolidated Balance Sheets were $63,340,000 and
$65,607,000 at December 31, 1994 and 1993, respectively, which is less
than replacement cost by $28,286,000 and $25,292,000, respectively. At
December 31, 1993 and 1992, inventories were reduced resulting in a
liquidation of LIFO inventory layers recorded at costs that were lower
than the costs of current purchases. The effects of these reductions
were to decrease cost of goods sold by approximately $3,900,000 in 1993
and to decrease the loss on the sale and closing of the distribution and
food centers by approximately $23,000,000 in 1992.
4. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
December 31
----------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Prepaid expenses $ 18,474 $ 19,165
Other 21,937 12,789
--------- ---------
$ 40,411 $ 31,954
========= =========
</TABLE>
44
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31
--------------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Cost:
Land $ 475,611 $ 493,934
Buildings and leaseholds 1,223,128 1,211,531
Equipment 623,755 578,289
Construction in process 35,634 35,321
------------ ------------
2,358,128 2,319,075
Accumulated depreciation and amortization (1,043,629) (990,282)
------------ ------------
$ 1,314,499 $ 1,328,793
============ ============
</TABLE>
6. DIVESTED ASSETS
In November 1992, the Company sold two of its five distribution centers
and three of its six food centers to McLane Company, Inc. ("McLane").
The remaining facilities were disposed of in 1993 and 1994. For the
years ended December 31, 1994, 1993 and 1992, the Company received cash
proceeds of approximately $6,300,000, $44,900,000 and $141,800,000,
respectively, from the disposition of distribution and food center
assets.
The $45 million pre-tax loss on the sale and closing of the distribution
and food centers in 1992 included the loss from the sale of assets to
McLane, the expected loss on dispositions of the remaining facilities,
and the expected net cash outflows on all such facilities subsequent to
August 31, 1992 (the measurement date), until the expected dates of
disposition. Operating results prior to the disposition of the
facilities, which were included in the loss, and adjustments to the loss
upon final disposition were not material.
45
7. OTHER ASSETS
<TABLE>
<CAPTION>
December 31
----------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Japanese license royalty intangible
(net of accumulated amortization of
$116,972 and $100,957) $ 201,528 $ 217,543
Other license royalty intangibles (net
of accumulated amortization of $20,914
and $18,077) 35,690 38,692
Environmental cost reimbursements
(net of allowance of $18,890 and $12,529)
- see Note 14 67,546 72,038
Other (net of accumulated amortization
of $7,281 and $66,115) 77,934 87,149
---------- ----------
$ 382,698 $ 415,422
========== ==========
</TABLE>
8. ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31
-----------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Accrued insurance $ 95,372 $ 94,121
Accrued payroll 51,024 47,690
Accrued taxes, other than income 40,372 39,173
Accrued environmental costs 35,574 28,904
Other 93,841 117,682
---------- ----------
$ 316,183 $ 327,570
========== ==========
</TABLE>
Other includes accounts payable to The Southland Corporation Employees'
Savings and Profit Sharing Plan (see Note 13) for contributions and
contingent rent payables of $13,186,000 and $14,098,000 as of December
31, 1994 and 1993, respectively.
In December 1994, the Company completed a review of the functions
necessary to enable its stores to respond faster, more creatively and
more cost efficiently to rapidly changing customer needs and
preferences. The resultant plan will both realign and reduce personnel
and will require changes in the location and size of office facilities.
Approximately 335 employees in various positions throughout the Company
will be terminated during 1995. In addition, one owned office facility
will be sold at a loss and space at several leased facilities will be
terminated or subleased. The $7,405,000 cost of the plan was accrued in
selling, general and administrative expenses, and is comprised of
$5,668,000 for severance benefits and $1,737,000 for changes in office
facilities.
46
9. DEBT
<TABLE>
<CAPTION>
December 31
------------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Bank Debt Term Loans $ 300,000 $ 329,017
Bank Debt revolving credit facility 50,000 15,000
Commercial paper 350,000 350,000
5% First Priority Senior Subordinated
Debentures due 2003 615,539 638,070
4-1/2% Second Priority Senior Subordinated
Debentures (Series A) due 2004 294,597 303,884
4% Second Priority Senior Subordinated
Debentures (Series B) due 2004 25,897 26,648
12% Second Priority Senior Subordinated
Debentures (Series C) due 2009 59,696 62,311
6-1/4% Yen Loan 253,114 273,793
7-7/8% Cityplace Notes due 1995 289,698 287,363
Canadian revolving credit facility 5,678 7,499
Capital lease obligations 105,159 120,398
Other 1,820 5,877
----------- -----------
2,351,198 2,419,860
Less long-term debt due within one year 123,989 149,503
----------- -----------
$ 2,227,209 $ 2,270,357
=========== ===========
</TABLE>
BANK DEBT - The Company is obligated to a group of lenders under a
credit agreement ("Credit Agreement") that includes term loans and a
revolving credit facility (collectively "Bank Debt"). In December 1994,
the Credit Agreement was amended to extend its maturity through December
31, 1999, and to change various financial and operating covenants to
reduce certain restrictions. The financial and operating covenants
require, among other things, the maintenance of certain financial ratios
including interest coverage, fixed-charge coverage and senior
indebtedness to earnings before interest, income taxes, depreciation and
amortization. The Credit Agreement also contains various covenants
47
which, among other things, (a) limit the Company's ability to incur or
guarantee indebtedness or other liabilities other than under the Credit
Agreement, (b) restrict the Company's ability to engage in asset sales
and sale/leaseback transactions, (c) restrict the types of investments
the Company can make and (d) restrict the Company's ability to pay cash
dividends, redeem or prepay principal and interest on any subordinated
debt and certain senior debt (except in connection with certain sinking
fund obligations under the 5% First Priority Senior Subordinated
Debentures due 2003). Under the Credit Agreement, all of the assets of
the Company, with the exception of certain specified property, serve as
collateral.
The amendment to the Credit Agreement refinanced the existing term
loans and revolving credit facility with a new term loan and a new
revolving credit facility. The new term loan provided proceeds of $300
million, which were primarily used to retire the existing term loans.
The new term loan is to be repaid in sixteen quarterly installments of
$18,750,000 commencing March 31, 1996. The new revolving credit
facility makes available borrowings and letters of credit totaling a
maximum of $300 million. Maximum borrowings and letters of credit under
the revolving credit facility are set at $150 million each. Upon
expiration of the facility, all the then outstanding letters of credit
must expire and may need to be replaced, and all other amounts then
outstanding will be due and payable in full. At December 31, 1994,
outstanding letters of credit related to the Credit Agreement totaled
$119,927,000.
Interest on the Bank Debt is generally payable quarterly and is based
on a variable rate equal to the administrative agent bank's base rate
or, at the Company's option, at a rate equal to a reserve-adjusted
Eurodollar rate plus .975% per year. The weighted-average interest rate
on the term loan and revolving credit facility borrowings outstanding at
December 31, 1994, was 7.1% and 8.5%, respectively. A fee of .925% per
year on the outstanding amount of letters of credit is required to be
paid quarterly. A .5% per year commitment fee on unadvanced funds, which
for purposes of this calculation include unissued letters of credit, is
payable quarterly. The weighted-average interest rate on revolving
credit facility borrowings outstanding at December 31, 1993, was 7.5%.
In 1992 and 1993, the Credit Agreement was amended in connection with
certain activities of the Company. In September 1992, the Company
entered into an amendment that permitted the establishment of a $400
million commercial paper facility. In connection with this amendment,
the Company was required to make a $350 million prepayment on the term
loans. In addition, as a result of the disposition of the distribution
and food center assets (see Note 6) and in accordance with an October
1992 amendment, a $110 million prepayment on the term loans was made in
December 1992. In August 1993, the Company completed a refinancing of
its 12% Senior Notes with proceeds from working capital and an
additional $150 million term loan under the Credit Agreement (the
"Refinancing"). An amendment was executed to provide for the additional
term loan, which was subsequently repaid from proceeds of the new term
loan.
COMMERCIAL PAPER - In September 1992, the Company obtained a facility
that provides for the issuance of up to $400 million in commercial
paper. At December 31, 1994, $350 million of the $391,322,000
outstanding principal, net of discount, was classified as long-term debt
since the Company intends to maintain at least this amount outstanding
during the next year. Such debt is unsecured and is fully and
unconditionally guaranteed by IY. IY has agreed to continue its
guarantee of all commercial paper issued through 1996. While it is not
anticipated that IY would be required to perform under its commercial
paper guarantee, in the event IY makes any payments under the guarantee,
the Company and IY have entered into an agreement by which the Company
is required to reimburse IY subject to restrictions in the Credit
Agreement. The weighted-average interest rate on commercial paper
borrowings outstanding at December 31, 1994 and 1993, respectively, was
6.0% and 3.3%.
48
NOTES AND DEBENTURES - The Notes and Debentures are accounted for in
accordance with SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructuring," and were initially recorded at an amount
equal to the future undiscounted cash payments, both principal and
interest ("SFAS No. 15 Interest"). Accordingly, no interest expense
will be recognized over the life of these securities, and cash interest
payments will be charged against the recorded amount of such securities.
Interest on all of the Notes and Debentures is payable in cash
semiannually on June 15 and December 15 of each year.
The 5% First Priority Senior Subordinated Debentures, due December 15,
2003, with an aggregate principal amount of $450,614,000 at December 31,
1994, are redeemable at any time at the Company's option at 100% of
principal amount. Annual sinking fund payments of $27,037,000 are due
each December 15, commencing 1996 through 2002. These payments retire
42% of the debt before maturity.
The Second Priority Senior Subordinated Debentures were issued in three
series, and each series is redeemable at any time at the Company's
option at 100% of principal amount and are described as follows:
- 4-1/2% Series A Debentures, due June 15, 2004, had an aggregate
principal amount of $206,373,000 at December 31, 1994.
- 4% Series B Debentures, due June 15, 2004, had an aggregate
principal amount of $18,766,000 at December 31, 1994.
- 12% Series C Debentures, due June 15, 2009, had an aggregate
principal amount of $21,787,000 at December 31, 1994.
The Debentures contain certain covenants that, among other things, (a)
limit the payment of dividends and certain other restricted payments by
both the Company and its subsidiaries, (b) require the purchase by the
Company of the Debentures at the option of the holder upon a change of
control, (c) limit additional indebtedness, (d) limit future exchange
offers, (e) limit the repayment of subordinated indebtedness, (f)
require board approval of certain asset sales, (g) limit transactions
with certain stockholders and affiliates, and (h) limit consolidations,
mergers and the conveyance of all or substantially all of the Company's
assets.
The First and Second Priority Senior Subordinated Debentures are
subordinate to the outstanding Bank Debt and to previously outstanding
mortgages and notes that are either backed by specific collateral or are
general unsecured, unsubordinated obligations. The Second Priority
Debentures are subordinate to the First Priority Debentures.
The Company had an issuance of 12% Senior Notes, which was due December
15, 1996, with an aggregate principal amount of $250,553,000. These
notes were redeemed in August 1993, resulting in an extraordinary gain
of $98,968,000, which had no tax effect.
YEN LOAN - In March 1988, the Company monetized its future royalty
payments from SEJ, the area licensee in Japan, through a loan that is
49
nonrecourse to the Company as to principal and interest. The debt,
payable in Japanese yen, was in the amount of 41 billion yen, or
approximately $327,000,000 (at the exchange rate in March 1988), and is
collateralized by the Japanese trademarks and a pledge of the future
royalty payments. The current interest rate of 6-1/4% will be reset
after March 1998. Payment of the debt is required no later than March
2006 through future royalties from the Japanese licensee, and the
Company believes it is a remote possibility that there will be any
principal balance remaining at that date. By designating its future
royalty receipts during the term of the loan to service the monthly
interest and principal payments, the Company has hedged the impact of
future exchange rate fluctuations. Upon the later of February 28, 2000,
or the date which is one year following the final repayment of the loan,
royalty payments from the area licensee in Japan will be substantially
reduced in accordance with the terms of the license agreement.
CITYPLACE DEBT - Cityplace Center East Corporation ("CCEC"), a
subsidiary of the Company, issued $290 million of notes in March 1987 to
finance the construction of the headquarters tower, a parking garage and
related facilities of the Cityplace Center development. The interest
rate on these notes was 7-7/8%, payable semiannually on February 15 and
August 15, and the principal amount was due on February 15, 1995.
Because of the application of purchase accounting in 1987, the effective
interest rate was 9.0%. The principal amount was paid to noteholders on
February 15, 1995, by drawings under letters of credit issued by The
Sanwa Bank, Limited, Dallas Agency ("Sanwa"), which has a lien on the
property financed. At that time, the Company deferred the maturity of
the debt by exercising its option of extending the term of maturity ten
years to March 1, 2005, with monthly payments of principal and interest
to Sanwa based on a 25-year amortization at 7-1/2%, with the remaining
principal due upon maturity (the "Cityplace Term Loan").
The Company is occupying part of the building as its corporate
headquarters and the balance is subleased. As additional consideration
through the extended term of the debt, CCEC will pay to Sanwa an amount that
it receives from the Company which is equal to the net sublease income that
the Company receives on the property and 60% of the proceeds, less $275
million and permitted costs, upon a sale or refinancing of the building.
SOUTHLAND CANADA DEBT - During 1988, Southland Canada, Inc. entered
into a revolving credit facility with a Canadian chartered bank. The
facility currently provides bank financing of up to Canadian $14,287,000
(approximately U.S. $10,185,000 at December 31, 1994), which will be
reduced to Canadian $10,716,000 on June 30, 1995, and will be further
reduced each year thereafter until June 30, 1998, when the facility will
expire, and all amounts outstanding will be due and payable in full. At
December 31, 1994, the Company had borrowings outstanding under this
facility of Canadian $7,964,000 (approximately U.S. $5,678,000).
Interest on such facility is generally payable monthly and is based upon
the Canadian Prime rate (8.0% at December 31, 1994) plus .75% per year
or a bankers' acceptance rate plus 1.5% per year. The weighted-average
interest rate on revolving credit facility borrowings outstanding at
December 31, 1994 and 1993, respectively, was 7.3% and 5.4%.
50
MATURITIES - Long-term debt maturities assume the continuance of the
commercial paper program. The maturities, which include capital lease
obligations and sinking fund requirements, as well as SFAS No. 15
Interest accounted for in the recorded amount of the Debentures, are as
follows (dollars in thousands):
<TABLE>
<S> <C>
1995 $ 123,989
1996 182,170
1997 186,660
1998 189,243
1999 190,281
Thereafter 1,478,855
------------
$ 2,351,198
============
</TABLE>
10. PREFERRED STOCK
The Company has 5,000,000 shares of preferred stock authorized for
issuance. Any preferred stock issued will have such rights, powers and
preferences as determined by the Company's Board of Directors.
11. REDEEMABLE COMMON STOCK PURCHASE WARRANTS
In 1987, the Company issued 26,135,682 redeemable common stock purchase
warrants (the "Warrants"). The Warrants were recorded at $1.00 per
Warrant, which was the amount of proceeds allocated to the Warrants at
the time of issuance. The Warrants were governed by a warrant agreement
and were exercisable through December 15, 1992, only upon the occurrence
of certain specified events. None of the specified events occurred on
or before December 15, 1992, and all of the warrants expired on December
16, 1992. Under the provisions of the warrant agreement, the Company
was obligated to repurchase the Warrants by March 15, 1995, at the fair
market value of the Warrants as separate securities, as determined by an
independent financial expert. A fair market value of $0 for the
Warrants was determined by an independent financial expert in December
1992. The $26,135,682 difference between the carrying amount of the
Warrants and their fair value was recorded as an increase in additional
capital in 1992.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair-value amounts
have been determined by the Company using available market information
and appropriate valuation methodologies.
The carrying amounts of cash and cash equivalents, trade accounts
receivable, trade accounts payable and accrued expenses and other
liabilities are reasonable estimates of their fair values. Letters of
credit are included in the estimated fair value of accrued expenses and
other liabilities. The carrying amounts and estimated fair values of
51
other financial instruments at December 31, 1994, are listed in the
following table:
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Amount Value
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Bank Debt $ 350,000 $ 350,000
Commercial Paper 391,322 391,322
Debentures 995,729 452,368
Yen Loan 253,114 325,389
</TABLE>
The methods and assumptions used in estimating the fair value for each
of the classes of financial instruments presented in the table above are
as follows:
- The carrying amount of the Bank Debt approximates fair value because
the interest rates are variable.
- Commercial paper borrowings are sold at market interest rates and
have an average remaining maturity of less than 20 days. Therefore,
the carrying amount of commercial paper is a reasonable estimate of
its fair value. The guarantee of the commercial paper by IY is an
integral part of the estimated fair value of the commercial paper
borrowings.
- The fair value of the Debentures is estimated based on December 31,
1994, bid prices obtained from investment banking firms where traders
regularly make a market for these financial instruments. The carrying
amount of the Debentures includes $298,190,000 of SFAS No. 15
Interest.
- The fair value of the Yen Loan is estimated by calculating the
present value of the future yen cash flows at current interest and
exchange rates.
In February 1995, the original Cityplace notes were repaid with proceeds
from the Cityplace Term Loan (see Note 9). At the date of issuance, the
carrying amount and the fair value of the Cityplace Term Loan was
$290,000,000 and $269,650,000, respectively. The fair value was
estimated by calculating the present value of the future cash flows at
current interest rates.
52
13. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLANS - The Company maintains profit sharing plans for
its U.S. and Canadian employees. In 1949, the Company excluding its
Canadian subsidiary ("Southland") adopted The Southland Corporation
Employees' Savings and Profit Sharing Plan (the "Savings and Profit
Sharing Plan"), and, in 1970, the Company's Canadian subsidiary adopted
the Southland Canada, Inc. Profit Sharing Pension Plan. These plans
provide retirement benefits to eligible employees.
Contributions to the Savings and Profit Sharing Plan are made by both
the participants and Southland. Southland contributes the greater of
approximately 10% of its net earnings before contribution to the Savings
and Profit Sharing Plan and federal income taxes or an amount determined
by Southland's president. The contribution by Southland is generally
allocated to the participants on the basis of their individual
contribution, years of participation in the Savings and Profit Sharing
Plan and age. The provisions of the Southland Canada, Inc. Profit
Sharing Pension Plan are similar to those of the Savings and Profit
Sharing Plan. Total contributions to these plans for the years ended
December 31, 1994, 1993 and 1992 were $10,513,000, $11,956,000 and
$14,647,000 (including amounts allocated to the distribution and food
centers), respectively.
POSTRETIREMENT BENEFITS - The Company's group insurance plan (the
"Insurance Plan") provides postretirement medical and dental benefits
for all retirees that meet certain criteria. Such criteria include
continuous participation in the Insurance Plan ranging from 10 to 15
years depending on hire date, and the sum of age plus years of
continuous service equal to at least 70. The Company contributes toward
the cost of the Insurance Plan a fixed dollar amount per retiree based
on age and number of dependents covered, as adjusted for actual claims
experience. All other future costs and cost increases will be paid by
the retirees. The Company continues to fund its cost on a cash basis;
therefore, no plan assets have been accumulated.
Net periodic postretirement benefit costs for 1994, 1993 and 1992
include the following components:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost $ 752 $ 824 $ 862
Interest cost 1,732 2,048 1,998
Amortization of unrecognized gain (61) - (564)
-------- -------- --------
$ 2,423 $ 2,872 $ 2,296
======== ======== ========
</TABLE>
53
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8% and 7% at December 31, 1994 and
1993, respectively. Components of the accrual recorded in the Company's
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 31
----------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Accumulated Postretirement
Benefit Obligation:
Retirees $ 11,197 $ 13,380
Active employees eligible to retire 4,716 5,117
Other active employees 5,354 6,466
--------- ---------
21,267 24,963
Unrecognized gains 7,953 3,103
--------- ---------
$ 29,220 $ 28,066
========= =========
</TABLE>
POSTEMPLOYMENT BENEFITS - As of January 1, 1993, the Company adopted
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," and
recorded an accumulated postemployment benefit obligation of
$16,537,000. The accumulated postemployment benefit obligation, which
had no tax effect, was recorded as the cumulative effect of an
accounting change. The obligation primarily represents future medical
costs relating to short-term and long-term disability. As of December
31, 1994 and 1993, the amount of the obligation was $18,460,000 and
$16,537,000, respectively.
EQUITY PARTICIPATION PLAN - During 1988, the Company adopted The
Southland Corporation Equity Participation Plan (the "Participation
Plan"), which provides for the granting of both incentive options and
nonstatutory options and the sale of convertible debentures to certain
key employees and officers of the Company. The options were granted at
the fair market value on the date of grant, which is the same as the
conversion price provided in the debentures.
All options expire, and the debentures mature, no later than December
31, 1997. All options and convertible debentures that were vested
became exercisable as of December 31, 1994, pursuant to the terms of the
Participation Plan. In the aggregate, not more than 3,529,412 shares of
common stock of the Company can be issued pursuant to the Participation
Plan; however, the Company has no present intent to grant additional
options under this plan. The shares available for issuance under the
Participation Plan are reduced by the number of shares issued under the
Grant Stock Plan. At December 31, 1994, there were vested options
outstanding to acquire 1,760,803 shares, of which 1,677,128 were at
$7.50 per share and 83,675 were at $7.70 per share, and vested
debentures outstanding that were convertible into 17,833 shares. Of the
options and debentures that were vested as of December 31, 1994, 539,803
options to acquire 539,803 shares and debentures convertible into 11,167
shares will expire on March 31, 1995, for those participants who are no
longer with the Company.
54
GRANT STOCK PLAN - During 1988, the Company adopted The Southland
Corporation Grant Stock Plan (the "Stock Plan"). Under the provisions
of the Stock Plan, up to 750,000 shares of common stock are authorized
to be issued to certain key employees and officers of the Company. The
stock was fully vested upon the date of issuance. As of December 31,
1994, 480,844 shares had been issued pursuant to the Stock Plan. No
shares have been issued since 1988, and the Company has no present
intent to grant additional shares.
14. LEASES, COMMITMENTS AND CONTINGENCIES
LEASES - Certain property, plant and equipment used in the Company's
business is leased. Generally, real estate leases are for primary terms
from 14 to 20 years with options to renew for additional periods, and
equipment leases are for terms from one to ten years. The leases do not
contain restrictions that have a material effect on the Company's
operations.
The composition of capital leases reflected as property, plant and
equipment in the consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
December 31
------------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Buildings $ 125,600 $ 143,273
Equipment 225 226
---------- ----------
125,825 143,499
Accumulated amortization (78,103) (80,467)
---------- -----------
$ 47,722 $ 63,032
========== ===========
</TABLE>
The present value of future minimum lease payments for capital lease
obligations is reflected in the consolidated balance sheets as long-term
debt. The amount representing imputed interest necessary to reduce net
minimum lease payments to present value has been calculated generally at
the Company's incremental borrowing rate at the inception of each lease.
55
Future minimum lease payments for years ending December 31 are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
1995 $ 23,937 $ 113,417
1996 22,629 104,700
1997 21,002 93,494
1998 19,317 78,021
1999 17,904 58,684
Thereafter 77,142 231,187
---------- ----------
Future minimum lease payments 181,931 $ 679,503
==========
Estimated executory costs (519)
Amount representing imputed interest (76,253)
----------
Present value of future minimum
lease payments $ 105,159
==========
</TABLE>
Minimum noncancelable sublease rental income to be received in the
future, which is not included above as an offset to future payments,
totals $26,053,000 for capital leases and $26,051,000 for operating
leases.
Rent expense on operating leases for the years ended December 31, 1994,
1993 and 1992, totaled $120,850,000, $124,402,000 and $135,657,000,
respectively, including contingent rent expense of $8,576,000,
$8,214,000 and $9,037,000, but reduced by sublease rent income of
$7,858,000, $8,545,000 and $8,252,000. Contingent rent expense on
capital leases for the years ended December 31, 1994, 1993 and 1992, was
$2,822,000, $3,084,000 and $3,964,000, respectively. Contingent rent
expense is generally based on sales levels or changes in the Consumer
Price Index.
56
LEASES WITH THE SAVINGS AND PROFIT SHARING PLAN - At December 31, 1994,
the Savings and Profit Sharing Plan owned 253 stores leased to the
Company under capital leases and 647 stores leased to the Company under
operating leases at rentals which, in the opinion of management,
approximated market rates at the date of lease. In addition, 43, 62 and
31 properties were sold by the Savings and Profit Sharing Plan to third
parties in 1994, 1993 and 1992, respectively, and at the same time, the
related leases with the Company were either cancelled or assigned to the
new owner. Included in the consolidated financial statements are the
following amounts related to leases with the Savings and Profit Sharing
Plan:
<TABLE>
<CAPTION>
December 31
-----------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Buildings (net of accumulated amortization
of $9,619 and $9,973) $ 3,191 $ 4,884
========= =========
Capital lease obligations (net of current
portion of $1,945 and $2,307) $ 4,109 $ 6,583
========= =========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------
1994 1993 1992
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Rent expense under operating leases and
amortization of capital lease assets $ 28,195 $ 30,028 $ 31,291
========= ======== ========
Imputed interest expense on capital
lease obligations $ 696 $ 948 $ 1,213
========= ======== ========
Capital lease principal payments included
in principal payments under long-term
debt agreements $ 2,075 $ 2,200 $ 2,302
========= ======== ========
</TABLE>
COMMITMENTS
MCLANE - In connection with the 1992 sale of assets to McLane, the
Company and McLane entered into a ten-year service agreement under which
McLane is making its distribution services available to 7-Eleven stores
in the United States. If the Company does not fulfill its obligation to
McLane during this time period, the Company must reimburse McLane on a
pro-rata basis for the transitional payment received at the time of the
transaction. The original payment received of $9,450,000 in 1992 is
being amortized to income over the life of the agreement. The Company
has exceeded the minimum annual purchases each year and expects to
exceed the minimum required purchase levels in future years.
CITGO PETROLEUM CORPORATION - In 1986, the Company entered into a
20-year product purchase agreement with Citgo to buy specified
quantities of gasoline at market prices. These prices are determined
pursuant to a formula based on the prices posted by gasoline wholesalers
in the various market areas where the Company purchases gasoline from
Citgo. Minimum required annual purchases under this agreement are
generally the lesser of 750 million gallons or 35% of gasoline purchased
57
by the Company for retail sale. The Company has exceeded the minimum
required annual purchases each year and expects to exceed the minimum
required annual purchase levels in future years.
CONTINGENCIES
GASOLINE STORE SITES - The Company accrues future costs, as well as
records the related probable state reimbursement amounts, for
remediation of gasoline store sites where releases of regulated
substances have been detected. At December 31, 1994 and 1993,
respectively, the Company's estimated liability for sites where releases
have been detected was $63,424,000 and $59,153,000, of which $32,924,000
and $35,333,000 is included in deferred credits and other liabilities
and the remainder in accrued expenses and other liabilities. The Company
has recorded receivables of $57,246,000 and $57,532,000 (net of
allowances of $18,890,000 and $12,529,000) for the estimated probable
state reimbursements, of which $47,746,000 and $52,238,000 is included
in other assets and the remainder in accounts and notes receivable. The
Company reduced the estimated net environmental cost reimbursements at
the end of 1994 by approximately $6,000,000 as a result of completing a
review of state reimbursement programs. The estimated future
remediation expenditures and related state reimbursement amounts could
change as governmental requirements and state reimbursement programs
change in future years.
The Company anticipates that substantially all of the future remediation
costs for sites with detected releases of regulated substances at
December 31, 1994, will be incurred within the next five years. There
is no assurance of the timing of the receipt of state reimbursement
funds. However, based on the Company's experience, the Company expects
to receive state reimbursement funds within one to four years after
payment of eligible remediation expenses, assuming that the state
administrative procedures for processing such reimbursements have been
fully developed.
CHEMICAL MANUFACTURING FACILITY - In December 1988, the Company closed
its chemical manufacturing facility in New Jersey. As a result, the
Company is required to conduct environmental remediation at the facility
and has accrued a liability for this purpose. As required, the Company
has submitted a clean-up plan to the New Jersey Department of
Environmental Protection (the "State"), which provides for remediation
of the site for approximately a three-to-five-year period as well as
continued groundwater treatment for a projected 20-year period. While
the Company has received initial comments from the State, the clean-up
plan has not been finalized. The Company has recorded liabilities
representing its best estimates of the clean-up costs of $39,254,000 and
$38,879,000 at December 31, 1994 and 1993, respectively. Of this
amount, $34,180,000 and $33,795,000 are included in deferred credits and
other liabilities and the remainder in accrued expenses and other
liabilities for the respective years.
The closed chemical manufacturing facility was previously owned by a
large chemical company. In 1991, the Company and the former owner
executed a final settlement agreement pursuant to which the former owner
agreed to pay a substantial portion of the clean-up costs. The Company
58
has recorded receivables of $23,009,000 and $22,800,000 at December 31,
1994 and 1993, respectively, representing the former owner's portion of
the clean-up costs. Of this amount, $19,800,000 is included in other
assets and the remainder in accounts and notes receivable for both 1994
and 1993.
15. INCOME TAXES
As of January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." There was no cumulative effect adjustment upon
adoption, and there was no effect on net earnings for the year ended
December 31, 1993. As permitted, the Company has not restated the
financial statements of prior years. Prior to January 1, 1993, income
taxes were recorded using the deferred method specified by Accounting
Principles Board Opinion No. 11, "Accounting for Income Taxes."
SFAS No. 109 requires the use of the liability method, in which deferred
tax assets and liabilities are recognized for differences between the
tax basis of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets include tax carryforwards and
are reduced by a valuation allowance if, based on available evidence, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized.
The components of earnings (loss) before income taxes, extraordinary
gain and cumulative effect of accounting change are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------
1994 1993 1992
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Domestic $ 70,615 $ 3,795 $ (113,940)
Foreign 2,881 (6,375) (6,009)
---------- ---------- -----------
$ 73,496 $ (2,580) $ (119,949)
========== ========== ===========
</TABLE>
59
The provision for income taxes in the accompanying Consolidated
Statements of Operations consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------
1994 1993 1992
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Current:
Federal $ 6,799 $ 2,759 $ 4,560
Foreign 8,515 5,941 5,411
State 350 - 1,529
---------- ---------- ----------
15,664 8,700 11,500
Tax benefit of operating loss
carryforward (4,164) - -
Reduction in valuation allowance (30,000) - -
---------- ---------- ----------
$ (18,500) $ 8,700 $ 11,500
========== ========== ==========
</TABLE>
Reconciliations of income taxes at the federal statutory rate to the
Company's actual income taxes provided are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------
1994 1993 1992
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Taxes (benefit) at federal statutory
rate $ 25,724 $ (903) $ (40,783)
State income taxes, net of federal
income tax benefit 228 - 1,009
Foreign tax rate difference 1,212 2,232 2,354
Loss providing no current
benefit - - 5,061
Amortization of cost in excess
of tax basis - - 23,286
Difference in LIFO as a result of
purchase accounting - - 8,671
Net change in valuation allowance
excluding the tax effect of
extraordinary items and the
cumulative effect of accounting
changes (excluding $5,865 of tax
credits and other items providing
no benefit in 1994) (47,943) 4,112 -
Other 2,279 3,259 11,902
---------- --------- ----------
$ (18,500) $ 8,700 $ 11,500
========== ========= ==========
</TABLE>
60
At December 31, 1994, the Company had approximately $20,000,000 of
general business credit carryforwards, $10,800,000 of foreign tax credit
carryforwards and $17,900,000 of alternative minimum tax ("AMT") credit
carryforwards. The AMT credits have no expiration date. The general
business credits expire during the period from 2001 to 2009, and the
foreign tax credits expire during the period 1998 to 1999.
The valuation allowance for deferred tax assets decreased by $42,078,000
in 1994 due to changes in the Company's gross deferred tax assets and
liabilities and the realization of a portion of the Company's net
deferred tax asset. Based on a one-year projection of taxable income,
the Company has recognized a portion of its net deferred tax asset
through a $30 million reduction in the valuation allowance with
$13,861,000 recorded in other current assets and the remainder in other
assets. Taxable income for 1995 was projected by utilizing steady state
assumptions defined as only inflationary increases in sales and no
increase in gross profit margins. If the Company's current trend of
profitability continues, then additional deferred tax assets of up to
approximately $175 million could be recognized in future periods. In
1993, the valuation allowance decreased by $21,817,000 due to changes in
the Company's gross deferred tax assets and liabilities.
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------
1994 1993
---- ----
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
SFAS No. 15 interest $ 125,694 $ 139,831
Accrued insurance 58,514 58,312
Tax credit carryforwards 48,765 43,562
Accrued liabilities 43,890 57,974
Compensation and benefits 34,029 33,535
Debt issuance costs 15,445 21,658
Other 5,537 4,055
----------- -----------
Subtotal 331,874 358,927
Deferred tax liabilities:
Area license agreements (92,515) (99,932)
Property, plant and equipment (29,192) (36,751)
Other (5,578) (5,577)
----------- -----------
Subtotal (127,285) (142,260)
Valuation allowance (174,589) (216,667)
----------- -----------
Net deferred taxes $ 30,000 $ 0
=========== ===========
</TABLE>
61
16. EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share is based on net earnings (loss)
divided by the weighted average number of shares outstanding during each
year. The exercise of outstanding stock options would not result in a
dilution of earnings per share.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994:
-----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
(Dollars in Millions, Except Per-Share Data)
<S> <C> <C> <C> <C> <C>
Net sales $ 1,512 $ 1,720 $ 1,811 $ 1,641 $ 6,684
Gross profit 328 396 420 396 1,540
Income taxes (benefit) 1 6 6 (32) (19)
Net earnings (loss) (8) 32 43 25 92
Primary and fully diluted
earnings (loss) per
common share (.02) .08 .10 .06 .22
</TABLE>
The second quarter includes a $4,500,000 recovery on a 1992 insurance
claim. The fourth quarter includes $30 million of realized deferred tax
benefit (see Note 15), $7,405,000 of expenses accrued for severance and
related costs (see Note 8), $7,696,000 of expense related to store
closings and dispositions of properties, and approximately $6,000,000 in
expense relating to the reduction of estimated net environmental cost
reimbursements (see Note 14).
62
<TABLE>
<CAPTION>
Year Ended December 31, 1993:
-----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
(Dollars in Millions, Except Per-Share Data)
<S> <C> <C> <C> <C> <C>
Net sales $ 1,582 $ 1,773 $ 1,780 $ 1,609 $ 6,744
Gross profit 350 418 434 371 1,573
Income taxes 2 2 2 3 9
Earnings (loss) before
extraordinary gain and
cumulative effect of
accounting change (16) 19 22 (36) (11)
Net earnings (loss) (33) 19 121 (36) 71
Primary and fully diluted
earnings (loss) per
common share before
extraordinary gain and
cumulative effect of
accounting change (.04) .05 .05 (.09) (.03)
</TABLE>
The first quarter includes $16,537,000 of expense resulting from the
cumulative effect of an accounting change for postemployment benefits
(see Note 13). The third quarter includes a $98,968,000 extraordinary
gain on redemption of debt related to the Refinancing (see Note 9) and a
$10,300,000 loss on disposition of the Company's aviation facility
(which was subsequently adjusted to a total loss of $10,814,000 in the
fourth quarter). The fourth quarter includes a loss of $42,791,000
related to store closings and dispositions of properties, a LIFO credit
of $9,051,000 primarily due to lower cigarette and gasoline prices, and
$5,989,000 of expense resulting from a cost-cutting program associated
with the Company's 1993 reorganization.
63
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
The Southland Corporation
We have audited the accompanying consolidated balance sheets of The
Southland Corporation and Subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 The Southland
Corporation and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in Notes 13 and 15 to the financial statements, in 1993 the
Company changed its method of accounting for postemployment benefits and
for income taxes to conform with Statements of Financial Accounting
Standards No. 112 and No. 109, respectively.
Coopers & Lybrand L.L.P.
Dallas, Texas
February 23, 1995
64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required in response to this Item is
incorporated by reference from the Registrant's Definitive Proxy Statement
for the April 26, 1995 Annual Meeting of Shareholders.
See also "Executive Officers of the Registrant" beginning on page 17,
herein.
ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this Item is incorporated
herein by reference from the Registrant's Definitive Proxy Statement for the
April 26, 1995 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required in response to this Item is incorporated herein
by reference from the Registrant's Definitive Proxy Statement for the April 26,
1995 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this Item is incorporated herein
by reference to the Registrant's Definitive Proxy Statement for the April 26,
1995 Annual Meeting of Shareholders.
65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. The Southland Corporation and Subsidiaries' Financial Statements for
the three years in the period ended December 31, 1994 are included herein:
PAGE
Consolidated Balance Sheets - December 31, 1994 and 1993 38
Consolidated Statements of Operations - Years Ended December 31,
1994, 1993 and 1992 39
Consolidated Statements of Shareholders' Equity (Deficit)
- Years Ended December 31, 1994, 1993 and 1992 40
Consolidated Statements of Cash Flows - Years Ended December 31,
1994, 1993 and 1992 41
Notes to Consolidated Financial Statements 42
Independent Auditors' Report of Coopers & Lybrand L.L.P. 64
2. The Southland Corporation and Subsidiaries' Financial Statement
Schedules, included herein.
PAGE
Independent Auditors' Report of Coopers & Lybrand L.L.P. on
Financial Statement Schedule 70
II - Valuation and Qualifying Accounts 71
All other schedules have been omitted because they are not applicable, are not
required, or the required information is shown in the financial statements or
notes thereto.
3. The following is a list of the Exhibits required to be filed by Item 601
of Regulation S-K.
EXHIBIT NO.
2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION
OR SUCCESSION.
2.(1) Debtor's Plan of Reorganization, dated October 24, 1990, as
filed in the United States Bankruptcy Court, Northern District
of Texas, Dallas Division, and Addendum to Debtor's Plan of
Reorganization dated January 23, 1991, incorporated by reference
to The Southland Corporation's Current Report on Form 8-K dated
January 23, 1991, File Numbers 0-676 and 0-16626, Exhibits 2.1
and 2.2.
2.(2) Stock Purchase Agreement, dated as of January 25, 1991, by and
among The Southland Corporation, Ito-Yokado Co., Ltd. and
Seven-Eleven Japan Co., Ltd., incorporated by reference to The
Southland Corporation's Current Report on Form 8-K dated
January 23, 1991, File Numbers 0-676 and 0-16626, Exhibit 2.3.
2.(3) Confirmation Order issued on February 21, 1991 by the United
States Bankruptcy Court for the Northern District of Texas,
Dallas Division, incorporated by reference to The Southland
Corporation's Current Report on Form 8-K dated March 4, 1991,
File Numbers 0-676 and 0-16626, Exhibit 2.1.
66
3. ARTICLES OF INCORPORATION AND BYLAWS.
3.(1) Second Restated Articles of Incorporation of The Southland
Corporation, as amended through March 5, 1991, incorporated
by reference to The Southland Corporation's Annual Report on
Form 10-K for the year ended December 31, 1990, Exhibit 3.(1).
3.(2) Bylaws of The Southland Corporation, restated as amended
through March 5, 1991, incorporated by reference to The
Southland Corporation's Annual Report on Form 10-K for the year
ended December 31, 1990, Exhibit 3.(2).
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES (SEE EXHIBITS (3).(1) AND (3).(2), ABOVE).
4.(i)(1) Specimen Certificate for Common Stock, $.0001 par value,
incorporated by reference to The Southland Corporation's Annual
Report on Form 10-K for the year ended December 31, 1990,
Exhibit 4.(i)(2).
4.(i)(2) Form of Voting Agreement and Stock Transfer Restriction and
Buy-Back Agreement relating to shares of common stock, $.01 par
value, issued pursuant to Grant Stock Plan, incorporated by
reference to Registration Statement on Form S-8, Reg. No.
33-25327, Exhibits 4.5 and 4.4.
4.(i)(3) Shareholders Agreement dated as of November 1, 1988, by and
among The Southland Corporation, Thompson Brothers, L.P.,
Thompson Capital Partners, L.P., The Hayden Company, The
Williamsburg Corporation, Four J Investment, L.P., each Limited
Partner of Thompson Capital Partners, L.P. as of the date
thereof, and The Philp Co., incorporated by reference to File
No. 0-676, Annual Report on Form 10-K for year ended
December 31, 1988, Exhibit 4(i)(7), Tab 2.
4.(i)(4) Shareholders Agreement dated as of March 5, 1991, among The
Southland Corporation, Ito-Yokado Co., Ltd., IYG Holding
Company, Thompson Brothers, L.P., Thompson Capital Partners,
L.P., The Hayden Company, The Williamsburg Corporation, Four J
Investment, L.P., The Philp Co., participants in the Company's
Grant Stock Plan who are signatories thereto and certain
limited partners of Thompson Capital Partners, L.P. who are
signatories thereto, incorporated by reference to Schedule 13D
filed by Ito-Yokado Co., Ltd., Seven-Eleven Japan Co., Ltd. and
IYG Holding Company, Exhibit A.
4.(i)(5) First Amendment to Shareholders Agreement, dated December 30,
1992, incorporated by reference to File Nos. 0-676 and 0-16626,
Annual Report on Form 10-K for year ended December 31, 1992,
Exhibit 4.(i)(5), Tab 1.
4.(i)(6) Warrant Agreement dated as of March 5, 1991, among certain
Holders of Common Shares of The Southland Corporation named
therein, Wilmington Trust Company, as Warrant Agent, The
Southland Corporation and Ito-Yokado Co., Ltd., incorporated
by reference to Schedule 13D filed by Ito-Yokado Co., Ltd.,
Seven-Eleven Japan Co., Ltd. and IYG Holding Company, Exhibit B.
4.(i)(7) Specimen Warrant Certificates to Purchase Common Shares of The
Southland Corporation pursuant to Warrant Agreement dated as of
March 5, 1991, with Wilmington Trust Company as Warrant Agent,
incorporated by reference to The Southland Corporation's Annual
Report on Form 10-K for the year ended December 31, 1990,
Exhibit 4.(i)(7).
4.(ii)(1) Indenture, including Debenture, with Ameritrust Company
National Association, as trustee, providing for 5% First Priority Senior
Subordinated Debentures due December 15, 2003, incorporated by
reference to The Southland Corporation's Annual Report on Form
10-K for the year ended December 31, 1990, Exhibit 4.(ii)(2).
4.(ii)(2) Indenture, including Debentures, with The Riggs National Bank
67
of Washington, D.C., as trustee providing for 4 1/2% Second
Priority Senior Subordinated Debentures (Series A) due
June 15, 2004, 4% Second Priority Senior Subordinated
Debentures (Series B) due June 15, 2004, and 12% Second
Priority Senior Subordinated Debentures (Series C) due
June 15, 2009, incorporated by reference to The Southland
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1990, Exhibit 4.(ii)(3).
4.(ii)(3) Indenture among Cityplace Center East Corporation,
Security Pacific National Bank, as trustee, and The
Sanwa Bank Limited, Dallas Agency, dated as of
February 15, 1987, providing for 7 7/8% Notes due
February 15, 1995, incorporated by reference to File
No. 0-676, Annual Report on Form 10-K for the year ended
December 31, 1986, Exhibit 4(ii)(8).
4.(ii)(4) Specimen 7 7/8% Note due February 15, 1995, issued by
Cityplace Center East Corporation, incorporated by
reference to File No. 0-676, Annual Report on Form 10-K
for the year ended December 31, 1986, Exhibit 4(ii)(9).
9. VOTING TRUST AGREEMENT. NONE. (EXCEPT SEE EXHIBITS
4.(i)(2), 4.(i)(4) AND 4.(i)(5), ABOVE.)
10. MATERIAL CONTRACTS.
10.(i)(1) Stock Purchase Agreement among The Southland Corporation,
Ito-Yokado Co., Ltd. and Seven-Eleven Japan Co., Ltd.,
dated as of January 25, 1991. See Exhibit 2.(2), above.
10.(i)(2) Credit Agreement, dated as of July 31, 1987, amended Tab 1
and restated as of December 16, 1994, among The
Southland Corporation, the financial institutions party
thereto as Senior Lenders, the financial institutions
party thereto as Issuing Banks, Citicorp North America,
Inc., as Administrative Agent, and The Sakura Bank,
Limited, New York Branch, as Co-Agent.*
10.(i)(3) Credit and Reimbursement Agreement by and between Cityplace
Center East Corporation, an indirect wholly owned
subsidiary of Southland, and The Sanwa Bank Limited, Dallas
Agency, dated February 15, 1987, relating to $290 million
of 7 7/8% Notes due February 15, 1995, issued by Cityplace
Center East Corporation (to which Southland is not a party
and which is non-recourse to Southland), incorporated by
reference to File No. 0-676, Annual Report on Form 10-K
for the year ended December 31, 1986, Exhibit 10(i)(6).
10.(i)(4) Third Amendment to Credit and Reimbursement Agreement, Tab 2
dated as of February 10, 1995, by and between The Sanwa
Bank, Limited, Dallas Agency and Cityplace Center
East Corporation.*
10.(i)(5) Amended and Restated Lease Agreement between Cityplace
Center East Corporation and The Southland Corporation
relating to The Southland Tower, Cityplace Center, Dallas,
Texas, incorporated by reference to The Southland
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1990, Exhibit 10.(i)(7).
10.(i)(6) Limited Recourse Financing for The Southland Corporation
relating to royalties from Seven-Eleven (Japan) Company,
Ltd. in the amount of Japanese Yen 41,000,000,000, dated
March 21, 1988, incorporated by reference to File No.
0-676, Annual Report on Form 10-K for year ended
December 31, 1988, Exhibit 10.(i)(6).
10.(ii)(B)(1) Standard Form of 7-Eleven Store Franchise Agreement,
incorporated by reference to File No. 0-676 and 0-16626,
Annual Report on Form 10-K for year ended December 31,
1992, Exhibit 10.(ii)(B)(1).
10.(iii)(A)(1) John P. Thompson Employment Agreement dated as of March 5,
1991, incorporated by reference to The Southland
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1990, Exhibit 10.(iii)(A)(1).
68
10.(iii)(A)(2) Jere W. Thompson Employment Agreement dated as of
March 5, 1991, incorporated by reference to The Southland
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1990, Exhibit 10.(iii)(A)(2).
10.(iii)(A)(3) The Southland Corporation Executive Protection Plan
Summary, incorporated by reference to The Southland
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1993, Exhibit 10.(iii)(A)(3).
10.(iii)(A)(4) The Southland Corporation Officers' Deferred Compensation
Plan, sample agreement, incorporated by reference to The
Southland Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993, Exhibit 10.(iii)(A)(4).
10.(iii)(A)(5) Executive Interest Differential Reimbursement Program,
incorporated by reference to File No. 0-676, Annual
Report on Form 10-K for the year ended December 31, 1982,
Exhibit 10(iii)(A)(9), Tab 4.
10.(iii)(A)(6) Bonus Deferral Agreement relating to deferral of Bonus
Payment, incorporated by reference to File No. 0-676,
Annual Report on Form 10-K for the year ended December 31,
1988, Exhibit 10(iii)(A)(9), Tab 7.
10.(iii)(A)(7) Form of documents relating to Collateral Assignment of
Insurance Program, incorporated by reference to File Nos.
0-676 and 0-16626, Annual Report on Form 10-K for the year
ended December 31, 1989, Exhibit 10.(iii)(A)(10), Tab 4.
10.(iii)(A)(8) 1993 Performance Plan, as amended January 1994,
incorporated by reference to The Southland Corporation's
Annual Report on Form 10-K for the year ended December 31,
1993, Exhibit 10.(iii)(A)(8).
10.(iii)(A)(9) Consultant's Agreement between The Southland Corporation
and Timothy N. Ashida, incorporated by reference to File
No. 0-676, Annual Report on Form 10-K for the year ended
December 31, 1991, Exhibit 10(iii)(A)(10), Tab 4.
11. STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS. Tab 3
CALCULATION OF EARNINGS PER SHARE.*
21. SUBSIDIARIES OF THE REGISTRANT AS OF MARCH 1995.* Tab 4
23. CONSENTS OF EXPERTS AND COUNSEL.
Consent of Coopers & Lybrand L.L.P., Independent Tab 5
Auditors.*
27. FINANCIAL DATA SCHEDULE.
FILED ELECTRONICALLY ONLY, NOT ATTACHED TO PRINTED
REPORTS.
__________________________
File or furnished herewith
(b) Reports on Form 8-K.
During the fourth quarter of 1994, the Company filed no reports on
Form 8-K.
(c) The exhibits required by Item 601 of Regulation S-K are attached hereto
or incorporated by reference herein.
(d)(3) The financial statement schedules for The Southland Corporation and
Subsidiaries are included herein.
69
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
The Southland Corporation
Our report on the consolidated financial statements of The Southland
Corporation and Subsidiaries, which includes an explanatory paragraph
describing the changes in methods of accounting for postemployment benefits
and income taxes in 1993, is included on page 64 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 66 of
this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Dallas, Texas
February 23, 1995
70
<TABLE>
SCHEDULE II
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged to Balance at
beginning costs and other end
of period expenses accounts Deductions (1) of period
--------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994.................... $ 7,822 $ 307 $ 153 (2) $ (1,492) $ 6,790
Year ended December 31, 1993.................... 11,925 6,021 1,209 (2) (11,333) 7,822
Year ended December 31, 1992.................... 13,397 9,028 335 (2) (10,835) 11,925
Allowance for environmental cost reimbursements:
Year ended December 31, 1994.................... 12,529 6,361 - - 18,890
Year ended December 31, 1993.................... - - 12,529 (3) - 12,529
Year ended December 31, 1992.................... - - - - -
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Represents amounts charged to the reserve for the sale and closing of the
distribution and food centers (see Note 6 of Notes to Consolidated
Financial Statements).
(3) Prior to year ended December 31, 1993, the allowance and related
receivables were netted with the environmental liability.
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE SOUTHLAND CORPORATION
(Registrant)
March 28, 1995 /s/ Clark J. Matthews, II________________
Clark J. Matthews, II
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Masatoshi Ito Chairman of the Board and Director March 28, 1995
---------------------------
Masatoshi Ito
/s/ Toshifumi Suzuki Vice Chairman of the Board and Director March 28, 1995
---------------------------
Toshifumi Suzuki
/s/ Clark J. Matthews, II President and Chief Executive Officer March 28, 1995
--------------------------- and Director (Principal Executive
Clark J. Matthews, II Officer) and Acting Chief Financial
(Principal Financial Officer) Officer
/s/ Vernon P. Lotman Vice President and Controller March 28, 1995
---------------------------- (Principal Accounting Officer)
Vernon P. Lotman
/s/ Yoshitami Arai Director March 28, 1995
----------------------------
Yoshitami Arai
/s/ Timothy N. Ashida Director March 28, 1995
----------------------------
Timothy N. Ashida
/s/ Jay W. Chai Director March 28, 1995
----------------------------
Jay W. Chai
/s/ Gary J. Fernandes Director March 28, 1995
----------------------------
Gary J. Fernandes
/s/ Masaaki Kamata Director March 28, 1995
----------------------------
Masaaki Kamata
/s/ Kazuo Otsuka Director March 28, 1995
----------------------------
Kazuo Otsuka
/s/ Asher O. Pacholder Director March 28, 1995
----------------------------
Asher O. Pacholder
/s/ Nobutake Sato Director March 28, 1995
----------------------------
Nobutake Sato
/s/ Tatsuhiro Sekine Director March 28, 1995
----------------------------
Tatsuhiro Sekine
/s/ Jere W. Thompson Co-Vice Chairman of the Board and March 28, 1995
---------------------------- Director
Jere W. Thompson
/s/ John P. Thompson Co-Vice Chairman of the Board and March 24, 1995
---------------------------- Director
John P. Thompson
</TABLE>
CREDIT AGREEMENT
Dated as of July 31, 1987
AMENDED AND RESTATED AS OF
November 5, 1987
FURTHER AMENDED AND RESTATED AS OF
February 17, 1993
FURTHER AMENDED AND RESTATED AS OF
December 16, 1994
among
THE SOUTHLAND CORPORATION,
THE FINANCIAL INSTITUTIONS PARTY HERETO
AS SENIOR LENDERS,
THE FINANCIAL INSTITUTIONS PARTY HERETO
AS ISSUING BANKS,
CITICORP NORTH AMERICA, INC.,
as Administrative Agent
AND
THE SAKURA BANK, LIMITED, NEW YORK BRANCH,
as Co-Agent
<TABLE>
<CAPTION>
Section Page
------- ----
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.01. Certain Defined Terms 3
1.02. References to this Agreement 28
1.03. Computation Of Time Periods 28
1.04. Accounting Terms 28
1.05. Miscellaneous Terms 28
1.06. Other Defined Terms 28
1.07. Schedules and Exhibits 29
ARTICLE II
AMOUNTS AND TERMS OF LOANS
2.01. The Senior Term Loans 29
2.02. Revolving Credit Facility 31
2.03. Use of Proceeds of Loans. 35
2.04. Interest on the Loans 36
2.05. Fees. 40
2.06. Prepayments 41
2.07. Payments 42
2.08. Special Provisions Governing Eurodollar Rate Loans 46
2.09. Increased Capital 51
2.10. Replacement of Senior Lender in Event of Adverse
Condition 51
ARTICLE III
THE LETTER OF CREDIT SUBFACILITY
3.01. Obligation to Issue 52
3.02. Types and Amounts 52
3.03. Conditions 53
3.04. Issuance of Facility Letters of Credit 53
3.05. Reimbursement Obligations; Duties of Issuing Banks 54
3.06. Participations 55
3.07. Payment of Reimbursement Obligations 58
3.08. Compensation for Facility Letters of Credit 58
3.09. Issuing Bank Reporting Requirements 59
3.10. Indemnification; Exoneration 59
3.11. Transitional Provisions 61
3.12. Amount of Letter of Credit Subfacility 61
3.13. Obligations Several 63
-i-
</TABLE>
<TABLE>
<Captions>
Section Page
------- ----
ARTICLE IV
CONDITIONS TO LOANS AND FACILITY LETTERS OF CREDIT
<S> <C> <C>
4.01. Conditions Precedent to Initial Loans and Facility
Letters of Credit 63
4.02. Conditions Precedent to All Subsequent Revolving
Loans and Facility Letters of Credit 66
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Representations and Warranties 67
ARTICLE VI
REPORTING COVENANTS
6.01. Financial Statements 78
6.02. Environmental Notices 82
6.03. Other Reports 83
ARTICLE VII
AFFIRMATIVE COVENANTS
7.01. Corporate Existence, etc. 83
7.02. Compliance with Laws, etc. 84
7.03. Payment of Taxes and Claims 84
7.04. Maintenance of Properties; Insurance 84
7.05. Inspection of Property; Books and Records;
Discussions 85
7.06. Future Liens on Personal Property 85
ARTICLE VIII
NEGATIVE COVENANTS
8.01. Indebtedness 86
8.02. Sales of Assets; Liens 89
8.03. Investments 91
8.04. Accommodation Obligations. 92
8.05. Restricted Junior Payments. 93
8.06. Conduct of Business. 95
8.07. Transactions with Shareholders and Affiliates. 95
8.08. Restriction on Fundamental Changes. 95
-ii-
</TABLE>
<TABLE>
<Captions>
Section Page
------- ----
<S> <C> <C>
8.09. ERISA. 96
8.10. Commercial Paper Facility. 97
8.11. Sales and Leasebacks. 97
8.12. Subordinated Indebtedness. 97
8.13. Amendment of Charter or By-laws. 98
8.14. Disposal of Subsidiary Stock. 98
8.15. Margin Regulations. 98
8.16. Restrictions on Southland International, Inc. 98
8.17. Interest Rate Contracts 98
ARTICLE IX
FINANCIAL COVENANTS
9.01. Senior Indebtedness to EBITDA. 99
9.02. Minimum Interest Coverage Ratio 99
9.03. Minimum Fixed Charge Coverage Ratio 100
ARTICLE X
REAL ESTATE COVENANTS
10.01. Taxes. 101
10.02. Further Assurances. 101
10.03. Condemnation. 102
10.04. Future Liens on Real Property in Favor of the
Senior Lenders. 102
10.05. Real Estate Procedures 102
ARTICLE XI
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
11.01. Events of Default. 102
11.02. Rights and Remedies. 107
ARTICLE XII
THE ADMINISTRATIVE AGENT; THE CO-AGENT
12.01. Appointment. 109
12.02. Nature of Duties. 109
12.03. Rights, Exculpation, etc. 110
12.04. Reliance. 111
12.05. Indemnification. 111
12.06. The Administrative Agent Individually. 112
-iii-
</TABLE>
<TABLE>
<Captions>
Section Page
------- ----
<S> <C> <C>
12.07. Successor Administrative Agent; Resignation of
Agent. 112
12.08. Collateral Matters. 112
12.09. The Co-Agent. 115
ARTICLE XIII
MISCELLANEOUS
13.01. Concerning the Collateral and the Collateral
Documents. 116
13.02. Assignments and Participations. 116
13.03. Expenses. 118
13.04. Indemnity. 119
13.05. Change in Accounting Principles. 120
13.06. Set-Off. 120
13.07. Ratable Sharing. 121
13.08. Amendments and Waivers. 122
13.09. Independence of Covenants. 123
13.10. Notices. 123
13.11. Survival of Warranties and Agreements. 124
13.12. Failure or Indulgence Not Waiver; Remedies
Cumulative. 124
13.13. Advice of Counsel. 124
13.14. Marshalling; Payments Set Aside. 124
13.15. Severability. 124
13.16. Headings. 125
13.17. Governing Law. 125
13.18. Limitation of Liability. 125
13.19. Successors and Assigns; Subsequent Holders of
Notes. 125
13.20. Consent to Jurisdiction and Service of Process;
Waiver of Jury Trial. 126
13.21. Counterparts; Effectiveness; Inconsistencies. 126
13.22. Foreign Bank Certifications. 126
13.23. Performance of Obligations. 128
13.24. Limitation on Agreements. 128
13.25. Construction. 129
13.26. Confidentiality. 129
13.27. No Novation. 130
</TABLE>
-iv-
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
Exhibit 1 - [Intentionally Omitted]
Exhibit 2 - Form of Assignment and Acceptance
Exhibit 3 - Terms of Commercial Paper
Exhibit 4 - Form of Compliance Certificate
Exhibit 5 - Provisions to be included in Eligible
Interest Rate Contracts
Exhibit 6-A - Notice of Borrowing (Senior Term Loans)
Exhibit 6-B - Notice of Borrowing (Revolving Loans)
Exhibit 7 - Notice of Conversion/Continuation
Exhibit 8-A - Collateral Patent Agreement
Exhibit 8-B - Form of Amendment and Supplement to
Collateral Patent Agreement
Exhibit 9 - Real Estate Procedures Memorandum
Exhibit 10-A - Security and Pledge Agreement
Exhibit 10-B - Form of Amendment and Supplement to Security
and Pledge Agreement
Exhibit 11-A - Third Party Pledge Agreement (Southland
International, Inc.)
Exhibit 11-B - Form of Amendment and Supplement to Third Party
Pledge Agreement (Southland International, Inc.)
Exhibit 12-A - Third Party Pledge Agreement (Southland Sales
Corporation)
Exhibit 12-B - Form of Amendment and Supplement to Third Party
Pledge Agreement (Southland Sales Corporation)
Exhibit 13-A - Collateral Trademark Agreement
Exhibit 13-B - Form of Amendment and Supplement to
Collateral Trademark Agreement
Exhibit 14 - Form of Senior Term Note
Exhibit 15 - Form of Revolving Credit Note
Exhibit 16-A - Notice of Reduction in Letter of Credit
Subfacility
Exhibit 16-B - [Intentionally Omitted]
Exhibit 17-A - Form of Opinion of Bryan F. Smith
Exhibit 17-B - Forms of Opinions of Shearman & Sterling
Exhibit 17-C - Form of Opinion of Johnson & Wortley
Exhibit 18 - Form of Letter from Coopers & Lybrand
Exhibit 19 - Form of Officers' No Default Certificate
Exhibit 20 - Form of Southland Canada Subordination
Agreement
Exhibit 21 - Form of Consent to Assignments and
Participations
Exhibit 22-A - Form of Certificate Relating to Section 1001
Exemption From United States Withholding Tax
Exhibit 22-B - Form of Certificate Relating to Section 1442
Exemption From United States Withholding Tax
</TABLE>
-v-
<TABLE>
<CAPTION>
SCHEDULES
<S> <C> <C>
Schedule 1.01-A - [Intentionally Omitted]
Schedule 1.01-B - Existing Indebtedness
Schedule 1.01-C - Existing Liens
Schedule 3.11 - Existing Letters of Credit
Schedule 5.01(iii) - Subsidiaries; Ownership of Capital
Stock
Schedule 5.01(xi) - Pending Litigation
Schedule 5.01(xxii) - Environmental Matters
Schedule 5.01(xxv) - Conflicts
</TABLE>
-vi-
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of July 31, 1987, amended and
restated as of November 5, 1987, further amended and restated as
of February 17, 1993 and further amended and restated as of
December 16, 1994 (as amended, restated, supplemented or
otherwise modified from time to time, the "Agreement") among THE
SOUTHLAND CORPORATION, a Texas corporation ("Southland" or the
"Borrower") as successor in interest to JT ACQUISITION
CORPORATION, a Texas corporation ("Acquisition"), the FINANCIAL
INSTITUTIONS FROM TIME TO TIME PARTY HERETO AS "SENIOR LENDERS"
OR "ISSUING BANKS" (each as defined below) and CITICORP NORTH
AMERICA, INC. (formerly known as CITICORP INDUSTRIAL CREDIT,
INC.) ("Citicorp"), in its separate capacity as Administrative
Agent for the Senior Lenders and the Issuing Banks hereunder (in
such capacity, together with any successor administrative agent
appointed pursuant to SECTION 12.07, the "Administrative Agent")
and THE SAKURA BANK, LIMITED, NEW YORK BRANCH, as Co-Agent (in
such capacity, the "Co-Agent" and, together with the
Administrative Agent, the "Agents").
WITNESSETH:
WHEREAS, Acquisition, the Administrative Agent, the
Agents and the Senior Lenders and Issuing Banks party thereto
entered into the Credit Agreement dated as of July 31, 1987 and
amended and restated as of November 5, 1987 (the "Original Credit
Agreement");
WHEREAS, Acquisition merged with and into Southland
pursuant to an Agreement and Plan of Merger dated as of July 3,
1987, and Southland assumed all of the Obligations of Acquisition
under the Original Credit Agreement pursuant to the Assumption
Agreement dated as of December 15, 1987;
WHEREAS, the Original Credit Agreement has been amended
by the First Amendment dated as of February 17, 1988, the Second
Amendment dated as of March 8, 1988, the Third Amendment dated as
of June 9, 1988, the Fourth Amendment dated as of August 1, 1988,
the Fifth Amendment dated as of October 12, 1988, the Sixth
Amendment dated as of October 12, 1988, the Seventh Amendment
dated as of December 12, 1988, the Eighth Amendment dated as of
December 12, 1988, the Ninth Amendment dated as of May 8, 1989,
the Tenth Amendment dated as of December 13, 1989, the Eleventh
Amendment dated as of January 26, 1990, the Twelfth Amendment
dated as of May 21, 1990, the Thirteenth Amendment dated as of
June 15, 1990, the Fourteenth Amendment dated as of July 16,
1990, the Sixteenth Amendment dated as of August 15, 1990, the
Seventeenth Amendment dated as of October 22, 1990, the
Eighteenth Amendment dated as of February 15, 1991, the
Nineteenth Amendment dated as of December 19, 1991, the Twentieth
Amendment dated as of March 20, 1992, the Twenty-first Amendment
dated as of September 3, 1992 and the Twenty-second Amendment
dated as of October 28, 1992 (collectively, the "Original
Amendments"; and the Original Credit Agreement, as amended by the
Original Amendments, the "First Amended and Restated Credit
Agreement");
WHEREAS, as of February 17, 1993, the First Amended and
Restated Credit Agreement was amended and restated in its
entirety to give effect to all of the Original Amendments thereto
through and including the Twenty-second Amendment and to delete
all provisions which were no longer operative (the First Amended
and Restated Credit Agreement, as so amended and restated and,
together with the First Amendment (as defined below), the "Second
Amended and Restated Credit Agreement");
WHEREAS, pursuant to the First Amendment to Second
Amended and Restated Credit Agreement dated as of July 30, 1993
(the "First Amendment"), Southland reborrowed a portion of the
Senior Term Loans which had been repaid prior to the date thereof
as "Readvanced Term Loans" from the "Readvancing Senior Lenders"
(each as defined in the First Amendment);
WHEREAS, in connection with the First Amendment, the
Readvancing Senior Lenders became parties to the Second Amended
and Restated Credit Agreement and, together with the "Prior Loan
Parties" (as defined in the First Amendment), beneficiaries of
the Collateral Documents;
WHEREAS, Southland, the Senior Lenders and Issuing
Banks which were party to the Second Amended and Restated Credit
Agreement (respectively, the "Old Senior Lenders" and "Old
Issuing Banks") and the Senior Lenders and Issuing Banks which
are party to this Agreement (respectively, the "New Senior
Lenders" and "New Issuing Banks") have entered into a Master
Assignment and Assumption Agreement dated as of December 16, 1994
(the "Master Assignment Agreement"), pursuant to which, among
other things, the Old Senior Lenders and Old Issuing Banks have
assigned certain of their respective interests thereunder (or, in
the case of certain Old Issuing Banks, made other arrangements
acceptable to such Old Issuing Bank) to the New Senior Lenders
and New Issuing Banks, and the New Senior Lenders and New Issuing
Banks have assumed the obligations assigned by the Old Senior
Lenders and Old Issuing Banks; upon consummation of the
transactions contemplated by the Master Assignment Agreement, the
New Senior Lenders and New Issuing Banks shall be the Senior
Lenders and Issuing Banks, respectively, under the Second Amended
and Restated Credit Agreement; and
-2-
WHEREAS, Southland, the Agents, the New Senior Lenders
and the New Issuing Banks desire to amend and restate the Second
Amended and Restated Credit Agreement in its entirety to give
effect to the terms and provisions set forth in this Agreement,
it being understood and agreed that (i) except as otherwise
provided in the Master Assignment Agreement with respect to
certain Letters of Credit and Past Default Interest, with respect
to any date or time period occurring and ending prior to the
Effective Date (as defined below), the rights and obligations of
the parties thereto shall be governed by the provisions of the
Second Amended and Restated Credit Agreement (including, without
limitation, the Exhibits and Schedules thereto) which for such
purposes, shall remain in full force and effect, (ii) except as
otherwise provided in the Master Assignment Agreement with
respect to certain Letters of Credit and Past Default Interest,
with respect to any date or time period occurring or ending on or
after the Effective Date, the rights and obligations of the
parties hereto shall be governed by this Agreement (including,
without limitation, the Exhibits and Schedules hereto) and (iii)
it is the intent of Southland, the Agents, the New Senior Lenders
and the New Issuing Banks that the New Senior Lenders, the New
Issuing Banks and all other Holders of Secured Obligations are
beneficiaries of the Collateral Documents and the Obligations
owing to such Persons are secured thereby;
AGREEMENT
NOW THEREFORE, in consideration of the foregoing
premises (each of which is incorporated herein), the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01. CERTAIN DEFINED TERMS. The following terms used
in this Agreement shall have the following meanings (such
meanings to be applicable both to the singular and the plural
forms of the terms defined):
"ACCOMMODATION OBLIGATION", as applied to any Person,
shall mean any contractual obligation, contingent or otherwise,
of that Person with respect to any Indebtedness or other
obligation or liability of another, including, without
limitation, any such Indebtedness, obligation or liability
directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), co-
made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly
-3-
liable, including Contractual Obligations (contingent or
otherwise) arising through any agreement to purchase, repurchase,
or otherwise acquire such Indebtedness, obligation or liability
or any security therefor, or to provide funds for the payment or
discharge thereof (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition,
or to make payment other than for value received.
"ACQUISITION" shall have the meaning ascribed to it in
the preamble hereto.
"ADMINISTRATIVE AGENT" shall have the meaning ascribed
to it in the preamble hereto. In respect of the Collateral, the
Administrative Agent shall also have the right to act on behalf
of certain other Holders of Secured Obligations as set forth in
this Agreement and the Collateral Documents.
"ADMINISTRATIVE AGENT'S FEES" shall have the meaning
ascribed to it in Section 2.05(a).
"AFFILIATE", as applied to any Person, shall mean any
other Person directly or indirectly controlling, controlled by,
or under common control with, that Person. For purposes of this
definition, "control" (including, with correlative meanings, the
terms "controlling", "controlled by" and "under common control
with"), as applied to any Person, shall mean the possession,
directly or indirectly, of the power to vote five percent (5%) or
more of the Securities having voting power for the election of
directors of such Person or otherwise to direct or cause the
direction of the management and policies of that Person, whether
through the ownership of voting Securities or by contract or
otherwise.
"AGENT" shall have the meaning ascribed to it in the
preamble hereto.
"AGREEMENT" shall have the meaning ascribed to it in
the preamble hereto.
"ASSIGNMENT AND ACCEPTANCE" shall mean, with respect to
any Senior Lender, an Assignment and Acceptance in substantially
the form of Exhibit 2, executed by each party thereto with blanks
appropriately completed.
"BANKRUPTCY CODE" shall mean Title 11 of the United
States Code (11 U.S.C. 101 et seq.), as amended from time to
time, or any successor statute.
"BASE RATE" shall mean, for any period, a fluctuating
interest rate per annum as shall be in effect from time to time,
-4-
which rate per annum shall at all times be equal to the highest
of:
(i) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate;
(ii) the sum (adjusted to the nearest one-quarter of
one percent (1/4 of 1%) or, if there is no nearest one-
quarter of one percent (1/4 of 1%), to the next higher one-
quarter of one percent (1/4 of 1%)) of (a) one-half of one
percent (1/2 of 1%) per annum plus (b) the latest three-week
moving average of secondary market morning offering rates in
the United States for three-month certificates of deposit of
major United States money market banks, such three-week
moving average (adjusted to the basis of a year of 365 days)
being determined weekly by Citibank on the basis of such
rates reported by certificate of deposit dealers to, and
published by, the Federal Reserve Bank of New York, or, if
such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Citibank from
three New York certificate of deposit dealers of recognized
standing selected by Citibank; and
(iii) the sum of (A) one-half of one percent (0.50%)
per annum PLUS (B) the Federal Funds Rate in effect from
time to time during such period.
"BASE RATE LOANS" shall mean all Loans outstanding
which bear interest at a rate determined by reference to the Base
Rate as provided in SECTION 2.04(a)(i).
"BENEFIT PLAN" shall mean any employee benefit plan
defined in Section 3(3) of ERISA, other than a Multiemployer
Plan, in respect of which the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate is an "employer" as defined in
Section 3(5) of ERISA.
"BORROWER" shall have the meaning ascribed to it in the
preamble hereto.
"BORROWING" shall mean, except as otherwise provided
in SECTION 2.08(e)(ii), a borrowing consisting of Loans of the
same type made on the same day by the Senior Lenders.
"BUSINESS ACTIVITY REPORT" shall mean (A) a Notice of
Business Activities Report from the State of New Jersey Division
of Taxation or (B) a Minnesota Business Activity Report from the
Minnesota Department of Revenue.
-5-
"BUSINESS DAY" shall mean (i) for all purposes other
than as covered by CLAUSE (ii) below, any day excluding Saturday,
Sunday, and any day which is a legal holiday under the law of the
State of New York or the State of Texas, or is a day on which
banking institutions located in either such state are required or
authorized by law or other governmental action to close and (ii)
with respect to all notices, determinations, fundings and
payments in connection with the Eurodollar Rate, any day which is
a Business Day described in CLAUSE (i) and which is also a day
for trading by and between banks in the London interbank
Eurodollar market.
"CAPITAL EXPENDITURES" shall mean, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as
liabilities during that period and including that portion of
Capital Leases which is capitalized on the consolidated balance
sheet of Southland and its Subsidiaries) by Southland and its
Subsidiaries during such period that, in conformity with GAAP,
are required to be included in or reflected by the property,
plant or equipment or similar fixed asset accounts reflected in
the consolidated balance sheet of Southland and its Subsidiaries.
"CAPITAL LEASE", as applied to any Person, shall mean
any lease of any property (whether real, personal, or mixed) by
that Person as lessee which, in conformity with GAAP, is
accounted for as a capital lease on the balance sheet of that
Person.
"CASH EQUIVALENTS" shall mean (i) marketable direct
obligations issued or unconditionally guaranteed by the United
States Government or issued by an agency thereof and backed by
the full faith and credit of the United States, in each case
maturing within one hundred eighty (180) days after the date of
acquisition thereof; (ii) marketable direct obligations issued by
any state of the United States of America or any political
subdivision of any such state or any public instrumentality
thereof maturing within one hundred eighty (180) days after the
date of acquisition thereof and, at the time of acquisition,
having one of the two highest ratings obtainable from either S&P
or Moody's (or, if at any time neither S&P nor Moody's shall be
rating such obligations, then from such other nationally
recognized rating services acceptable to the Administrative
Agent) and not listed in Credit Watch published by S&P;
(iii) commercial paper, other than commercial paper issued by
Southland or any of its Affiliates, maturing no more than one
hundred eighty (180) days after the date of creation thereof and,
at the time of acquisition, having a rating of at least A-1 or
Prime-1 from either S&P or Moody's (or, if at any time neither
S&P nor Moody's shall be rating such obligations, then the
highest rating from such other nationally recognized rating
-6-
services acceptable to the Administrative Agent); (iv) domestic
and Eurodollar certificates of deposit or time deposits or
bankers' acceptances maturing within one hundred eighty (180)
days after the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia or by
any foreign bank which is a Senior Lender, and in any case having
combined capital and surplus of not less than $250,000,000; (v)
overnight investments in an aggregate amount not to exceed
$50,000,000 at any one time in money-market funds in which such
investments are made by any commercial bank which is an Affiliate
of one of the fifty (50) largest bank holding companies in the
United States in connection with deposit accounts maintained at
such commercial bank; and (vi) investments by Southland Canada,
Inc., not exceeding $30,000,000 in the aggregate at any one time,
in Canadian Securities of the same type as the Securities
described in CLAUSES (i) through (iv).
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C.,
9601 et seq., any amendments thereto, any successor statutes and
any regulations or guidance promulgated thereunder.
"CHANGE OF CONTROL" shall mean the occurrence of either
of the following:
(i) the Purchaser (or any of them) shall cease to be
the direct or indirect owner, or shall cease to direct the
voting and disposition, of (A) at least 50%, in the
aggregate, of the outstanding shares of Common Stock and (B)
Securities of Southland (or other Securities convertible
into such Securities) representing at least 50%, in the
aggregate, of the combined voting power of all Securities of
Southland entitled to vote in the election of directors
(other than Securities having such power only by reason of
the happening of a contingency); or
(ii) the Purchaser (or any of them) shall cease to
have the power, in the aggregate, to elect at least a
majority of the directors on the Board of Directors of
Southland, or at any time, the Purchaser shall not have
voted in favor of the election of directors constituting at
least a majority of the Board of Directors of Southland.
"CITIBANK" shall mean Citibank, N.A., a national
banking association.
"CITICORP" shall have the meaning ascribed to it in the
preamble hereto.
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"CLOSING FEE" shall have the meaning ascribed to it in
SECTION 2.05(d).
"CO-AGENT" shall have the meaning ascribed to it in the
preamble hereto.
"COLLATERAL" shall mean all property and interests in
property now owned or hereafter acquired by Southland in or upon
which a security interest, lien or mortgage is granted or a
collateral assignment is made under the Collateral Documents.
"COLLATERAL DOCUMENTS" shall mean the Security
Agreement, the Trademark Security Agreement, the Patent Security
Agreement, the Real Estate Collateral Documents, the Third Party
Pledge Agreements and all security agreements, mortgages, deeds
of trust, collateral assignments and other agreements or
conveyances (and any amendments, supplements or modifications
thereto) at any time delivered to the Administrative Agent to
create or evidence Liens to secure the Obligations.
"COMMERCIAL LETTER OF CREDIT" shall mean any
documentary Letter of Credit which is drawable upon presentation
of documents evidencing the sale or shipment of goods purchased
by the Borrower in the ordinary course of its business.
"COMMERCIAL PAPER" shall mean (a) commercial paper
issued by Southland (i) which is unsecured, (ii) which qualifies
for the exemption from registration under Section 3(a)(3) of the
Securities Act, (iii) direct payment of which is fully and
unconditionally guaranteed by the Purchaser and (iv) which is
otherwise issued and outstanding on substantially the terms set
forth in EXHIBIT 3, together with such other or different terms,
and governed by such documents, as are acceptable to the
Administrative Agent and (b) unsecured Indebtedness for money
borrowed (to be used as a backup line for the commercial paper
described in CLAUSE (a) above) (i) which is subject to terms,
conditions and documentation satisfactory in form and substance
to the Requisite Senior Lenders, (ii) resulting from advances (if
any) which are applied to repay the commercial paper described in
CLAUSE (a) at the maturity thereof and (iii) direct payment of
which is fully and unconditionally guaranteed by the Purchaser.
"COMMERCIAL PAPER FACILITY" shall mean, at any time,
the aggregate maximum amount of Commercial Paper which is either
then outstanding or may then be issued.
"COMMISSION" shall mean the Securities and Exchange
Commission or any Person succeeding to the functions thereof.
"COMMITMENT" shall mean, with respect to any Senior
Lender, such Senior Lender's Term Loan Commitment and Revolving
-8-
Credit Commitment as adjusted in accordance with the terms of
this Agreement, and "Commitments" shall mean, collectively, the
Term Loan Commitments and Revolving Credit Commitments of all of
the Senior Lenders.
"COMMON STOCK" shall mean the common stock of
Southland, $.0001 par value per share.
"COMPLIANCE CERTIFICATE" shall mean a certificate
substantially in the form attached hereto as Exhibit 4 delivered
to the Senior Lenders by the Borrower pursuant to
SECTION 6.01(iv)(B).
"CONSOLIDATED CASH INTEREST EXPENSE" shall mean, for
any period, total interest expense, whether paid or accrued
(including the interest component of Capital Leases and cash
payments made as interest under the Senior Subordinated Debenture
Indentures and accounted for as a reduction of principal pursuant
to Statement of Financial Accounting Standards No. 15 of the
Financial Accounting Standards Board), of Southland and its
Subsidiaries on a consolidated basis, including, without
limitation, all commissions, discounts and other fees and charges
owed with respect to letters of credit and net costs under
Interest Rate Contracts, but excluding, however, (a) interest
expenses not payable in cash (including amortization of
discount), all as determined in conformity with GAAP and (b) Past
Default Interest.
"CONSOLIDATED FIXED CHARGES" shall mean, for any
period, the amounts for such period of (i) Consolidated Cash
Interest Expense, PLUS (ii) scheduled principal payments on the
Senior Term Loans (net of the application of all prepayments with
respect to such scheduled principal payments) and scheduled
principal payments on all Other Indebtedness (including the
principal component of Capital Lease obligations), MINUS (iii)
cash payments made as interest under the Senior Subordinated
Debenture Indentures and accounted for as a reduction of
principal pursuant to Statement of Financial Accounting Standards
No. 15 of the Financial Accounting Standards Board.
"CONSOLIDATED NET INCOME" shall mean, for any period,
the net earnings (or loss) after taxes of Southland and its
Subsidiaries on a consolidated basis for such period taken as a
single accounting period determined in conformity with GAAP.
"CONTRACTUAL OBLIGATION", as applied to any Person,
shall mean any provision of any Securities issued by that Person
or any indenture, mortgage, deed of trust, contract, undertaking,
document, instrument or other agreement or instrument to which
that Person is a party or by which it or any of its properties is
bound, or to which it or any of its properties is subject
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(including, without limitation, any restrictive covenant
affecting such Person or any of its properties).
"CURE LOANS" shall have the meaning ascribed to it in
SECTION 2.07(b)(iii)(C).
"CUSA" shall mean Citicorp USA, Inc., a Delaware
corporation.
"CUSTOMARY PERMITTED LIENS" shall mean
(i) Liens (other than Environmental Liens and any Lien
imposed under ERIASA) for taxes, assessments or charges of
any Governmental Authority or claims not yet due or which
are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance
with the provisions of GAAP;
(ii) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other
Liens, other than any Lien imposed under ERISA, imposed by
law created in the ordinary course of business for amounts
not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being
maintained in accordance with the provisions of GAAP;
(iii) Liens (other than any Lien imposed under ERISA)
incurred or deposits made in the ordinary course of business
(including, without limitation, surety bonds and appeal
bonds) in connection with workers' compensation,
unemployment insurance and other types of social security
benefits or to secure the performance of tenders, bids,
leases, contracts (other than for the repayment of
Indebtedness), statutory obligations and other similar
obligations or arising as a result of progress payments
under government contracts;
(iv) easements (including, without limitation,
reciprocal easement agreements and utility agreements),
rights-of-way, covenants, consents, reservations,
encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded), which do not
interfere materially with the ordinary conduct of the
business of the Borrower or its Subsidiaries and which do
not materially detract from the value of the property to
which they attach or impair the use thereof to Southland or
its Subsidiaries;
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(v) rights of tenants, subtenants, franchisees or
parties in possession (other than a debtor in possession,
trustee in bankruptcy or receiver in respect of the
Borrower), or options or rights of first refusal, whether
pursuant to leases, subleases, franchise agreements, other
occupancy agreements or otherwise, if such rights were
vested on the Effective Date or created thereafter in the
ordinary course of business in transactions permitted under
this Agreement;
(vi) extensions, renewals or replacements of any Lien
referred to in paragraphs (i) through (v) above, provided
that the principal amount of the obligation secured thereby
is not increased and that any such extension, renewal or
replacement is limited to the property originally encumbered
thereby; and
(vii) building restrictions, zoning laws and other
statutes, laws, rules, regulations, ordinances and
restrictions, and any amendments thereto, now or at any time
hereafter adopted by any governmental or quasi-Governmental
Authority having jurisdiction.
"DEFAULTING L/C PARTICIPANT" shall have the meaning
ascribed to it in SECTION 3.06(b)(ii).
"DEFINED BENEFIT PLAN" shall mean any employee benefit
plan defined in Section 3(3) of ERISA, other than a Multiemployer
Plan, which is subject to the provisions of Title IV of ERISA and
which is, or was at any time during the then five (5) preceding
years, maintained for employees of the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate.
"DOLLARS" and "$" shall mean the lawful money of the
United States of America.
"EBITDA" shall mean, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, plus (ii)
depreciation and amortization expense, plus (iii) interest
expense, PLUS (iv) federal, state and foreign income taxes, plus
(v) extraordinary losses (and any unusual losses in excess of
$5,000,000 arising in or outside of the ordinary course of
business not included in the extraordinary losses determined in
accordance with GAAP which have been included in the
determination of Consolidated Net Income), MINUS (vi)
extraordinary gains (and any unusual gains in excess of
$5,000,000 arising in or outside of the ordinary course of
business not included in extraordinary gains determined in
accordance with GAAP which have been included in the
determination of Consolidated Net Income).
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"EFFECTIVE DATE" shall mean the date on which this
Agreement shall become effective in accordance with SECTION
13.21.
"ELIGIBLE INTEREST RATE CONTRACT" shall mean an
Interest Rate Contract made by Southland in a transaction
permitted under this Agreement in respect of which (i) any Senior
Lender is the counterparty, (ii) Southland has elected to make
available to the counterparty the benefits of the Collateral
Documents, to the extent permitted under SECTION 8.17, (iii) the
provisions set forth in EXHIBIT 5, or their substantial
equivalent, constitute part of the contract and (iv) the Borrower
and Administrative Agent have executed an Acknowledgement as to
Eligible Interest Rate Contract in substantially the form
included in EXHIBIT 5.
"EMPLOYEE CONVERTIBLE SUBORDINATED DEBENTURES" shall
mean Southland's Employee Convertible Subordinated Debentures
issued in an aggregate principal amount not exceeding $27,600,000
under Southland's Equity Participation Plan and pursuant to an
Indenture in the form attached to Southland's Equity
Participation Plan.
"ENVIRONMENTAL LIEN" shall mean a Lien in favor of any
Governmental Authority for (i) any liability under federal or
state environmental laws or regulations, or (ii) damages arising
from or costs incurred by such Governmental Authority in response
to a release or threatened release of a hazardous or toxic waste,
substance or constituent, or other substance into the
environment.
"EQUITY PARTICIPATION PLAN" shall mean the Equity
Participation Plan adopted by Southland's board of directors on
July 22, 1988, relating to the issuance of options for
Southland's common stock and Employee Convertible Subordinated
Debentures to certain Southland employees.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, any amendments thereto, any successor
statutes and any regulations or guidance promulgated thereunder.
"ERISA AFFILIATE" shall mean (i) any corporation which
is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Internal Revenue Code) as
the Borrower; (ii) a trade or business (whether or not
incorporated) which is under common control (within the meaning
of Section 414(c) of the Internal Revenue Code) with the
Borrower; and (iii) a member of the same affiliated service group
(within the meaning of Section 414(m) of the Internal Revenue
Code) as the Borrower, any corporation described in CLAUSE (i)
above or any trade or business described in CLAUSE (ii) above.
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"EURODOLLAR AFFILIATE" shall mean, with respect to each
Senior Lender, the Affiliate of such Senior Lender set forth
below such Senior Lender's name under the heading "Eurodollar
Affiliate" on the signature pages of this Agreement or of the
Assignment and Acceptance pursuant to which such Person became a
Senior Lender under this Agreement or as otherwise set forth in a
written notice to the Borrower and the Administrative Agent in
accordance with SECTION 13.10.
"EURODOLLAR INTEREST PAYMENT DATE" shall mean, with
respect to any Eurodollar Rate Loan, the last day of each
Eurodollar Interest Period applicable to such Loan and, in the
case of a Eurodollar Interest Period in excess of three months
applicable to a Borrowing of Eurodollar Rate Loans, the
corresponding date at the end of each three month period after
the commencement date of such Eurodollar Interest Period and the
last day of such Eurodollar Interest Period.
"EURODOLLAR INTEREST PERIOD" shall have the meaning
ascribed to it in SECTION 2.08(b).
"EURODOLLAR INTEREST RATE DETERMINATION DATE" shall
mean the date on which the Administrative Agent determines the
Eurodollar Rate applicable to a Borrowing, continuation or
conversion of Eurodollar Rate Loans. The Eurodollar Interest
Rate Determination Date shall be the second Business Day prior to
the first day of the Eurodollar Interest Period applicable to
such Borrowing, continuation or conversion.
"EURODOLLAR RATE" shall mean, with respect to any
Eurodollar Interest Period applicable to a Borrowing of
Eurodollar Rate Loans, an interest rate per annum obtained by
dividing (i) the rate of interest determined by the
Administrative Agent to be the average (rounded upward to the
nearest whole multiple of one one-hundredth of one percent (1/100
of 1%) per annum if such average is not such a multiple) of the
rate per annum determined by each of the Reference Banks to be
the rate per annum at which deposits in Dollars are offered by
such Reference Bank to major banks in the London interbank
Eurodollar market at approximately 11:00 a.m. (London time) on
the Eurodollar Interest Rate Determination Date for such
Eurodollar Interest Period for a period equal to such Eurodollar
Interest Period and in an amount substantially equal to the
amount of the Eurodollar Rate Loan to be made by such Reference
Bank (or, in the case of Citibank, to be made by CUSA) to be
outstanding during such Eurodollar Interest Period, by (ii) a
percentage equal to 100% minus the Eurodollar Reserve Percentage.
The Eurodollar Rate shall be adjusted automatically on and as of
the effective date of any change in the Eurodollar Reserve
Percentage.
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"EURODOLLAR RATE LOANS" shall mean those Loans
outstanding which bear interest at a rate determined by reference
to the Eurodollar Rate as provided in SECTION 2.04(a)(ii).
"EURODOLLAR RESERVE PERCENTAGE" shall mean for any date
that percentage (expressed as a decimal) which is in effect on
such date, as prescribed by the Federal Reserve Board for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in
New York City with deposits exceeding five billion Dollars in
respect of "Eurocurrency liabilities" having a term equal to the
applicable Eurodollar Interest Period (or in respect of any other
category of liabilities which includes deposits by reference to
which the interest rate on Eurodollar Rate Loans is determined or
any category of extensions of credit or other assets which
includes loans by a non-United States office of any bank to
United States residents).
"EVENT OF DEFAULT" shall mean any of the occurrences
set forth in SECTION 11.01 after the expiration of any applicable
grace period expressly provided therein.
"FACILITY LETTER OF CREDIT" shall mean any Commercial
Letter of Credit or any Standby Letter of Credit issued by an
Issuing Bank for the account of the Borrower pursuant to
Article III.
"FACILITY LETTER OF CREDIT FEE" shall have the meaning
ascribed to it in SECTION 2.05(e).
"FACILITY LETTER OF CREDIT OBLIGATIONS" shall mean, at
any particular time, the sum of (i) Reimbursement Obligations
plus (ii) the aggregate maximum amount available for drawing
under the Facility Letters of Credit.
"FDIC" shall mean the Federal Deposit Insurance
Corporation or any Person succeeding to the functions thereof.
"FEDERAL FUNDS RATE" shall mean, for any period, a
fluctuating interest rate per annum equal for each day during
such period to the weighted average of the rates on overnight
Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by the Administration Agent from three
Federal Funds brokers of recognized standing selected by the
Administrative Agent.
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"FEDERAL RESERVE BOARD" shall mean the Board of
Governors of the Federal Reserve System or any Person succeeding
to the functions thereof.
"FIRST AMENDED AND RESTATED CREDIT AGREEMENT" shall
have the meaning ascribed to it in the preamble hereto.
"FISCAL YEAR" shall mean the fiscal year of Southland,
which shall be the twelve (12) month period ending on December 31
in each year or such other period as Southland may designate and
the Requisite Senior Lenders may approve in writing.
"FOREIGN AFFILIATE" shall mean any Affiliate of
Southland (i) which is not organized under the laws of the United
States of America, any state thereof or the District of Columbia
or (ii) with respect to which a majority of such Affiliate's
property is not located within any State of the United States of
America or the District of Columbia.
"FUNDING DATE" shall mean, with respect to any
Revolving Loan, the date of the funding of that Revolving Loan.
"GAAP" shall mean generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, or in such other
statements by such other entity as may be in general use by
significant segments of the accounting profession, which are
applicable to the circumstances as of the date of determination.
"GOVERNMENT ACTS" shall have the meaning ascribed to it
in SECTION 3.10(a).
"GOVERNMENTAL AUTHORITY" shall mean any nation or
government, any state or other political subdivision thereof and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
"HOLDERS OF SECURED OBLIGATIONS" shall mean the holders
of the Obligations and shall refer to (i) each Senior Lender in
respect of its Loans and as holder of its Notes, (ii) each
Issuing Bank in respect of Reimbursement Obligations owed to it,
(iii) the Administrative Agent, Senior Lenders and Issuing Banks
in respect of all other present and future obligations and
liabilities of the Borrower of every type and description arising
under in connection with this Agreement or any other Loan
Document, (iv) each other Person entitled to indemnification
pursuant to SECTION 13.04, in respect of the obligations and
liabilities of the Borrower to such Person thereunder, (v) each
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Senior Lender, in respect of all obligations and liabilities of
the Borrower to such Senior Lender as exchange party or
counterparty under any Eligible Interest Rate Contract and (vi)
their respective successors, transferees and assigns.
"INDEBTEDNESS", as applied to any Person, shall mean,
at any time, without duplication, (i) the principal of (a) all
indebtedness, obligations or other liabilities of such Person for
borrowed money, (b) all indebtedness, obligations or other
liabilities of such Person evidenced by bonds, debentures, notes
or other similar instruments, (c) all reimbursement obligations
and other liabilities of such Person with respect to letters of
credit issued for such Person's account, (d) all obligations of
such Person to pay the deferred purchase price of property or
services (including employee compensation), except trade accounts
payable and accrued expenses arising in the ordinary course of
business but only if and so long as the same are payable on
available trade terms, (e) all obligations in respect of
Capitalized Leases of such Person, (f) all Accommodation Obliga-
tions of such Person, and (g) all indebtedness, obligations or
other liabilities of such Persons or others secured by a Lien on
any asset of such Person, whether or not such indebtedness,
obligations or liabilities are assumed by such Person, all as of
such time, and (ii) all indebtedness, obligations or other
liabilities in respect of Interest Rate Contracts and foreign
currency exchange agreements, net of indebtedness, obligations or
other liabilities owed to such Person by its counterparties in
respect of Interest Rate Contracts and foreign currency exchange
agreements.
"INTEREST RATE CONTRACTS" shall mean interest rate
exchange, collar or cap agreements or non-leveraged options
providing interest rate protection.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue
Code of 1986, any amendments thereto, any successor statutes and
any regulations or guidance promulgated thereunder.
"INVESTMENT" shall mean, as applied to any Person, any
direct or indirect purchase or other acquisition by that Person
of Securities, or of a beneficial interest in Securities, of any
other Person, and any direct or indirect loan, advance (other
than deposits with financial institutions available for
withdrawal on demand, prepaid expenses, advances to employees,
deposits made to secure the performance of contracts and similar
items made or incurred in the ordinary course of business), or
capital contribution by that Person to any other Person,
including all Indebtedness and accounts owed by that other Person
which are not current assets or did not arise from sales of goods
or services to that Person in the ordinary course of business.
The amount of any Investment shall be determined in conformity
with GAAP.
-16-
"ISSUING BANKS" shall mean the Senior Lenders (or their
Affiliates) identified as Issuing Banks on the signature pages
hereof and any other Senior Lender (or its Affiliate) which
becomes an Issuing Bank for the purpose of issuing Facility
Letters of Credit pursuant to ARTICLE III. An Affiliate of a
Senior Lender which is not otherwise a Senior Lender shall become
an Issuing Bank only with the consent of the Borrower, which
consent shall not be unreasonably withheld. When a Senior Lender
is referred to in its capacity as an Issuing Bank hereunder, such
reference to an Issuing Bank shall be interpreted to refer to
such Senior Lender solely in its capacity as an Issuing Bank.
"JOINT VENTURE" shall mean a Person which is an
Affiliate of Southland solely by reason of ownership of an
interest in such Person by Southland or a Subsidiary of
Southland.
"KNOWLEDGE", when used in respect of a natural person,
shall mean actual knowledge of that person and shall mean, when
used in respect of a corporate Person, the actual knowledge of
any executive officer of such Person.
"LETTER OF CREDIT" shall mean each letter of credit
issued by any Person for the account of Southland or any of its
Subsidiaries.
"LETTER OF CREDIT COMMITMENT" shall mean, with respect
to any Issuing Bank, such Issuing Bank's commitment to issue
Facility Letters of Credit, in an amount agreed upon between the
Borrower and such Issuing Bank (with respect to which the
Administrative Agent has been notified in writing), as such
amount may be modified from time to time pursuant to SECTION
2.02(e), 3.12 or 11.02(a).
"LETTER OF CREDIT REIMBURSEMENT AGREEMENT" shall mean,
with respect to a Facility Letter of Credit, such form of
application therefor and form of reimbursement agreement therefor
(whether in a single or several documents, taken together) as the
Issuing Bank from which the Facility Letter of Credit is
requested may employ in the ordinary course of business for its
own account, whether or not providing for collateral security,
with such modifications thereto as may be agreed upon by the
Issuing Bank and the Borrower and as are not materially adverse
to the interest of the Senior Lenders; PROVIDED, HOWEVER, in the
event of any conflict between the terms of any Letter of Credit
Reimbursement Agreement and this Agreement, the terms of this
Agreement shall control and no event (other than failure to pay
Reimbursement Obligations) which constitutes a default under a
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Letter of Credit Reimbursement Agreement shall constitute an
Event of Default solely by reason of any default provisions
contained in such Letter of Credit Reimbursement Agreement.
"LETTER OF CREDIT SUBFACILITY" shall mean, at any time,
that portion of the Revolving Credit Commitments dedicated solely
to Facility Letters of Credit which shall initially be equal to
$150,000,000, as such amount may be reduced from time to time
pursuant to SECTION 2.02(e), 3.12 or 11.02(a).
"LIEN" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, security
interest, encumbrance (including, but not limited to, easements,
rights of way, zoning restrictions and the like), lien (statutory
or other), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other
title retention agreement, the interest of a lessor under a
Capital Lease, any financing lease having substantially the same
economic effect as any of the foregoing and the filing of any
financing statement (other than a financing statement filed by a
"true" lessor pursuant to 9-408 of the Uniform Commercial Code)
naming the owner of the asset to which such Lien relates as
debtor, under the Uniform Commercial Code or other comparable law
of any jurisdiction.
"LOAN" shall mean a Senior Term Loan or a Revolving
Loan, each of which may be either a Base Rate Loan or a
Eurodollar Rate Loan.
"LOAN DOCUMENTS" shall mean this Agreement (and, for
the applicable periods, the First Amended and Restated Credit
Agreement and the Second Amended and Restated Credit Agreement),
the Notes, the Letter or Credit Reimbursement Agreements, the
Collateral Documents and all other security agreements,
mortgages, deeds of trust, financing statements, patent and
trademark security agreements, lease assignments, guaranties and
other agreements, instruments and written indicia of Contractual
Obligations between Acquisition or Southland and any Agent, any
Senior Lender, any Issuing Bank or any predecessor in interest to
any of them, delivered to such Agent, Senior Lender, Issuing Bank
or predecessor in interest by or on behalf of Acquisition or
Southland pursuant to or in connection with the transactions
contemplated hereby, by the First Amended and Restated Credit
Agreement or by the Second Amended and Restated Credit Agreement.
"MARGIN STOCK" shall have the meaning ascribed to it in
Regulation U and Regulation G.
"MASTER ASSIGNMENT AGREEMENT" shall have the meaning
ascribed to it in the recitals hereto.
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"MATERIAL ADVERSE EFFECT" shall mean, with respect to
Southland, individually, or Southland and its Subsidiaries, taken
as a whole, a material adverse effect upon the business, assets
or other properties, liabilities or condition (financial or
otherwise) or results of operations of Southland, individually,
or Southland and its Subsidiaries, taken as a whole, or the
ability of Southland to perform under the Loan Documents.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA which is, or was at any
time during the then five preceding years, contributed to on
behalf of employees of the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate.
"NON PRO RATA LOAN" shall have the meaning ascribed to
it in SECTION 2.07(b)(iii).
"NOTES" shall mean the Senior Term Notes and the
Revolving Credit Notes.
"NOTICE OF BORROWING" shall mean, with respect to a
proposed Borrowing pursuant to SECTION 2.01(b) or 2.02(b), as
applicable, a notice in substantially the form of EXHIBIT 6-A or
6-B, respectively.
"NOTICE OF CONVERSION/CONTINUATION" shall mean, with
respect to a proposed conversion or continuation of a Loan
pursuant to SECTION 2.04(c), notice substantially in the form of
EXHIBIT 7.
"OBLIGATIONS" shall mean all present and future
obligations and liabilities of the Borrower of every type and
description arising under or in connection with this Agreement or
any other Loan Document, due or to become due to the
Administrative Agent, the Co-Agent, any Senior Lender, any
Issuing Bank or any Person entitled to indemnification pursuant
to SECTION 13.04, or any of their respective successors,
transferees or assigns, and shall include, without limitation,
(i) all liability of the Borrower for principal of and interest
on the Loans or under the Notes, (ii) all Reimbursement
Obligations of the Borrower to any Issuing Bank, (iii) all
obligations and liabilities of the Borrower to any Senior Lender
in respect to the Eligible Interest Rate Contracts and (iv) all
liability of the Borrower under the Loan Documents for any fees,
expense reimbursements and indemnifications.
"OFFICERS' CERTIFICATE" shall mean, as to a
corporation, a certificate executed on behalf of such corporation
by (i) its chairman or vice-chairman of the board (if an officer)
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or its president or any vice-president and (ii) by its principal
financial officer, its controller or its treasurer.
"OLD SENIOR LENDERS" shall have the meaning ascribed to
it in the recitals hereto.
"ORIGINAL CREDIT AGREEMENT" shall have the meaning
ascribed to it in the recitals hereto.
"OTHER INDEBTEDNESS" shall mean all of the Indebtedness
other than the Obligations.
"PAST DEFAULT INTEREST" shall have the meaning ascribed
to it in the Master Assignment Agreement.
"PATENT SECURITY AGREEMENT" shall mean the Collateral
Patent Agreement dated as of December 15, 1987 between the
Borrower and the Administrative Agent relating to certain of the
Borrower's patents and patent applications, attached hereto as
EXHIBIT 8-A, as the same has been or may be amended, supplemented
or otherwise modified from time to time, including as amended and
supplemented by the Amendment and Supplement to Collateral Patent
Agreement of even date herewith, in substantially the form of
EXHIBIT 8-B.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any Person succeeding to the functions thereof.
"PERMITTED EXISTING INDEBTEDNESS" shall mean the
Indebtedness of Southland and its Subsidiaries reflected on
SCHEDULE 1.01-B.
"PERMITTED EXISTING INVESTMENTS" shall mean the
Investments of Southland and its Subsidiaries reflected on Part B
of SCHEDULE 5.01(iii).
"PERMITTED EXISTING LIENS" shall mean the Liens on
assets of Southland and its Subsidiaries reflected on SCHEDULE
1.01-C.
"PERSON" shall mean any natural person, corporation,
limited partnership, general partnership, joint stock company,
joint venture, association, company, trust, bank, trust company,
land trust, business trust or other organization, whether or not
a legal entity, and any Governmental Authority.
"POTENTIAL EVENT OF DEFAULT" shall mean an event which,
with the giving of notice or the lapse of time, or both, would
constitute an Event of Default.
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"PRO RATA SHARE" shall mean, with respect to any Senior
Lender, a fraction (expressed as a percentage), the numerator of
which shall be the amount of such Senior Lender's Commitments and
the denominator of which shall be the aggregate amount of all of
the Senior Lenders' Commitments, as adjusted from time to time in
accordance with the provisions of SECTION 13.02(a)
(notwithstanding the termination of any such Commitments pursuant
to SECTION 11.02(a)).
"PURCHASE PRICE" shall have the meaning ascribed to it
in the Master Assignment Agreement.
"PURCHASER" shall mean, collectively, Ito-Yokado Co.,
Ltd., Seven-Eleven Japan Co., Ltd. or any Subsidiary of either of
them all of whose capital stock is owned by either Ito-Yokado
Co., Ltd. or Seven-Eleven Japan Co., Ltd.
"QUARTERLY DETERMINATION DATE" shall mean each March
31, June 30, September 30 and December 31 during the term of this
Agreement.
"REAL ESTATE COLLATERAL DOCUMENTS" shall mean all
mortgages, deeds of trust, leasehold mortgages, collateral
assignments of leases and other documents relating to the
Borrower's real property delivered (or to be delivered) on, prior
to or after December 15, 1987 under or in connection with this
Agreement, the Second Amended and Restated Credit Agreement or
the First Amended and Restated Credit Agreement, as any of the
same have been or may be amended, supplemented or otherwise
modified from time to time.
"REAL ESTATE PROCEDURES MEMORANDUM" shall mean the
description of procedures in regard to conveyance by Southland of
liens in its real property and leasehold interests in real
property attached as EXHIBIT 9.
"REFERENCE BANKS" shall mean Citibank and, at the
discretion of the Administrative Agent, one or more Senior
Lenders (or Affiliates thereof) approved by the Administrative
Agent.
"REGULATION A" shall mean Regulation A of the Federal
Reserve board as in effect from time to time.
"REGULATION D" shall mean Regulation D of the Federal
Reserve Board as in effect from time to time.
"REGULATION G" shall mean Regulation G of the Federal
Reserve Board as in effect from time to time.
"REGULATION U" shall mean Regulation U of the Federal
Reserve Board as in effect from time to time.
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"REGULATION X" shall mean Regulation X of the Federal
Reserve Board as in effect from time to time.
"REIMBURSEMENT OBLIGATIONS" shall mean the
reimbursement or repayment obligations of the Borrower to the
Issuing Banks pursuant to Letter of Credit Reimbursement
Agreements with respect to Facility Letters of Credit, for
amounts paid out thereunder.
"REPORTABLE EVENT" shall mean with respect to any
Benefit Plan any event described in Section 4043(b) of ERISA
other than any such event as to which the requirement of thirty
(30) days' notice to PBGC contained in SECTION 4043(a) of ERISA
is waived under applicable regulations.
"REQUIREMENTS OF LAW" shall mean, as to any Person, the
charter and by-laws or other organizational or governing
documents of such Person, and any law, rule or regulation, or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its
property is subject, including, without limitation, the
Securities Act, the Securities Exchange Act, Regulations G, U and
X, and any certificate of occupancy, zoning ordinance, building,
environmental or land use requirement or permit or occupational
safety or health law, rule or regulation.
"REQUISITE SENIOR LENDERS" shall mean Senior Lenders
whose Pro Rata Shares, in the aggregate, are more than sixty-six
and two-thirds percent (66-2/3%).
"RESTRICTED JUNIOR PAYMENT" shall mean (i) any dividend
or other distribution, direct or indirect, on account of any
shares of any class of capital stock of the Borrower or any of
its Subsidiaries now or hereafter outstanding, except a dividend
payable solely in shares of that class of stock or in any junior
class of stock to the holders of that class, (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any
class of capital stock of the Borrower or any of its Subsidiaries
now or hereafter outstanding, (iii) any payment or prepayment of
principal of, premium, if any, or interest on, and any
redemption, purchase, retirement, defeasance, sinking fund or
similar payment with respect to, any Subordinated Indebtedness or
any Indebtedness permitted by SECTION 8.01(xiv)(B), and (iv) any
payment made to redeem, purchase, repurchase or retire, or to
obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of capital stock of
the Borrower or any of its Subsidiaries now or hereafter
outstanding (other than the issuance of Common Stock upon the
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exercise of any warrants, options or rights to acquire such
stock).
"REVOLVING CREDIT COMMITMENT" shall mean, with respect
to any Senior Lender, the obligation of such Senior Lender to
make Revolving Loans and to participate in Facility Letters of
Credit pursuant to the terms and conditions of this Agreement, in
an aggregate amount at any time outstanding which shall not
exceed the principal amount set forth opposite such Senior
Lender's name under the heading "Revolving Credit Commitment" on
the signature pages hereof or the signature page of the
Assignment and Acceptance by which it became a Senior Lender, as
modified from time to time pursuant to the terms of this
Agreement or to give effect to any applicable Assignment and
Acceptance, and "REVOLVING CREDIT COMMITMENTS" shall mean the
aggregate principal amount of the Revolving Credit Commitments of
all the Senior Lenders, the maximum amount of which shall be
$300,000,000, as such amount may be reduced from time to time
pursuant to SECTION 2.02(e), 3.12 or 11.02(a), PROVIDED, HOWEVER,
that the Revolving Credit Commitments shall not at any time
exceed the sum of (i) the Revolving Loan Subfacility in effect at
such time, PLUS (ii) the Letter of Credit Subfacility in effect
at such time.
"REVOLVING CREDIT NOTE" shall have the meaning ascribed
to it in SECTION 2.02(d).
"REVOLVING CREDIT OBLIGATIONS" shall mean, at any par-
ticular time, the sum of (i) the outstanding principal amount of
the Revolving Loans at such time, PLUS (ii) the Facility Letter
of Credit Obligations at such time.
"REVOLVING CREDIT TERMINATION DATE" shall have the
meaning ascribed to it in SECTION 2.02(e)(iii).
"REVOLVING LOAN" shall have the meaning ascribed to it
in SECTION 2.02(a).
"REVOLVING LOAN SUBFACILITY" shall mean, at any time,
that portion of the Revolving Credit Commitments dedicated solely
to Revolving Loans which shall initially be equal to
$150,000,000, as such amount may be reduced from time to time
pursuant to SECTION 2.02(e) or 11.02(a); PROVIDED that if at any
time the Commercial Paper shall then have a rating lower than A-1
from S&P or Prime-1 from Moody's (or, if at any time neither S&P
nor Moody's shall be rating the Commercial Paper, the Commercial
Paper shall then have a rating lower than the highest rating from
such other nationally recognized rating service as is acceptable
to the Administrative Agent), the Revolving Loan Subfacility at
such time shall be zero.
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"S&P" shall mean Standard & Poor's Rating Group, a
division of McGraw Hill, Inc.
"SECOND AMENDED AND RESTATED CREDIT AGREEMENT" shall
have the meaning ascribed to it in the recitals hereto.
"SECURITIES" shall mean any stock, shares, voting trust
certificates, limited partnership certificates, bonds,
debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general
any instruments commonly known as "securities", including,
without limitation, any "security" as such term is defined in
Section 8-102 of the Uniform Commercial Code, or any certificates
of interest, shares, or participations in temporary or interim
certificates for the purchase or acquisition of, or any right to
subscribe to, purchase or acquire any of the foregoing, but shall
not include the Notes or any other evidence of the Obligations.
"SECURITIES ACT" shall mean the Securities Act of 1933,
as amended to the date hereof and from time to time hereafter,
and any successor statute.
"SECURITIES EXCHANGE ACT" shall mean the Securities
Exchange Act of 1934, as amended to the date hereof and from time
to time hereafter, and any successor statute.
"SECURITY AGREEMENT" shall mean the Security and Pledge
Agreement dated as of December 15, 1987 between the Borrower and
the Administrative Agent, relating to the Borrower's personal
property, attached hereto as EXHIBIT 10-A, as the same has been
or may be amended, supplemented or otherwise modified from time
to time, including as amended and supplemented by the Amendment
and Supplement to Security and Pledge Agreement of even date
herewith, in substantially the form of EXHIBIT 10-B.
"SENIOR INDEBTEDNESS" shall mean, at any time, (i)
consolidated total Indebtedness of Southland and its
Subsidiaries, to the extent required, in conformity with GAAP, to
be reflected on a balance sheet of Southland and its Subsidiaries
at that time, PLUS (ii) the maximum amount available to be drawn
under outstanding Letters of Credit at that time, MINUS (iii) the
aggregate principal amount of Subordinated Indebtedness
outstanding at that time (to the extent included in CLAUSE (i)
above).
"SENIOR LENDER" shall mean, at any particular time, any
Person who holds a Term Loan Commitment and Revolving Credit
Commitment at such time, whether as a signatory to this Agreement
or pursuant to an Assignment and Acceptance.
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"SENIOR SUBORDINATED DEBENTURE INDENTURES" shall mean
the indentures pursuant to which the Senior Subordinated
Debentures have been issued.
"SENIOR SUBORDINATED DEBENTURES" shall mean Southland's
5% First Priority Senior Subordinated Debentures due December 15,
2003, Southland's 4.5% Second Priority Senior Subordinated
Debentures (Series A) due June 15, 2004, and Southland's 4%
Second Priority Senior Subordinated Debentures (Series B) due
June 15, 2004, and Southland's 12% Second Priority Senior
Subordinated Debentures (Series C) due June 15, 2009.
"SENIOR TERM LOAN" shall have the meaning ascribed to
it in SECTION 2.01(a).
"SENIOR TERM NOTE" shall have the meaning ascribed to
it in SECTION 2.01(d).
"SOUTHLAND" shall have the meaning ascribed to it in
the preamble hereto.
"STANDBY LETTER OF CREDIT" shall mean any Facility
Letter of Credit which is not a Commercial Letter of Credit.
"STRUCTURING FEES" shall have the meaning ascribed to
it in SECTION 2.05(b).
"SUBORDINATED INDEBTEDNESS" shall mean the Indebtedness
evidenced by, or in respect of, (i) the Senior Subordinated
Debentures, (ii) the Employee Convertible Subordinated Debentures
and (iii) any additional Indebtedness (A) subordinated in right
of payment on terms not less favorable to the Senior Lenders, and
subject to covenants and events of default not more burdensome to
Southland, than the subordination provisions, covenants and
events of default applicable to the Senior Subordinated
Debentures or (B) incurred on other terms approved in writing by
the Requisite Senior Lenders.
"SUBSIDIARY" of a Person shall mean any corporation,
limited liability company, general or limited partnership, or
other entity of which Securities or other ownership interests
having ordinary voting power to elect a majority of the board of
directors or other managers of such entity are at the time
directly or indirectly owned or controlled by, or the management
of which is otherwise controlled directly or indirectly through
one or more intermediaries, or both, by such Person, one or more
subsidiaries of such Person or any combination thereof.
"TERM LOAN COMMITMENT" shall mean, with respect to any
Senior Lender, the obligation of such Senior Lender to make its
Senior Term Loan pursuant to the terms and conditions of this
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Agreement, in an amount equal to the amount set forth under such
Senior Lender's name under the heading "Term Loan Commitment" on
the signature pages hereof or the signature page of the
Assignment and Acceptance by which it became a Senior Lender, as
modified from time to time pursuant to the terms of this
Agreement or to give effect to any applicable Assignment and
Acceptance, and "TERM LOAN COMMITMENTS" shall mean the aggregate
principal amount of the Term Loan Commitments of all the Senior
Lenders, the maximum amount of which shall be $300,000,000, as
reduced from time to time pursuant to SECTION 2.01(d), 2.06(a) or
11.02(a).
"TERMINATION EVENT" shall mean (i) a Reportable Event,
(ii) the withdrawal of the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate from a Defined Benefit Plan
during a plan year in which it is a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (iii) the filing under
Section 4041 of ERISA of a notice of intent to terminate a
Defined Benefit Plan, (iv) the treatment of a Defined Benefit
Plan amendment as a termination under Section 4041 of ERISA, (v)
the institution of proceedings by the PBGC to terminate a Defined
Benefit Plan, (vi) any other event or condition which would
constitute ground under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Defined
Benefit Plan, (vii) the termination of, or appointment of a
trustee to administer, any Defined Benefit Plan pursuant to
Section 4042 of ERISA, or (viii) the partial or complete
withdrawal of the Borrower or any ERISA Affiliate from a
Multiemployer Plan if the amount of the withdrawal liability
assessed by the plan sponsor against the Borrower or any such
ERISA Affiliate would have a Material Adverse Effect.
"THIRD PARTY PLEDGE AGREEMENTS" shall mean the Third
Party Pledge Agreements dated as of December 15, 1987 between the
respective Third Party Pledgors and the Administrative Agent,
attached hereto as EXHIBITS 11-A and 12-A, relating to the
capital stock of the Subsidiaries of such Third Party Pledgors,
in each case as the same has been or may be amended, supplemented
or otherwise modified from time to time, including as amended and
supplemented by the respective Amendment and Supplement to Third
Party Pledge Agreement of even date herewith, in substantially
the forms of EXHIBITS 11-B and 12-B, respectively..
"THIRD PARTY PLEDGORS" shall mean (i) Southland
International, Inc., a Nevada corporation and wholly-owned
Subsidiary of Southland and (ii) Southland Sales Corporation, a
Texas corporation and wholly-owned Subsidiary of Southland.
"TRADEMARK SECURITY AGREEMENT" shall mean the
Collateral Trademark Agreement dated as of December 15, 1987
between the Borrower and the Administrative Agent, relating to
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certain of the Borrower's trademarks and trade names, attached
hereto as EXHIBIT 13-A, as the same has been or may be amended,
supplemented or otherwise modified from time to time, including
as amended and supplemented by the Amendment and Supplement to
Collateral Trademark Agreement of even date herewith, in
substantially the form of EXHIBIT 13-B.
"TRANSACTION COSTS" shall mean the fees, costs and
expenses payable by Southland pursuant hereto or in connection
herewith or in respect hereof and the fees, costs and expenses
payable by Southland in connection with the offer and sale of
Subordinated Indebtedness.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform
Commercial Code as enacted in the State of New York, as it may be
amended from time to time.
"UNREIMBURSED ISSUING BANK" shall have the meaning
ascribed to it in SECTION 3.06(b)(ii).
"UNUSED COMMITMENT FEE" shall have the meaning ascribed
to it in SECTION 2.05(c).
"WARRANT AGREEMENT" shall mean the Warrant Agreement
dated as of March 5, 1991 among Southland, the Purchaser, certain
holders of Common Stock named therein and the warrant agent
thereunder.
"WARRANTS" shall mean the warrants to purchase an
aggregate of 10,214,842 shares of Common Stock, issued pursuant
to the Warrant Agreement.
"YEN ROYALTY FINANCING AGREEMENT" shall mean the Credit
Agreement dated as of March 21, 1988 among the Borrower, the Yen
Royalty Lender and Citicorp International Limited, as amended,
supplemented or otherwise modified from time to time, PROVIDED
that no amendment, supplement or other modification pertaining to
the Yen Royalty Financing Collateral or the recourse of the Yen
Royalty Lender thereto shall adversely affect the Administrative
Agent, the Senior Lenders or the Issuing Banks without the prior
written consent of the Requisite Senior Lenders.
"YEN ROYALTY FINANCING COLLATERAL" shall mean the
"Collateral" (as defined in the Assignment and Security Agreement
dated as of March 21, 1988 between the Borrower and the Yen
Royalty Lender entered into in connection with the Yen Royalty
Financing Agreement).
"YEN ROYALTY FINANCING INDEBTEDNESS" shall mean
Indebtedness of Southland to the Yen Royalty Lender under the Yen
Royalty Financing Agreement in a principal amount which shall not
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exceed Japanese Yen 41,000,000,000 plus the amount of all
interest and yield protection costs capitalized in connection
therewith pursuant to the terms of the Yen Royalty Financing
Agreement.
"YEN ROYALTY LENDER" shall mean Citicorp (Channel
Islands) Limited, a company organized and existing under the laws
of Jersey in the Channel Islands, together with successors to and
assignees of its rights thereunder.
1.02. REFERENCES TO THIS AGREEMENT. The words
"hereof", "herein", "hereunder" and similar terms when used in
this Agreement shall refer to this Agreement as a whole and not
to any particular provision of this Agreement, and article,
section, subsection, clause, schedule and exhibit references
herein are references to articles, sections, subsections,
clauses, schedules and exhibits to this Agreement unless
otherwise specified.
1.03. COMPUTATION OF TIME PERIODS. In this Agreement,
in the computation of periods of time from a specified date to a
later specified date, the word "from" shall mean "from and
including" and the words "to" and "until" each mean "to but
excluding". Periods of days referred to in this Agreement shall
be counted in calendar days unless Business Days are expressly
prescribed. Any period determined hereunder by reference to a
month or months or year or years shall end on the day in the
relevant calendar month in the relevant year, if applicable,
immediately preceding the date numerically corresponding to the
first day of such period, PROVIDED that if such period commences
on the last day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month during
which such period is to end), such period shall, unless otherwise
expressly required by the other provisions of this Agreement, end
on the last day of the calendar month.
1.04. ACCOUNTING TERMS. Subject to SECTION 13.05, for
purposes of this Agreement, all accounting terms not otherwise
defined herein shall have the meanings assigned to them in
conformity with GAAP.
1.05. MISCELLANEOUS TERMS. All terms defined in this
Agreement in the singular shall have comparable meanings when
used in the plural, and VICE VERSA, unless otherwise specified.
The term "including" is by way of example and not limitation.
1.06. OTHER DEFINED TERMS. All other terms contained
in this Agreement shall, unless the context indicates otherwise,
have the meanings assigned to such terms by the Uniform
Commercial Code to the extent the same are defined therein.
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1.07. SCHEDULES AND EXHIBITS. The schedules and
exhibits to this Agreement, either as originally existing or as
the same may from time to time be supplemented, modified or
amended, are incorporated herein and shall be considered a part
of this Agreement for the purposes stated herein.
ARTICLE II
AMOUNTS AND TERMS OF LOANS
2.01. THE SENIOR TERM LOANS.
(a) AMOUNT OF SENIOR TERM LOANS. Subject to the terms
and conditions set forth in this Agreement, each Senior Lender on
the Effective Date hereby severally and not jointly agrees to
make on the Effective Date, a term loan, in Dollars, to the
Borrower in an amount equal to such Senior Lender's Term Loan
Commitment (each individually, a "Senior Term Loan" and,
collectively, the "Senior Term Loans"). All Senior Term Loans
shall be made by the Senior Lenders on the Effective Date
simultaneously and proportionately to their respective Pro Rata
Shares, it being understood that no Senior Lender shall be
responsible for any failure by any other Senior Lender to perform
its obligation to make any Senior Term Loan hereunder nor shall
the Term Loan Commitment of any Senior Lender be increased or
decreased as a result of any such failure.
(b) NOTICE OF BORROWING. The Borrower shall deliver
to the Administrative Agent on the Effective Date a Notice of
Borrowing, signed by it, with respect to the Senior Term Loans to
be made on the Effective Date (other than the Senior Term Loans
deemed made pursuant to SECTION 2.01(c)(i)). Such Notice of
Borrowing shall specify (i) the aggregate amount of the Senior
Term Loans (which shall not exceed an amount equal to the excess,
if any, of the aggregate of the Term Loan Commitments over the
amount of Senior Term Loans deemed made pursuant to SECTION
2.01(c)(i)) and (ii) instructions for the disbursement of the
proceeds of the Senior Term Loans. The Senior Term Loans shall
initially be Base Rate Loans and thereafter may be continued as
Base Rate Loans or converted into Eurodollar Rate Loans in the
manner provided in SECTION 2.04(c) and subject to the conditions
and limitations therein set forth and set forth in SECTION 2.08.
Any Notice of Borrowing given pursuant to this SECTION 2.01(b)
shall be irrevocable.
(c) MAKING OF SENIOR TERM LOANS. (i) Subject to the
fulfillment of the conditions precedent set forth in SECTION 4.01
and the Master Assignment Agreement, each Senior Lender shall be
deemed to have advanced funds to the Borrower on the Effective
Date in respect of the Senior Term Loans equal to its Pro Rata
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Share of the lesser of (A) $300,000,000 and (B) the amount of the
Purchase Price, it being agreed and understood that (x) the funds
deemed advanced to the Borrower pursuant to this SECTION
2.01(c)(i) shall be paid by each Senior Lender to the
Administrative Agent and shall be applied to the payment of the
Purchase Price, (y) such funds shall be transferred by the
Administrative Agent to the appropriate Old Senior Lenders in
accordance with the provisions of the Master Assignment Agreement
and credited to the loan account maintained by each Old Senior
Lender with respect to the Borrower and (z) no new funds shall
actually be advanced to the Borrower in respect of the Senior
Term Loans under this SECTION 2.01(c)(i).
(ii) Promptly after receipt of the Notice of Borrowing
under SECTION 2.01(b) in respect of the Senior Term Loans, if
any, not deemed advanced pursuant to SECTION 2.01(c)(i), the
Administrative Agent shall notify each Senior Lender of the
proposed Borrowing. Each Senior Lender shall deposit an amount
equal to its Pro Rata Share of such Senior Term Loans requested
in accordance with SECTION 2.01(b) with the Administrative Agent
at its office in New York, New York, in immediately available
funds, on the Effective Date. Subject to the fulfillment of the
conditions precedent set forth in SECTION 4.01, the
Administrative Agent shall make the proceeds of such amounts
received by it available to the Borrower at the Administrative
Agent's office in New York, New York on the Effective Date and
shall disburse such proceeds in accordance with the Borrower's
disbursement instructions set forth in such Notice of Borrowing.
(iii) The failure of any Senior Lender to purchase the
obligations described in SECTION 2.01(c)(i) or deposit with the
Administrative Agent the amount described in SECTION 2.01(c)(ii)
on the Effective Date shall not relieve any other Senior Lender
of its obligations hereunder to make its Senior Term Loan on the
Effective Date. In the event the conditions precedent set forth
in Section 4.01 are not fulfilled or duly waived as of the
Effective Date, the Administrative Agent shall promptly return,
by wire transfer of immediately available funds, the amount
transferred pursuant to the Master Assignment Agreement or
deposited hereunder by each Senior Lender to such Senior Lender.
(d) SENIOR TERM NOTES. (i) The Borrower shall
execute and deliver to each Senior Lender on the Effective Date a
promissory note, in substantially the form of EXHIBIT 14 and
otherwise in form and substance satisfactory to the Senior
Lenders, in the principal amount of that Senior Lender's Senior
Term Loan Commitment (each individually, a "Senior Term Note" and
collectively, the "Senior Term Notes"). Subject to SECTIONS
2.06(a) and 11.02, the Senior Term Loans shall mature in sixteen
(16) consecutive quarterly installments of $18,750,000 each,
payable on the last Business Day in each calendar quarter,
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commencing March 31, 1996, and the Term Loan Commitments shall be
permanently reduced by the amount of each installment on the date
payment thereof is required to be made hereunder. The Senior
Term Loans shall be paid in full on or before December 31, 1999.
2.02. REVOLVING CREDIT FACILITY.
(a) AVAILABILITY. (i) Subject to the terms and
conditions set forth in this Agreement, each Senior Lender hereby
severally and not jointly agrees to make to the Borrower from
time to time through the Business Day next preceding the
Revolving Credit Termination Date revolving loans (each
individually, a "Revolving Loan" and collectively, the "Revolving
Loans"), in an amount which shall not exceed, in the aggregate at
any time outstanding, such Senior Lender's Pro Rata Share of an
amount that equals the then Revolving Loan Subfacility.
(ii) All Revolving Loans under this Agreement shall be
made by the Senior Lenders simultaneously and proportionately to
their respective Pro Rata Shares, it being understood that no
Senior Lender shall be responsible for any failure by any other
Senior Lender to perform its obligation to make a Revolving Loan
hereunder nor shall the Revolving Credit Commitment of any Senior
Lender be increased or decreased as a result of the failure by
any other Senior Lender to perform its obligation to make a
Revolving Loan.
(iii) Revolving Loans may be voluntarily prepaid
pursuant to SECTION 2.06(a) and, subject to the provisions of
this Agreement, any amounts so prepaid may be reborrowed, up to
the amount available under this SECTION 2.02(a) at the time of
such Borrowing, through the Business Day next preceding the
Revolving Credit Termination Date.
(iv) Revolving Loans made on any Funding Date shall be
in the aggregate minimum amount of $5,000,000.
(b) NOTICE OF BORROWING. (i) Whenever the Borrower
desires to borrow under this SECTION 2.02, it shall deliver to
the Administrative Agent a Notice of Borrowing, signed by it, (A)
on the Effective Date, in the case of a Borrowing of Revolving
Loans on the Effective Date (other than the Revolving Loans
deemed made pursuant to SECTION 2.02(c)(i)) and (B) no later than
11:00 a.m. (New York time) (I) at least one (1) Business Day in
advance of the proposed Funding Date in the case of a Borrowing
of Base Rate Loans, and (II) no later than 11:00 a.m. (New York
time) at least three (3) Business Days in advance of the proposed
Funding Date in the case of a Borrowing of Eurodollar Rate Loans.
The Notice of Borrowing shall specify (w) the Funding Date
(which shall be a Business Day) in respect of the Revolving Loan,
(x) the amount of the proposed Borrowing (which, in the case of a
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Borrowing of Revolving Loans on the Effective Date, shall not
exceed an amount equal to the excess, if any, of the Revolving
Loan Subfacility on such date over the amount of Revolving Loans
deemed made pursuant to SECTION 2.02(c)(i)), (y) whether the
proposed Borrowing will be of Base Rate Loans or Eurodollar Rate
Loans, and (z) in the case of Eurodollar Rate Loans, the
requested Eurodollar Interest Period. The Revolving Loans made
on the Effective Date shall initially be Base Rate Loans and
thereafter may be continued as Base Rate Loans or converted into
Eurodollar Rate Loans, in the manner provided in SECTION 2.04(c)
and subject to the conditions therein set forth and in Section
2.08. In lieu of delivering the above-described Notice of
Borrowing, the Borrower may give the Administrative Agent
telephonic notice of any proposed Borrowing by the time required
under this SECTION 2.02(b); provided, that such notice shall be
confirmed in writing by delivery to the Administrative Agent
promptly (but in no event later than the Funding Date of the
requested Revolving Loan) of a Notice of Borrowing. Any Notice
of Borrowing (or telephone notice in lieu thereof) pursuant to
this SECTION 2.02(b) shall be irrevocable.
(ii) The Borrower shall notify the Administrative
Agent in writing of the names of the officers and employees
authorized to request Revolving Loans on behalf of the Borrower
and shall provide the Administrative Agent with a specimen
signature of each such officer or employee. The Administrative
Agent shall be entitled to rely conclusively on such officer's or
employee's authority to request a Revolving Loan on behalf of the
Borrower until the Administrative Agent receives written notice
to the contrary. The Administrative Agent shall have no duty to
verify the authenticity of the signature appearing on any written
Notice of Borrowing and, with respect to an oral request for a
Revolving Loan, the Administrative Agent shall have no duty to
verify the identity of any person representing himself as one of
the officers or employees authorized to make such request on
behalf of the Borrower. Neither the Administrative Agent, nor
any other Agent nor any Senior Lender shall incur any liability
to the Borrower in acting upon any telephonic notice referred to
above which the Administrative Agent believes in good faith to
have been given by a duly authorized officer or other person
authorized to borrow on behalf of the Borrower or for otherwise
acting in good faith under this SECTION 2.02(b).
(c) MAKING OF REVOLVING LOANS. (i) Subject to the
fulfillment of the conditions precedent set forth in SECTION 4.01
and the Master Assignment Agreement, each Senior Lender shall be
deemed to have advanced funds to the Borrower on the Effective
Date in respect of the Revolving Loans equal to its Pro Rata
Share of the lesser of (A) the Revolving Loan Subfacility and (B)
that portion of the Purchase Price which is not advanced pursuant
to SECTION 2.01(c)(i), it being agreed and understood that (A)
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the funds deemed advanced to the Borrower pursuant to this
SECTION 2.02(c)(i) shall be paid by each Senior Lender to the
Administrative Agent and shall be applied to the payment of the
Purchase Price, (B) such funds shall be transferred by the
Administrative Agent to the appropriate Old Senior Lenders in
accordance with the provisions of the Master Assignment Agreement
and credited to the loan account maintained by each Old Senior
Lender with respect to the Borrower and (C) no new funds shall
actually be advanced to the Borrower in respect of the Revolving
Loans under this SECTION 2.02(c)(i).
(ii) Promptly after receipt of a Notice of Borrowing
under SECTION 2.02(b) (or telephonic notice in lieu thereof) in
respect of Revolving Loans, if any, not deemed advanced pursuant
to SECTION 2.02(c)(i), the Administrative Agent shall notify each
Senior Lender by telex or telecopy or other similar form of
transmission, of the proposed Borrowing. Each Senior Lender
shall make the amount of its Revolving Loan available to the
Administrative Agent in Dollars and in immediately available
funds, to such bank and account, in New York, New York, as the
Administrative Agent may designate, not later than 11:00 a.m.
(New York time) on the Funding Date. Subject to the fulfillment
of the conditions precedent set forth in SECTION 4.01 or 4.02, as
applicable, after the Administrative Agent's receipt of the
proceeds of such Revolving Loans the Administrative Agent shall
make the proceeds of such Revolving Loans available to the
Borrower in New York, New York, on such Funding Date and shall
disburse such funds in Dollars and in immediately available funds
to an account of the Borrower, designated in writing by the
Borrower in the Notice of Borrowing.
(iii) The failure of any Senior Lender to purchase the
obligations described in SECTION 2.02(c)(i) on the Effective Date
or deposit with the Administrative Agent the amount described in
SECTION 2.02(c)(ii) on any Funding Date shall not relieve any
other Senior Lender of its obligations hereunder to make its
Revolving Loan on any such date. In the event the conditions
precedent set forth in SECTION 4.01 or 4.02, as applicable, are
not fulfilled or duly waived as of the applicable Funding Date,
the Administrative Agent shall promptly return, by wire transfer
of immediately available funds, the amount transferred pursuant
to the Master Assignment Agreement or deposited hereunder by each
Senior Lender to such Senior Lender.
(iv) Unless the Administrative Agent shall have been
notified by any Senior Lender prior to any Funding Date in
respect of any Borrowing of Revolving Loans that such Senior
Lender does not intend to make available to the Administrative
Agent such Senior Lender's Revolving Loan on such Funding Date,
the Administrative Agent may assume that such Senior Lender has
made such amount available to the Administrative Agent on such
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Funding Date and the Administrative Agent in its sole discretion
may, but shall not be obligated to, make available to the
Borrower a corresponding amount on such Funding Date. If such
corresponding amount is not in fact made available to the
Administrative Agent by such Senior Lender on or prior to a
Funding Date, such Senior Lender agrees to pay and the Borrower
agrees to repay severally to the Administrative Agent forthwith
on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is paid or repaid to
the Administrative Agent, at (A) in the case of the Borrower, the
interest rate applicable at the time to a Borrowing of Base Rate
Loans made on such Funding Date and (B) in the case of such
Senior Lender, the Federal Funds Rate. If such Senior Lender
shall pay to the Administrative Agent such corresponding amount,
such amount so paid shall constitute such Senior Lender's
Revolving Loan, and if both such Senior Lender and the Borrower
shall have paid and repaid such corresponding amount, the
Administrative Agent shall promptly return to the Borrower such
corresponding amount in same day funds. Nothing in this SECTION
2.02(c) shall be deemed to relieve any Senior Lender of its
obligation hereunder to make its Revolving Loan on any Funding
Date.
(d) REVOLVING CREDIT NOTES. The Borrower shall
execute and deliver to each Senior Lender on the Effective Date a
promissory note, in substantially the form of EXHIBIT 15 and
otherwise in form and substance satisfactory to the Senior
Lenders, in the principal amount of that Senior Lender's
Revolving Credit Commitment (each individually, a "Revolving
Credit Note" and collectively, the "Revolving Credit Notes").
The Revolving Credit Note delivered to each Senior Lender shall
mature on the Revolving Credit Termination Date. Each Senior
Lender is hereby authorized, at its option, to either (i) endorse
the date and amount of each Revolving Loan made by such Senior
Lender and each prepayment of principal of Revolving Loans made
with respect to such Revolving Credit Note on the back of such
Revolving Credit Note or (ii) record such Revolving Loans and
prepayments in its books and schedule or such books and records,
as the case may be, constituting PRIMA FACIE evidence, absent
manifest error, of the accuracy of the information contained
therein.
(e) TERMINATION OF REVOLVING CREDIT COMMITMENTS;
REDUCTION OF REVOLVING LOAN SUBFACILITY; REVOLVING CREDIT
TERMINATION DATE. (i) The Borrower shall have the right, at any
time and from time to time, to terminate in whole or permanently
reduce in part, without premium or penalty, the Revolving Credit
Commitments; PROVIDED, HOWEVER, that any partial reduction of the
Revolving Credit Commitments shall occur by the Borrower's
reduction of the Revolving Loan Subfacility pursuant to SECTION
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2.02(e)(ii) or the Letter of Credit Subfacility pursuant to
SECTION 3.12(a) or both; PROVIDED, FURTHER, HOWEVER, that the
Borrower shall have made whatever payment may be required to
reduce the Revolving Credit Obligations to an amount less than or
equal to the Revolving Credit Commitments as reduced or
terminated.
(ii) The Borrower shall give not less than three (3)
Business Days' prior written notice to the Administrative Agent
designating the date (which shall be a Business Day) of such
termination of the Revolving Credit Commitments or reduction of
the Revolving Loan Subfacility and the amount of such reduction.
Promptly after receipt of a notice of such termination or
reduction, the Administrative Agent shall notify each Senior
Lender of the proposed termination or reduction. Such
termination of the Revolving Credit Commitments or reduction of
the Revolving Loan Subfacility shall be effective on the date
specified in the Borrower's notice and shall permanently reduce
the Revolving Credit Commitment of each Senior Lender
proportionately in accordance with its Pro Rata Share. Any such
partial reduction of the Revolving Loan Subfacility shall be in
an aggregate minimum amount of $5,000,000 and integral multiples
of $1,000,000 in excess of that amount.
(iii) Each Senior Lender's Revolving Credit Commitment
shall expire without further action on the part of the Senior
Lenders and all Revolving Credit Obligations shall be paid in
full (or, in the case of unmatured Facility Letter of Credit
Obligations, provision for payment shall be made to the
satisfaction of the Issuing Banks and the Requisite Lenders) on
the earlier of (A) December 31, 1999, or (B) the date of
termination of the Revolving Credit Commitments pursuant to
SECTION 11.02(a) (the "Revolving Credit Termination Date").
2.03. USE OF PROCEEDS OF LOANS. The proceeds of the
Loans deemed made under SECTION 2.01(c)(i) or 2.02(c)(i) shall be
used solely for the purposes set forth in such Sections and the
Master Assignment Agreement. The proceeds of all other Loans
made on the Effective Date shall be used (i) to repay in full all
other matured obligations of the Borrower under the Second
Amended and Restated Credit Agreement, as set forth in the Master
Assignment Agreement, (ii) to pay the Transactions Costs and
(iii) for the purposes described in the following sentence. The
proceeds of all other Loans shall be used for working capital in
the ordinary course of business and for other lawful and
permitted corporate purposes of Southland. Southland hereby
acknowledges that the restrictions as to use of proceeds in this
Agreement or any of the other Loan Documents are commercially
reasonable and made in good faith.
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2.04. INTEREST ON THE LOANS.
(a) RATE OF INTEREST. All Loans shall bear interest
on the unpaid principal amount thereof from the date made until
paid in full at a fluctuating rate determined from time to time
by reference to the Base Rate or the Eurodollar Rate, but not to
exceed the maximum rate permitted by applicable law. The
applicable basis for determining the rate of interest shall be
selected by the Borrower at the time a Notice of Borrowing is
given by the Borrower pursuant to SECTION 2.01(b) or 2.02(b) (as
applicable) or, in the case of all Loans, at the time a Notice of
Conversion/Continuation is delivered by the Borrower pursuant to
SECTION 2.04(c); PROVIDED, HOWEVER, that (x) the Borrower may not
select the Eurodollar Rate as the applicable basis for determin-
ing the rate of interest on a Loan if at the time of such
selection an Event of Default or a Potential Event of Default has
occurred and is continuing and (y) all Loans made or deemed made
on the Effective Date shall be Base Rate Loans. If on any day a
Loan is outstanding with respect to which notice has not been
delivered to the Administrative Agent in accordance with the
terms of this Agreement specifying the basis for determining the
rate of interest, then for that day that Loan shall be a Base
Rate Loan. The Loans and other Obligations shall bear interest,
subject to SECTIONS 2.04(d) and 13.24, as follows:
(i) If a Base Rate Loan or such other Obligation,
then at a rate per annum equal to the Base Rate as in
effect from time to time as interest accrues; or
(ii) If a Eurodollar Rate Loan, then at a rate
per annum equal to the sum of (A) 0.975% per annum PLUS
(B) the Eurodollar Rate determined for the applicable
Eurodollar Interest Period.
(b) INTEREST PAYMENTS. Subject to SECTIONS 2.04(d)
and 13.24, interest accrued on all Base Rate Loans in any
calendar quarter shall be payable in arrears (i) on the first
Business Day of the immediately succeeding calendar quarter,
commencing on the first such day following the making of each
such Base Rate Loan, (ii) upon the prepayment thereof in full or
in part and (iii) at maturity. Interest accrued on each
Eurodollar Rate Loan shall be payable in arrears (x) on each
Eurodollar Interest Payment Date applicable to that Loan, (y)
upon the prepayment thereof in full or in part (together with
payment of the amounts described in SECTION 2.08(f)) and (z) at
maturity.
(c) CONVERSION OR CONTINUATION. Subject to the
provisions of SECTION 2.08, the Borrower shall have the option
(i) to convert at any time all or any part of outstanding Loans
which comprise part of the same Borrowing and which, in the
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aggregate, equal $10,000,000 or an integral multiple of
$5,000,000 in excess of that amount from Base Rate Loans to
Eurodollar Rate Loans; or (ii) to convert all or any part of
outstanding Loans which comprise part of the same Borrowing and
which, in the aggregate, equal $10,000,000 or an integral
multiple of $5,000,000 in excess of that amount from Eurodollar
Rate Loans to Base Rate Loans on the expiration date of any
Eurodollar Interest Period applicable thereto; or (iii) upon the
expiration of any Eurodollar Interest Period applicable to
Borrowing of Eurodollar Rate Loans, to continue all or any
portion of such Loans equal to $10,000,000 or an integral
multiple of $5,000,000 in excess of that amount as Eurodollar
Rate Loans of the same type, and the succeeding Eurodollar
Interest Period of such continued Loans shall commence on the
expiration date of the Eurodollar Interest Period applicable
thereto; PROVIDED, that no outstanding Loan may be continued as,
or be converted into, a Eurodollar Rate Loan when any Event or
Default or Potential Event of Default has occurred and is
continuing.
In the event the Borrower shall elect to convert or
continue a Loan under this SECTION 2.04(c), the Borrower shall
deliver a Notice of Conversion/Continuation to the Administrative
Agent no later than 11:00 a.m. (New York time) at least one
(1) Business Day in advance of the proposed conversion date in
the case of a conversion to a Base Rate Loan, and not later than
11:00 a.m. (New York time) at least three (3) Business Days in
advance of the proposed conversion/continuation date in the case
of a conversion to, or a continuation of, a Eurodollar Rate Loan.
A Notice of Conversion/Continuation shall specify (i) the
proposed conversion/continuation date (which shall be a Business
Day), (ii) the amount of the Loan to be converted/continued,
(iii) the nature of the proposed conversion/continuation, and
(iv) in the case of a conversion to, or continuation of, a
Eurodollar Rate Loan, the requested Eurodollar Interest Period.
In lieu of delivering the above-described Notice of
Conversion/Continuation, the Borrower may give the Administrative
Agent telephonic notice of any proposed conversion/continuation
by the time required under this SECTION 2.04(c); PROVIDED, that
such notice shall be confirmed in writing by delivery to the
Administrative Agent promptly (but in no event later than the
proposed conversion/continuation under this SECTION 2.04(c).
Promptly after receipt of a Notice of Conversion/Continuation
under this SECTION 2.04(c) (or telephonic notice in lieu
thereof), the Administrative Agent shall notify each Senior
Lender by telex, telecopy, telegram, telephone or other similar
form of transmission, of the proposed conversion/continuation.
The officers and employees of the Borrower authorized
to request a Revolving Loan on behalf of the Borrower shall also
be authorized to request a conversion/continuation of any such
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Revolving Loan or any Senior Term Loan on behalf of the Borrower.
The Administrative Agent shall be entitled to rely on such
officer's or employee's authority until the Administrative Agent
is notified to the contrary in writing pursuant to SECTION
2.02(b)(ii). The Administrative Agent shall have no duty to
verify the authenticity of the signature appearing on any written
Notice of Conversion/Continuation and, with respect to an oral
request therefor, the Administrative Agent shall have no duty to
verify the identity of any person representing himself as one of
the officers or employees authorized to make such request.
Neither the Administrative Agent, any other Agent nor any Senior
Lender shall incur any liability to the Borrower in acting upon
any telephonic notice referred to above which the Administrative
Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of
the Borrower or such other obligor or for otherwise acting in
good faith under this SECTION 2.04(c).
Any Notice of Conversion/Continuation for conversion
to, or continuation of, a Loan (or telephonic notice in lieu
thereof) shall be irrevocable and the Borrower shall be bound to
convert or continue in accordance therewith.
(d) DEFAULT INTEREST. Notwithstanding the rates of
interest specified in SECTION 2.04(a), effective upon notice from
the Administrative Agent or the Requisite Senior Lenders at any
time after (i) the occurrence of an Event of Default under
SECTION 11.01(a) or (ii) the date of acceleration of the maturity
of the Obligations pursuant to SECTION 11.02(a) and for as long
thereafter as such Event of Default shall be continuing or until
such acceleration has been rescinded pursuant to SECTION 11.02(c)
(as applicable), the principal balance of all Loans and other
Obligations then outstanding shall bear interest payable upon
demand at a rate which is two percent (2%) per annum in excess of
the rate of interest otherwise payable under this Agreement, but
not to exceed the maximum rate permitted by applicable law.
(e) COMPUTATION OF INTEREST. Interest on Base Rate
Loans and Eurodollar Rate Loans shall be computed on the basis of
the actual number of days elapsed in the period during which
interest accrues and a year of 360 days (subject to the
provisions of this Agreement and the Notes limiting the rate of
interest to that permitted by applicable law). In computing
interest on any Loan, the date of the making of the Loan or the
first day of a Eurodollar Interest Period, as the case may be,
shall be excluded; PROVIDED that if a Loan is repaid on the same
day on which it is made, one day's interest shall be paid on that
Loan.
(f) CHANGES; LEGAL RESTRICTIONS. Except as provided
in SECTION 2.08(d) with respect to certain determinations on
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Eurodollar Interest Rate Determination Dates, in the event that
after the date hereof (a) the adoption of or any change in any
law, treaty, rule, regulation, guideline or determination of a
court or Governmental Authority or any change in the
interpretation or application thereof by a court or Governmental
Authority, or (b) compliance by any Senior Lender or Issuing Bank
with any request or directive (whether or not having the force of
law and whether or not the failure to comply therewith would be
unlawful) from any central bank or other Governmental Authority
or quasi-governmental authority:
(i) does or will subject a Senior Lender or
Issuing Bank (or its applicable lending office or
Eurodollar Affiliate) to any tax, duty or other charge
of any kind which such Senior Lender or Issuing Bank
reasonably determines to be applicable to this
Agreement, the Notes, the Commitments, the Loans or the
Facility Letters of Credit or change the basis of
taxation of payments to that Senior Lender or Issuing
Bank of principal, fees, interest, or any other amount
payable hereunder, except for taxes imposed on or
measured by the overall net income of that Senior
Lender or Issuing Bank or its applicable lending office
or Eurodollar Affiliate or franchise taxes imposed by
the jurisdiction in which such Senior Lender's or
Issuing Bank's principal executive office, applicable
lending office or Eurodollar Affiliate is located (all
such non-excepted taxes, duties and other charges being
hereinafter referred to as "Taxes"); or
(ii) does or will impose, modify, or hold
applicable, in determination of a Senior Lender or
Issuing Bank, any reserve, special deposit, compulsory
loan, FDIC insurance, capital allocation or similar
requirement against assets held by, or deposits or
other liabilities (including those pertaining to
Facility Letters of Credit) in or for the account of,
advances or loans by, Commitments made, or other credit
extended by, or any other acquisition of funds by, a
Senior Lender or any applicable lending office or
Eurodollar Affiliate of that Senior Lender or Issuing
Bank (except, with respect to Base Rate Loans, to the
extent that the reserve and FDIC insurance requirements
are reflected in the definition of "Base Rate" and,
with respect to Eurodollar Rate Loans, to the extent
that the reserve requirements are reflected in the
definition of "Eurodollar Rate"); or
(iii) does or will impose on that Senior Lender
or Issuing Bank any other condition materially more
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burdensome in nature, extent or consequence than those
in existence as of the Effective Date;
and the results of any of the foregoing is to increase the cost
to the Senior Lender or Issuing Bank of making, renewing or
maintaining the Loans or its Commitment or issuing or
participating in the Facility Letters of Credit or to reduce any
amount receivable thereunder; THEN, in any such case, the
Borrower shall promptly pay to that Senior Lender or Issuing
Bank, upon demand, such amount or amounts (based upon a
reasonable allocation thereof by such Senior Lender or Issuing
Bank to the financing transactions contemplated by this Agreement
and affected by this SECTION 2.04(f) as may be necessary to
compensate that Senior Lender or Issuing Bank for any such
additional cost incurred or reduced amount received. Such Senior
Lender or Issuing Bank shall deliver to the Borrower a written
statement of the costs or reductions claimed and the basis
therefor, and the reasonable allocation made by that Senior
Lender or Issuing Bank of such costs and reductions shall be
conclusive, absent manifest error. If a Senior Lender or Issuing
Bank subsequently recovers any amount of Taxes previously paid by
the Borrower pursuant to this SECTION 2.04(f), such Senior Lender
or Issuing Bank shall, within 30 days after receipt of such
refund and to the extent permitted by applicable law, pay to the
Borrower the amount of any such recovery.
(g) REFERENCE BANKS. Each Reference Bank which is
also a Senior Lender agrees to furnish to the Administrative
Agent timely information for the purpose of determining each
Eurodollar Rate. Upon the reasonable request of the Borrower
from time to time, the Administrative Agent shall promptly
provide to the Borrower such information with respect to the
applicable Eurodollar Rate as may be reasonably required by the
Borrower, and each Reference Bank which is also a Senior Lender
agrees to furnish to the Administrative Agent such information as
may be required in connection therewith.
2.05. FEES. AGENT'S FEE (a) ADMINISTRATIVE S AND
OTHER FEES. The Borrower shall pay to the Administrative Agent,
solely for its own account, the fees (the "Administrative Agent's
Fees") specified in the letter agreement dated November 14, 1994
between the Administrative Agent and Southland, on the dates
specified therein. No Persons other than the Administrative
Agent shall have any interest in the Administrative Agent's Fees.
(b) STRUCTURING FEES. The Borrower shall pay to the
Administrative Agent, solely for account of each Agent, the fees
(the "Structuring Fees") specified in the letter agreement dated
November 14, 1994 between the Borrower and each of the Agents on
the date specified therein. No Persons other than the Agents
shall have any interest in the Structuring Fees.
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(c) UNUSED COMMITMENT FEE. The Borrower shall pay to
the Administrative Agent, for the account of each Senior Lender,
a fee (an "Unused Commitment Fee") accruing at the rate of one-
half of one percent (0.50%) per annum through the Revolving
Credit Termination Date, upon the daily excess, if any, of such
Senior Lender's Revolving Credit Commitment then in effect over
such Senior Lender's Pro Rata Share of the Revolving Credit
Obligations outstanding at such time. All Unused Commitment Fees
which have accrued in any calendar quarter shall be payable
quarterly in arrears on the first Business Day of the immediately
succeeding calendar quarter. All Unused Commitment Fees shall be
calculated on the basis of the actual number of days elapsed in a
360-day year.
(d) CLOSING FEES. The Borrower shall pay to the
Administrative Agent, for the account of each Senior Lender, a
fee (a "Closing Fee") equal to such Senior Lender's Pro Rata
Share of $1,500,000.00. All Closing Fees shall be payable on the
Effective Date.
(e) LETTER OF CREDIT FEES. The Borrower shall pay to
the Administrative Agent, for account of the Senior Lenders or
the Issuing Banks, as applicable, a fee for Facility Letters of
Credit (the "Facility Letter of Credit Fee"), determined as set
forth in SECTIONS 3.08(a) and (b).
(f) PAYMENT OF FEES. The fees described in this
SECTION 2.05 represent compensation for services rendered and to
be rendered separate and apart from the lending of money or the
provision of credit and do not constitute compensation for the
use, detention or forbearance of money, and the obligation of the
Borrower to pay each fee described herein shall be in addition
to, and not in lieu of, the obligation of the Borrower to pay
interest, other fees described herein and expenses otherwise
described in this Agreement. Fees shall be payable when due in
New York, New York in immediately available funds. All fees
shall be non-refundable when paid. All fees specified or
referred to in this Agreement due to a Senior Lender, including,
without limitation, those referred to in this SECTION 2.05, shall
bear interest, if not paid when due, at the rate then applicable
to past due Base Rate Loans (but not to exceed the maximum rate
permitted by law), shall constitute Obligations and shall be
secured by all of the Collateral.
2.06. PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. The
Borrower may, upon not less than two (2) Business Days' prior
written or telephonic notice confirmed promptly in writing to the
Administrative Agent (which notice the Administrative Agent shall
promptly transmit by telegram, telex or telephone to each Senior
Lender), at any time and from time to time, prepay any Base Rate
Loans in whole or in part, without premium or penalty, in an
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aggregate minimum amount of $5,000,000, PROVIDED, HOWEVER, that
the Borrower may prepay such Loans in full without regard to such
minimum amount. Eurodollar Rate Loans may be prepaid in whole or
in part, without premium or penalty, on the expiration date of
the Eurodollar Interest Period applicable thereto and otherwise
only upon payment of the amounts described in SECTION 2.08(f).
Any notice of prepayment given to the Administrative Agent under
this SECTION 2.06(a) shall specify the date of prepayment, the
aggregate principal amount of the prepayment and the allocation
of such amount among Base Rate Loans and Eurodollar Rate Loans.
Voluntary prepayments of the Senior Term Loans shall be applied
to unpaid installments thereof in the direct order of their
maturity (with a corresponding permanent reduction in the Term
Loan Commitment of each Senior Lender proportionately in
accordance with its Pro Rata Share). Notice of prepayment having
been delivered as provided herein, the principal amount of the
Loans specified in such notice shall become due and payable on
the prepayment date.
(b) MANDATORY PREPAYMENT OF REVOLVING LOANS. The
Borrower shall make prepayments of Revolving Loans to the extent
necessary to assure that the aggregate principal amount of the
Revolving Loans outstanding at any time does not exceed the
Revolving Loan Subfacility at such time.
2.07. PAYMENTS. (a) MANNER AND TIME OF PAYMENT. All
payments of principal, interest, Reimbursement Obligations and
fees hereunder and under the Notes or a Facility Letter of Credit
payable to the Senior Lenders or any Issuing Bank shall be made
without condition or reservation of right, in Dollars and in
immediately available funds, delivered to the Administrative
Agent not later than 11:00 a.m. (New York time) on the date due,
to such account of the Administrative Agent in New York, New
York, as the Administrative Agent may designate, for the account
of the Senior Lenders or such Issuing Bank, as the case may be,
and funds received by the Administrative Agent after that time,
shall be deemed to have been paid on the next succeeding Business
Day. Payments actually received by the Administrative Agent for
the account of the Senior Lenders or the Issuing Banks, or any of
them, shall be paid to them promptly after receipt thereof by the
Administrative Agent, PROVIDED, that the Administrative Agent
shall pay to such Senior Lenders or Issuing Banks interest
thereon, at the Federal Funds Rate, from the Business Day
following receipt of such funds by the Administrative Agent until
such funds are paid to such Senior Lenders and Issuing Banks.
(b) APPORTIONMENT OF PAYMENTS. (i) Subject to the
provisions of SECTION 2.06, SECTION 2.07(b)(iii) and SECTION
3.06(b)(ii), all payments of principal and interest in respect of
outstanding Loans, all payments in respect of Reimbursement
Obligations, all payments of fees and all other payments in
respect of any other Obligations, shall be allocated among such
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of the Senior Lenders and Issuing Banks as are entitled thereto,
in proportion to their respective Pro Rata Shares or otherwise as
provided herein. Except as provided in SECTION 2.07(b)(ii) with
respect to payments and proceeds of Collateral received after the
occurrence of an Event of Default, all such payments and any
other amounts received by the Administrative Agent from or for
the benefit of the Borrower shall be allocated among such of the
Senior Lenders as are entitled thereto, in proportion to their
respective Pro Rata Shares, or otherwise as provided herein. All
such principal and interest payments in respect of Senior Term
Loans and Revolving Loans shall be applied FIRST, to the Senior
Term Loans (to installments and accrued interest then due and
payable, ratably, in accordance with the Senior Lenders'
respective Pro Rata Shares) and SECOND, to the Revolving Loans
and accrued interest thereon; in either case, FIRST, to repay
outstanding Base Rate Loans and THEN to repay outstanding
Eurodollar Rate Loans with those Eurodollar Rate Loans which have
earlier expiring Eurodollar Interest Periods being repaid prior
to those which have later expiring Eurodollar Interest Periods.
(ii) After the occurrence of an Event of Default and
while the same is continuing, the Administrative Agent shall
apply all payments in respect of any Obligations and all proceeds
of Collateral in the following order:
(A) FIRST, to pay Obligations in respect of any
fees, expense reimbursements or indemnities then due to
the Administrative Agent from the Borrower;
(B) SECOND, to pay Obligations in respect of any
fees and indemnities then due to the Senior Lenders
from the Borrower;
(C) THIRD, to pay interest due in respect of
Loans and other Obligations; PROVIDED, that if
sufficient funds are not available to fund all payments
to be made to the Holders of Secured Obligations in
respect of the Obligations described in this CLAUSE
(C), the available funds shall be allocated to the
payment of such Obligations ratably, based on the
proportion of the amount of interest due each Holder of
Secured Obligations;
(D) FOURTH, to pay or prepay principal of Loans
and Reimbursement Obligations, to pay (or, to the
extent such Obligations are contingent, prepay or
provide cash collateral in respect of) Facility Letter
of Credit Obligations, and to pay Obligations then due
and payable in respect of the Eligible Interest Rate
Contracts, if any; PROVIDED, that if sufficient funds
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are not available to fund all payments to be made to
the Holders of Secured Obligations in respect of the
Obligations described in this CLAUSE (D), the available
funds shall be allocated to the payment of such
Obligations ratably, based on the proportion of each
Holder's interest in the aggregate outstanding Loans,
Reimbursement Obligations and other Facility Letter of
Credit Obligations (in each instance whether or not
due) and in the Obligations then due and payable in
respect of Eligible Interest Rate Contracts;
(E) FIFTH, to the ratable payment of all other
Obligations then due and payable for expense
reimbursements; and
(F) SIXTH, to the ratable payment of all other
Obligations due to any and all Holders of Secured
Obligations.
Subject to SECTION 2.07(b)(iii) and SECTION 3.06(b)(ii), the
Administrative Agent shall promptly distribute to each Senior
Lender and Issuing Bank at its primary address set forth on the
appropriate signature page hereof, or the signature page to the
Assignment and Acceptance by which such Person became a Lender or
Issuing Bank, or at such other address as a Senior Lender, an
Issuing Bank or Holder of Secured Obligations may request in
writing, such funds as it may be entitled to receive, subject to
the provisions of ARTICLE XII and PROVIDED THAT the
Administrative Agent shall in any event not be bound to inquire
into or determine the validity, scope or priority of any interest
or entitlement of any Holder of Secured Obligations and may
suspend all payments or seek appropriate relief (including,
without limitation, instructions from the Requisite Senior
Lenders or an action in the nature of interpleader) in the event
of any doubt or dispute as to any apportionment or distribution
contemplated hereby. The order of priority herein is set forth
solely to determine the rights and priorities of the Senior
Lenders and other Holders of Secured Obligations as among
themselves and may at any time or from time to time be changed by
the Senior Lenders as they may elect, in writing in accordance
with SECTION 13.08, without necessity of notice to or consent of
or approval by the Borrower or any other Person.
(iii) In the event that any Senior Lender fails to
fund its Pro Rata Share of any Revolving Loan requested by the
Borrower which such Senior Lender is obligated to fund under the
terms of this Agreement (the funded portion of such Borrowing of
Revolving Loans being hereinafter referred to as a "Non Pro Rata
Loan"), until the earlier of such Senior Lender's cure of such
failure and the termination of the Revolving Credit Commitments,
the proceeds of all amounts thereafter repaid to the
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Administrative Agent by the Borrower and otherwise required to be
applied to such Senior Lender's share of all other Obligations
pursuant to the terms of this Agreement shall be advanced to the
Borrower by the Administrative Agent on behalf of such Senior
Lender to cure, in full or in part, such failure by such Lender,
but shall nevertheless be deemed to have been paid to such Lender
in satisfaction of such other Obligations. Notwithstanding
anything in this Agreement to the contrary:
(A) the foregoing provisions of this SECTION
2.07(b)(iii) shall apply only with respect to the
proceeds of payments of Obligations and shall not
affect the conversion or continuation of Loans pursuant
to SECTION 2.04(c);
(B) a Senior Lender shall be deemed to have cured
its failure to fund its Pro Rata Share of any Revolving
Loan at such time as an amount equal to such Senior
Lender's original Pro Rata Share of the requested
principal portion of such Revolving Loan is fully
funded to the Borrower, whether made by such Lender
itself or by operation of the terms of this SECTION
2.07(b)(iii), and whether or not the Non Pro Rata Loan
with respect thereto has been repaid, converted or
continued;
(C) amounts advanced to the Borrower to cure, in
full or in part, any such Senior Lender's failure to
fund its Pro Rata Share of any Revolving Loan ("Cure
Loans") shall bear interest at the rate in effect from
time to time pursuant to SECTION 2.04(a)(i) and for all
other purposes of this Agreement shall be treated as if
they were Base Rate Loans; and
(D) regardless of whether or not an Event of
Default has occurred or is continuing, and
notwithstanding the instructions of the Borrower as to
its desired application, all repayments of principal
which, in accordance with the other terms of this
SECTION 2.07, would be applied to the outstanding
Revolving Loans which are Base Rate Loans shall be
applied FIRST, ratably to all such Base Rate Loans
constituting Non Pro Rata Loans, SECOND, ratably to
such Base Rate Loans other than those constituting Non
Pro Rata Loans or Cure Loans and THIRD, ratably to such
Base Rate Loans constituting Cure Loans.
(c) PAYMENTS ON NON-BUSINESS DAYS. Whenever any
payment to be made by the Borrower hereunder or under the Notes
shall be stated to be due on a day which is not a Business Day,
payments shall be made on the next succeeding Business Day and
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such extension of time shall be included in the computation of
the payment of interest hereunder or under the Notes and of any
of the fees specified in SECTION 2.05, as the case may be.
(d) ADMINISTRATIVE AGENT'S, ISSUING BANK'S OR SENIOR
LENDER'S ACCOUNTING. Any accounting as to Loans, fees or
Facility Letters of Credit which any of the Administrative Agent,
any Issuing Bank or any of the Senior Lenders at its option may
provide to the Borrower, including any periodic statement of
account, will be presumed, rebuttably, to be correct.
2.08. SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE
LOANS. Notwithstanding other provisions of this Agreement, the
following provisions shall govern with respect to Eurodollar Rate
Loans as to the matters covered:
(a) AMOUNT OF EURODOLLAR RATE LOANS. Each Eurodollar
Rate Loan shall be for a minimum amount of $10,000,000 and in
integral multiples of $5,000,000 in excess of that amount.
(b) DETERMINATION OF EURODOLLAR INTEREST PERIOD. By
giving notice as set forth in SECTION 2.02(b) (with respect to a
Borrowing of Eurodollar Rate Loans after the Effective Date) or
SECTION 2.04(c) (with respect to a conversion into or
continuation of Eurodollar Rate Loans), the Borrower shall have
the option, subject to the other provisions of this SECTION 2.08,
to specify an interest period (each a "Eurodollar Interest
Period") to apply to the Borrowing of Eurodollar Rate Loans
described in such notice, which Eurodollar Interest Period shall
be a period of either one, two, three, six or, if available to
each of the Senior Lenders, twelve months. The determination of
Eurodollar Interest Periods shall be subject to the following
provisions:
(i) In the case of immediately successive Eurodollar
Interest Period applicable to a Borrowing of Eurodollar Rate
Loans, each successive Eurodollar Interest Period shall
commence on the day on which the next preceding Eurodollar
Interest Period expires;
(ii) If any Eurodollar Interest Period would
otherwise expire on a day which is not a Business Day,
the Eurodollar Interest Period shall be extended to
expire on the next succeeding Business Day; PROVIDED,
that if any such Eurodollar Interest Period applicable
to a Borrowing of Eurodollar Rate Loans would otherwise
expire on a day which is not a Business Day but is a
day of the month after which no further Business Day
occurs in that month, that Eurodollar Interest Period
shall expire on the immediately preceding Business Day;
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(iii) The Borrower may not select a Eurodollar
Interest Period for any Borrowing of Revolving Loans
which terminates later than the Revolving Credit
Termination Date; or for the Senior Term Loans, or any
portion thereof, which terminates later than December
31, 1999;
(iv) The Borrower may not select a Eurodollar
Interest Period with respect to any portion of
principal of a Eurodollar Rate Loan which extends
beyond a date on which the Borrower is required to make
a scheduled payment of that portion of principal, it
being understood and agreed that any Eurodollar Rate
Loan whose Eurodollar Interest Period ends less than
one month prior to such date shall be deemed converted
to a Base Rate Loan as of the last day of such
Eurodollar Interest Period for purposes of determining
whether any portion of principal of any Eurodollar Rate
Loan is required in order to make a mandatory payment
of principal; and
(v) There shall be no more than six (6)
Eurodollar Interest Periods in effect at any one time.
(c) DETERMINATION OF INTEREST RATE. As soon as
practicable after 11:00 a.m. (New York time) on the Eurodollar
Interest Rate Determination Date, the Administrative Agent shall
determine (which determination shall, absent manifest error, be
presumptively correct, subject, however, to the provisions of
SECTION 13.24) the interest rate which shall apply to the
Eurodollar Rate Loans for which an interest rate is then being
determined for the applicable Eurodollar Interest Period and
shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to the Borrower and to each Senior Lender.
(d) INTEREST RATE UNASCERTAINABLE, INADEQUATE OR
UNFAIR. If with respect to any Eurodollar Interest Period:
(i) the Administrative Agent is advised by any
Reference Bank that deposits in Dollars (in the
applicable amounts) are not being offered by such
Reference Bank in the relevant market for such
Eurodollar Interest Period; or
(ii) Requisite Senior Lenders advise the
Administrative Agent that the Eurodollar Rate as
determined by the Administrative Agent is at least
fifteen (15) basis points less than the cost to such
Senior Lenders of obtaining funds in the London
interbank Eurodollar market in the amount substantially
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equal to such Senior Lenders' Eurodollar Rate Loans and
for a period equal to such Eurodollar Interest Period;
the Administrative Agent shall forthwith give notice thereof to
the Borrower, whereupon until the Administrative Agent notifies
the Borrower that the circumstances giving rise to such
suspension no longer exist, the right of the Borrower to elect to
have the Senior Term Loans and the Revolving Loans bear interest
based on the Eurodollar Rate shall be suspended, and each
outstanding Eurodollar Rate Loan made by the Senior Lenders shall
be converted into a Base Rate Loan on the last day of the then
current Eurodollar Interest Period therefor, notwithstanding any
prior election by the Borrower to the contrary.
(e) ILLEGALITY. (i) In the event that on any date any
Senior Lender shall have determined (which determination shall,
absent manifest error, be final and conclusive and binding upon
all parties) that the making or continuation of any Eurodollar
Rate Loan has become unlawful by compliance by that Senior Lender
in good faith with any law, governmental rule, regulation or
order of any Governmental Authority (whether or not having the
force of law and whether or not failure to comply therewith would
be unlawful), then, and in any such event, that Senior Lender
shall promptly give notice (by telephone promptly confirmed in
writing) to the Borrower and the Administrative Agent (which
notice the Administrative Agent shall promptly transmit to each
Senior Lender) of that determination.
(ii) Upon the giving of the notice referred to in
SECTION 2.08(e)(i), (A) the Borrower's right to request and such
Senior Lender's obligation to make Eurodollar Rate Loans shall be
immediately suspended, and such Senior Lender shall make a Loan,
as part of any requested Borrowing of Eurodollar Rate Loans, as a
Base Rate Loan, which Base Rate Loan shall, for all purposes, be
considered a part of such Borrowing, and (B) if the affected
Eurodollar Rate Loan(s) are then outstanding, the Borrower shall
immediately, or if permitted by applicable law, no later than the
date permitted thereby, upon at least one (1) Business Day's
written notice to the Administrative Agent and the affected
Senior Lender, convert each such Eurodollar Rate Loan into a Base
Rate Loan.
(iii) In the event that such Senior Lender determines at
any time following its giving of the notice referred to in
SECTION 2.08(e)(i) that such Senior Lender may lawfully make
Eurodollar Rate Loans of the type referred to in such notice,
such Senior Lender shall promptly give notice (by telephone
confirmed in writing) to the Borrower and the Administrative
Agent (which notice the Administrative Agent shall promptly
transmit to each Senior Lender) of that determination, whereupon
the Borrower's right to request and such Senior Lender's
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obligation to make Eurodollar Rate Loans of such type(s) shall be
restored.
(f) COMPENSATION. In addition to such amounts as are
required to be paid by the Borrower pursuant to SECTIONS 2.04(a),
2.04(d) and 2.04(f), the Borrower shall compensate each Senior
Lender, upon written request by that Senior Lender (which request
shall set forth in reasonable detail the basis for requesting
such amounts), for all losses, expenses and liabilities,
including, without limitation, any loss or expense incurred by
reason of the liquidation of reemployment of deposits or other
funds acquired by that Senior Lender to fund or maintain that
Senior Lender's Eurodollar Rate Loans to the Borrower which that
Senior Lender may sustain (i) if for any reason a Borrowing
conversion or continuation of Eurodollar Rate Loans does not
occur on a date specified therefor in a Notice of Borrowing or a
Notice of Conversion/Continuation or in a telephonic request for
borrowing or conversion/continuation or a successive Eurodollar
Interest Period does not commence after notice therefor is given
pursuant to SECTION 2.04(c), (ii) if any prepayment of any
Eurodollar Rate Loan (including without limitation, any
prepayments pursuant to SECTION 2.06) occurs for any reason on a
date which is not the last day of the applicable Eurodollar
Interest Period, (iii) as a consequence of any required
conversion of a Eurodollar Rate Loan to a Base Rate Loan as a
result of any of the events indicated on Section 2.08(e), or
(iv) as a consequence of any other default by the Borrower to
repay Eurodollar Rate Loans when required by the terms of this
Agreement.
(g) QUOTATION OF EURODOLLAR RATE. If on any
Eurodollar Interest Rate Determination Date any of the Reference
Banks shall have failed to provide offered quotations to the
Administrative Agent in accordance with the definition of
"Eurodollar Rate" the Administrative Agent shall determine the
Eurodollar Rate using the quotation of the other Reference Banks.
(h) EURODOLLAR RATE TAXES. The Borrower agrees that:
(i) the Borrower will pay, prior to the date on
which penalties attach thereto, all present and future
income, stamp and other taxes, levies, or costs and
charges whatsoever imposed, assessed, levied or
collected on or in respect of a Loan solely as a result
of the interest rate being determined by reference to
the Eurodollar Rate or the provisions of this Agreement
relating to the Eurodollar Rate or the recording,
registration, notarization or other formalization of
any thereof or any payments of principal, interest or
other amounts made on or in respect of a Loan when the
interest rate is determined by reference to the
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Eurodollar Rate (all such taxes, levies, costs and
charges being herein collectively called "Eurodollar
Rate Taxes"); PROVIDED that Eurodollar Rate Taxes shall
not include: taxes imposed on or measured by the
overall net income of the Senior Lender or any foreign
branch or Subsidiary of that Senior Lender by the
United States of America or any taxing authority of any
jurisdiction in which the Senior Lender or any such
foreign branch or Subsidiary conducts business. The
Borrower shall also pay such additional amounts equal
to increases in taxes payable by that Senior Lender
described in the foregoing proviso which increases are
attributable to payments made by the Borrower described
in this sentence and in the immediately preceding
sentence of this paragraph. Promptly after the date on
which payment of any such Eurodollar Rate Tax is due
pursuant to applicable law, the Borrower will, at the
request of that Senior Lender, furnish to that Senior
Lender evidence, in form and substance satisfactory to
that Senior Lender, that the Borrower has met its
obligation under this Section 2.08(h); and
(ii) The Borrower will indemnify each Senior
Lender against, and reimburse each on demand for, any
Eurodollar Rate Taxes paid by such Senior Lender, as
determined by that Senior Lender in its sole
discretion. That Senior Lender shall provide the
Borrower with (A) appropriate receipts for any payments
or reimbursements made by the Borrower pursuant to this
SECTION 2.08(h)(ii) and (B) such information as may
reasonably be required to indicate the basis for such
Eurodollar Rate Taxes; PROVIDED that if a Senior Lender
or Issuing Bank subsequently recovers, or receives a
net tax benefit with respect to, any amount of
Eurodollar Rate Taxes previously paid by the Borrower
pursuant to this SECTION 2.08(h)(ii), such Senior
Lender or Issuing Bank shall, within 30 days after
receipt of such refund, and to the extent permitted by
applicable law, pay to the Borrower the amount of any
such recovery or permanent net tax benefit.
(i) BOOKING OF EURODOLLAR RATE LOANS. Any Senior
Lender may make, carry or transfer Eurodollar Rate Loans at, to,
or for the account of, any of its branch offices or the office of
an Affiliate of that Senior Lender; PROVIDED, HOWEVER, no such
Senior Lender shall be entitled to receive any greater amount
under SECTION 2.04(f) or 2.08(h) as a result of the transfer of
any such Eurodollar Rate Loan than such Senior Lender would be
entitled to immediately prior thereto unless (A) such transfer
occurred at a time when circumstances giving rise to the claim
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for such greater amount did not exist and (B) such claim would
have arisen even if such transfer had not occurred.
(j) AFFILIATES NOT OBLIGATED. No Eurodollar Affiliate
or other Affiliate of any Senior Lender shall be deemed a party
to this Agreement or shall have any rights, liability or
obligation under this Agreement.
2.09. INCREASED CAPITAL. If either (i) the
introduction of or any change in or in the interpretation of any
law or regulation or (ii) compliance by any Senior Lender with
any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law
and whether or not the failure to comply therewith would be
unlawful) affects or would affect the amount of capital required
or expected to be maintained by such Senior Lender or any
corporation controlling such Senior Lender and such Senior Lender
reasonably determines that the amount of such capital is
increased by or based upon the existence of such Senior Lender's
Commitment and other commitments of this type then, upon demand
by such Senior Lender, the Borrower shall immediately pay to such
Senior Lender, from time to time as specified by such Senior
Lender, additional amounts sufficient to compensate such Senior
Lender in the light of such circumstances, to the extent that
such Senior Lender reasonably determines such increase in capital
to be allocable to the existence of such Senior Lender's
Commitment. A certificate as to such amounts submitted to the
Borrower by such Senior Lender, shall, in the absence of manifest
error, be conclusive and binding for all purposes.
2.10. REPLACEMENT OF SENIOR LENDER IN EVENT OF ADVERSE
CONDITION. In the event the Borrower becomes obligated to pay
additional amounts to any Senior Lender pursuant to SECTION
2.04(f), 2.08(e), 2.08(h), 2.09 or 3.08(c) as a result of any
condition described in any such Section, then, unless such Senior
Lender has theretofore taken steps to remove or cure, and has
removed or cured, the conditions creating the cause for such
obligation to pay such additional amounts, the Borrower may
designate another bank or financial institution which is
reasonably acceptable to the Administrative Agent and the
Requisite Senior Lenders (any such bank or financial institution
being herein called a "Replacement Lender") to purchase the Notes
of such Senior Lender and such Senior Lender's rights hereunder,
without recourse to or warranty by, or expense to, such Senior
Lender for a purchase price equal to the outstanding principal
amount of the Notes payable to such Senior Lender plus any
accrued but unpaid interest on such Notes and, in the case of a
Senior Lender, accrued but unpaid Unused Commitment Fees in
respect of that Senior Lender's Commitment and any other amounts
due and payable hereunder and upon such purchase, such Senior
Lender shall no longer be a party hereto or have any rights
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hereunder, and the Replacement Lender shall succeed to the rights
of such Senior Lender hereunder.
ARTICLE III
THE LETTER OF CREDIT SUBFACILITY
3.01. OBLIGATION TO ISSUE. Subject to the terms and
conditions set forth in this Agreement, each Issuing Bank hereby
severally agrees to issue for the account of the Borrower one or
more Facility Letters of Credit, up to an aggregate face amount
at any one time outstanding equal to its Letter of Credit
Commitment, from time to time through the earlier of (i) the
expiration of such Issuing Bank's Letter of Credit Commitment or
(ii) the Business Day next preceding the Revolving Credit
Termination Date.
3.02. TYPES AND AMOUNTS. (a) An Issuing Bank shall
not have any obligation to issue, and shall not issue, any
Facility Letter of Credit at any time:
(i) if the aggregate maximum amount then
available for drawing under Facility Letters of Credit
issued by such Issuing Bank after giving effect to the
Facility Letter of Credit requested hereunder, shall
exceed any limit imposed by law or regulation upon such
Issuing Bank;
(ii) if, immediately after the issuance of such
Facility Letter of Credit, the aggregate principal
amount of Facility Letter of Credit Obligations then
existing with respect to Facility Letters of Credit
issued by that Issuing Bank (which amount shall be
calculated without giving effect to the participation
of the Senior Lenders pursuant to SECTION 3.06) would
exceed such Issuing Bank's then effective Letter of
Credit Commitment;
(iii) if the Issuing Bank receives written notice
from the Administrative Agent or the Requisite Senior
Lenders at or before 11:00 a.m. (New York time) on the
date of the proposed issuance, amendment or extension
of such Facility Letter of Credit that (A) immediately
after the issuance of such Facility Letter of Credit,
(I) the then Facility Letter of Credit Obligations
would exceed the then Letter of Credit Subfacility or
(II) the Revolving Credit Obligations at such time
would exceed the aggregate Revolving Credit Commitments
then in effect, or (B) one or more of the conditions
precedent contained in SECTION 4.01 or 4.02, as
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applicable, will not on such date be satisfied, and an
Issuing Bank shall not otherwise be required to
determine that, or take notice whether, the conditions
precedent set forth in SECTION 4.01 or 4.02, as
applicable, have been satisfied; or
(iv) which has an expiration date (A) more than
one year after the date of issuance or (B) after the
Business Day immediately preceding the Revolving Credit
Termination Date.
(b) Any Senior Lender or Citibank may, in its
discretion, issue or extend Letters of Credit permitted under
SECTION 8.01(vii) without regard to the terms and provisions of
this ARTICLE III, and no other Senior Lender will have any
obligation to purchase any participation or any other interest in
such Letters of Credit pursuant to SECTION 3.06.
3.03. CONDITIONS. In addition to being subject to the
satisfaction of the conditions precedent contained in SECTION
4.01 or 4.02, as applicable, the obligation of an Issuing Bank to
issue any Facility Letter of Credit is subject to the
satisfaction in full of the following conditions:
(i) The Borrower shall have delivered to that
Issuing Bank, at such times and in such manner as that
Issuing Bank may prescribe, a Letter of Credit
Reimbursement Agreement and such other documents and
materials as may be required pursuant to the terms
thereof and the terms of the proposed Letter of Credit
shall be satisfactory to that Issuing Bank; and
(ii) As of the date of issuance no order,
judgment or decree of any court, arbitrator or
Governmental Authority shall purport by its terms to
enjoin or restrain that Issuing Bank from issuing the
Facility Letter of Credit and no law, rule or
regulation applicable to that Issuing Bank and no
request or directive (whether or not having the force
of law and whether or not the failure to comply
therewith would be unlawful) from any Governmental
Authority with jurisdiction over that Issuing Bank
shall prohibit or request that such Issuing Bank
refrain from the issuance of Letters of Credit
generally or the issuance of that Facility Letter of
Credit.
3.04. ISSUANCE OF FACILITY LETTERS OF CREDIT.
(a) The Borrower shall give an Issuing Bank written
notice that it has selected that Issuing Bank to issue a Facility
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Letter of Credit not later than 11:00 a.m. (New York time) on the
fifth (5th) Business Day preceding the requested issuance thereof
under this Agreement, or such shorter notice as may be acceptable
to such Issuing Bank. Such notice shall be irrevocable and shall
specify (i) the stated amount of the Facility Letter of Credit
requested, (ii) the effective date (which day shall be a Business
Day) of issuance of such requested Facility Letter of Credit,
(iii) the date on which such requested Facility Letter of Credit
is to expire (which date shall be a Business Day and shall in no
event be later than the Business Day immediately preceding the
Revolving Credit Termination Date), (iv) the Person for whose
benefit the requested Facility Letter of Credit is to be issued,
and (v) the amount of then outstanding Facility Letter of Credit
Obligations in respect of Facility Letters of Credit issued by
that Issuing Bank.
(b) An Issuing Bank shall not extend or amend any
Facility Letter of Credit if the issuance of a new Facility
Letter of Credit having the same terms as such Facility Letter of
Credit as so extended or amended would be prohibited by SECTION
3.02(a).
3.05. REIMBURSEMENT OBLIGATIONS; DUTIES OF ISSUING
BANKS. (a) Notwithstanding any provisions to the contrary in any
Letter of Credit Reimbursement Agreement:
(i) the Borrower shall reimburse an Issuing Bank
for drawings under a Facility Letter of Credit used by
it no later than the earlier of (a) the time specified
in such Letter of Credit Reimbursement Agreement, and
(b) three (3) Business Days after the payment by that
Issuing Bank; and
(ii) any Reimbursement Obligation with respect to
any Facility Letter of Credit shall bear interest from
the date of the relevant drawing under the pertinent
Facility Letter of Credit at the interest rate
applicable to Base Rate Loans for three (3) Business
Days after such date and thereafter at the interest
rate for past due Base Rate Loans in accordance with
SECTION 2.04(d).
(b) No action taken or omitted to be taken by an
Issuing Bank under or in connection with any Facility Letter of
Credit, if taken or omitted in the absence of gross negligence or
willful misconduct, shall put that Issuing Bank under any
resulting liability to any Senior Lender or, subject to SECTION
3.02, relieve that Senior Lender of its obligations hereunder to
that Issuing Bank. In determining whether to pay under any
Facility Letter of Credit, an Issuing Bank shall have no
obligation to the Senior Lenders other than to confirm that any
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documents required to be delivered under such Facility Letter of
Credit appear to have been delivered and that they appear on
their face to comply with the requirements of such Facility
Letter of Credit.
3.06. PARTICIPATIONS. (a) Immediately upon issuance
by an Issuing Bank of any Facility Letter of Credit in accordance
with the procedures set forth in this ARTICLE III and immediately
upon conversion of a Letter of Credit of an Issuing Bank to a
Facility Letter of Credit pursuant to SECTION 3.11, each Senior
Lender shall be deemed to have irrevocably and unconditionally
purchased and received from that Issuing Bank, without recourse
or warranty, an undivided interest and participation to the
extent of such Senior Lender's Pro Rata Share in such Facility
Letter of Credit (including, without limitation, all obligations
of the Borrower with respect thereto other than amounts owing to
the Issuing Bank under SECTIONS 3.08(b) and 3.08(c)) and any
security therefor or guaranty pertaining thereto.
(b) (i) If any Issuing Bank makes any payment under
any Facility Letter of Credit and the Borrower does not repay
such amount to such Issuing Bank pursuant to SECTION 3.05(a) or
3.07, such Issuing Bank shall promptly notify the Administrative
Agent, which shall promptly notify each Senior Lender of such
failure, and each Senior Lender shall promptly and
unconditionally pay to the Administrative Agent for the account
of such Issuing Bank the amount of such Senior Lender's Pro Rata
Share of such payment, in Dollars and in same day funds, and the
Administrative Agent shall promptly pay such amount, and any
other amounts received by the Administrative Agent for such
Issuing Bank's account pursuant to this SECTION 3.06(b)(i), to
the Issuing Bank. If the Administrative Agent so notifies such
Senior Lender prior to 11:00 a.m. (New York time) on any Business
Day, such Senior Lender shall make available to the
Administrative Agent for the account of such Issuing Bank its Pro
Rata Share of the amount of such payment on such Business Day in
immediately available funds in New York, New York.
(ii) If and to the extent such Senior Lender shall not
have so made its Pro Rata Share of the amount of such payment
available to the Administrative Agent for the account of such
Issuing Bank, (A) such Senior Lender agrees to pay to the
Administrative Agent for the account of such Issuing Bank
forthwith on demand such amount together with interest thereon,
for each day from the date such payment was first due until the
date such amount is paid to the Administrative Agent for the
account of such Issuing Bank, at the Federal Funds Rate, (B) with
respect to any Senior Lender which is also an Issuing Bank
hereunder or whose Affiliate is an Issuing Bank hereunder and, in
either case, such Issuing Bank has not received a requested
reimbursement under SECTION 3.06(b)(i) in respect of a payment
made by such Issuing Bank under a Facility Letter of Credit (an
"Unreimbursed Issuing Bank"), the obligations of such Senior
Lender under SECTION 3.06(b)(i) shall be suspended solely as to
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any Issuing Bank with respect to which such Issuing Bank (in its
capacity as a Senior Lender) or the Affiliate of such Issuing
Bank which is a Senior Lender has failed to reimburse such
Unreimbursed Issuing Bank (a "Defaulting L/C Participant"), until
the amount of such reimbursement is paid in full and (C) until
the earlier of such Defaulting L/C Participant's cure of such
failure to reimburse such Unreimbursed Issuing Bank, the proceeds
of all amounts thereafter repaid to the Administrative Agent by
the Borrower and otherwise required to be applied to such
Defaulting L/C Participant's share of all other Obligations
pursuant to the terms of this Agreement shall be advanced to the
Unreimbursed Issuing Bank by the Administrative Agent on behalf
of such Defaulting L/C Participant to cure, in full or in part,
such failure by such Defaulting L/C Participant, but shall
nevertheless be deemed to have been paid to such Defaulting L/C
Participant in satisfaction of such other Obligations.
Notwithstanding anything in this Agreement to the contrary, a
Defaulting L/C Participant shall be deemed to have cured its
failure to fund its Pro Rata Share of any reimbursement requested
under SECTION 3.06(b)(i) at such time as an amount equal to such
Defaulting L/C Participant's original Pro Rata Share of the
requested principal portion of such reimbursement is fully funded
to the Unreimbursed Issuing Bank, whether made by such Defaulting
L/C Participant itself or by operation of the terms of this
SECTION 3.06(b)(ii).
(iii) The failure of any Senior Lender to make
available to the Administrative Agent for the account of any
Issuing Bank its Pro Rata Share of any such payment shall not
relieve any other Senior Lender of its obligation hereunder to
make available to the Administrative Agent for the account of
such Issuing Bank its Pro Rata Share of any payment on the date
such payment is to be made.
(c) Whenever an Issuing Bank receives a payment on
account of a Reimbursement Obligation, including any interest
thereon, as to which the Administrative Agent has previously
received payments from any or all of the Senior Lenders for the
account of such Issuing Bank pursuant to this SECTION 3.06, such
Issuing Bank shall promptly pay to the Administrative Agent and
the Administrative Agent shall promptly pay to each Senior Lender
which has funded its participating interest therein, in New York,
New York, in Dollars and in the kind of funds so received, an
amount equal to (i) the amount paid by such Issuing Bank,
MULTIPLIED BY (ii) a fraction, the numerator or which shall be
the amount funded by such Senior Lender in respect of its
participating interest and the denominator of which shall be the
amount funded by all of the Senior Lenders in respect of their
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respective participating interests. Each such payment shall be
made by the Issuing Bank or the Administrative Agent, as the case
may be, on the Business Day on which such Person receives the
funds paid to such Person pursuant to the preceding sentence, if
received prior to 11:00 a.m. (New York time) on such Business
Day, and otherwise on the next succeeding Business Day.
(d) Upon the request of the Administrative Agent or
any Senior Lender, an Issuing Bank shall furnish to the
Administrative Agent or such Senior Lender copies of any Facility
Letter of Credit or Letter of Credit Reimbursement Agreement to
which that Issuing Bank is party and such other documentation as
may reasonably be requested by the Administrative Agent or such
Senior Lender.
(e) The obligations of a Senior Lender to make
payments to the Administrative Agent for the account of each
Issuing Bank with respect to a Facility Letter of Credit shall be
irrevocable, shall not be subject to any qualification or
exception whatsoever, and shall be honored in accordance with the
terms and conditions of this Agreement under all circumstances
(subject to SECTION 3.02), including, without limitation, any of
the following circumstances:
(i) any lack of validity of enforceability of
this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, set-off, defense
or other right which the Borrower may have at any time
against a beneficiary named in a Facility Letter of
Credit or any transferee of any Facility Letter of
Credit (or any Person for whom any such transferee may
be acting), the Administrative Agent, the Issuing Bank,
any Senior Lender, or any other Person, whether in
connection with this Agreement, the First Amended and
Restated Credit Agreement, the Second Amended and
Restated Credit Agreement, any Facility Letter of
Credit, the transactions contemplated herein or therein
or any unrelated transactions (including any underlying
transactions between the Borrower or any Subsidiary of
the Borrower and the beneficiary named in any Facility
Letter of Credit);
(iii) any draft, certificate of any other
document presented under the Facility Letter of Credit
proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
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(iv) the surrender or impairment of any security
for the performance or observance of any of the terms
of any of the Loan Documents;
(v) any failure by the Administrative Agent or
that Issuing Bank to make any reports required pursuant
to SECTION 3.09; or
(vi) the occurrence of any Event of Default or
Potential Event of Default.
3.07. PAYMENT OF REIMBURSEMENT OBLIGATIONS. (a) The
Borrower agrees to pay to each Issuing Bank the amount of all
Reimbursement Obligations, interest and other amounts payable to
such issuing Bank under or in connection with any Facility Letter
of Credit immediately when due; irrespective of any claim,
setoff, defense or other right which the Borrower may have at any
time against any Issuing Bank or any other Person.
(b) In the event any payment by the Borrower received
by an Issuing Bank with respect to a Facility Letter of Credit
and distributed by the Administrative Agent to the Senior Lenders
on account of their participations is thereafter set aside,
avoided or recovered from that Issuing Bank in connection with
any receivership, liquidation or bankruptcy proceeding, each
Senior Lender which received such distribution shall, upon demand
by that Issuing Bank, contribute such Senior Lender's Pro Rata
Share of the amount set aside, avoided or recovered together with
interest at the rate required to be paid by that Issuing Bank
upon the amount required to be repaid by it.
3.08. COMPENSATION FOR FACILITY LETTERS OF CREDIT.
(a) FACILITY LETTER OF CREDIT FEES. The Borrower
shall pay quarterly in arrears, on the tenth (10th) day of each
calendar quarter in respect of the previous calendar quarter and
promptly upon receipt of each quarterly report referred to in
SECTION 3.09, in the case of each Facility Letter of Credit
covered by such quarterly report, a Facility Letter of Credit Fee
equal to four-fifths of one percent (0.80%) per annum applied (on
the basis of actual days elapsed in a 360 day year) to the
maximum amount available to be drawn under such Facility Letter
of Credit from day to day during the previous calendar quarter.
This fee shall be paid to the Administrative Agent for the
account of the Senior Lenders in proportion to their respective
Pro Rata Shares.
(b) ISSUING BANK CHARGES. The Borrower shall pay to
each Issuing Bank, solely for its own account, (i) by the tenth
(10th) Business Day of each calendar quarter, a fee equal to one-
eighth of one percent (0.125%) per annum applied (on the basis of
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actual days elapsed in a 360 day year) to the maximum amount
available to be drawn from day to day during the immediately
preceding calendar quarter under each Facility Letter of Credit
issued by it, and (ii) the standard charges assessed by such
Issuing Bank in connection with the issuance, administration,
amendment and payment or cancellation of Facility Letters of
Credit.
(c) INCREASED CAPITAL. If either (i) the introduction
of or any change in or in the interpretation of any law or
regulation or (ii) compliance by any Issuing Bank or Senior
Lender with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of
law and whether or not the failure to comply therewith would be
unlawful) affects or would affect the amount of capital required
or expected to be maintained by it or any corporation controlling
it and such Senior Lender or Issuing Bank determines, on the
basis of reasonable allocations, that the amount of such capital
is increased by or is based upon its issuance or maintenance of
or participation in, or commitment to issue or to participate in,
the Facility Letters of Credit then, upon demand by any such
Senior Lender or Issuing Bank, the Borrower shall immediately pay
to such Senior Lender or Issuing Bank, from time to time as
specified by such Senior Lender or Issuing Bank, additional
amounts sufficient to compensate such Senior Lender or Issuing
Bank therefor. A certificate as to such amounts submitted to the
Borrower by any such Senior Lender or Issuing Bank shall, in the
absence of manifest error, be conclusive and binding for all
purposes.
3.09. ISSUING BANK REPORTING REQUIREMENTS. Each
Issuing Bank shall, no later than the tenth Business Day
following the last day of each calendar quarter, provide to the
Administrative Agent and the Borrower separate schedules for
Commercial Letters of Credit and Standby Letters of Credit issued
as Facility Letters of Credit, in form and substance reasonably
satisfactory to the Administrative Agent, showing the date of
issue, account party, amount, expiration date and the reference
number of each Facility Letter of Credit issued by it outstanding
at any time during such calendar quarter and the aggregate amount
paid by the Borrower during the calendar quarter pursuant to
SECTION 3.07. Copies of such reports shall be provided promptly
to each Senior Lender by the Administrative Agent.
3.10. INDEMNIFICATION; EXONERATION. (a) In addition
to amounts payable as elsewhere provided in this ARTICLE III, the
Borrower hereby agrees to protect, indemnify, pay and save the
Administrative Agent, each Issuing Bank and each Senior Lender
harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees) which the Administrative
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Agent or such Issuing Bank or Senior Lender may incur or be
subject to as a consequence, direct or indirect, of (i) the
issuance of any Facility Letter of Credit other than, in the case
of an Issuing Bank, as a result of its gross negligence or
willful misconduct, as determined by a court of competent
jurisdiction or (ii) the failure of the Issuing Bank issuing a
Facility Letter of Credit to honor a drawing under such Facility
Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de
facto government or Governmental Authority (all such acts or
omissions herein called "Government Acts").
(b) As between the Borrower, the Senior Lenders and
each Issuing Bank issuing a Facility Letter of Credit, the
Borrower assumes all risks of the acts and omissions of, or
misuse of such Facility Letters of Credit by, the respective
beneficiaries of the Facility Letters of Credit. In furtherance
and not in limitation of the foregoing, subject to the provisions
of the Letter of Credit applications, the Issuing Banks and the
Senior Lenders shall not be responsible: (i) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of
any document submitted by any party in connection with the
application for and issuance of the Facility Letters of Credit,
even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (ii) for
the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a Facility Letter
of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason; (iii) for failure of the beneficiary
of a Facility Letter of Credit to comply duly with conditions
required in order to draw upon such Letter of Credit; (iv) for
errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) for errors in
interpretation of technical terms; (vi) for any loss or delay in
the transmission or otherwise of any document required in order
to make a drawing under any Facility Letter of Credit or of the
proceeds thereof; (vii) for the misapplication by the beneficiary
of a Facility Letter of Credit of the proceeds of any drawing
under such Letter of Credit; and (viii) for any consequences
arising from causes beyond the control of the Administrative
Agent, Issuing Banks and Senior Lenders including, without
limitation, any Government Acts. None of the above shall affect,
impair, or prevent the vesting of any of an Issuing Bank's rights
or powers under this SECTION 3.10.
(c) In furtherance and extension and not in limitation
of the specific provisions hereinabove set forth, any action
taken or omitted by an Issuing Bank under or in connection with
the Facility Letters of Credit or any related certificates, if
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taken or omitted in good faith, shall not put the Issuing Bank,
the Administrative Agent or any Senior Lenders under any
resulting liability to the Borrower or relieve the Borrower of
any of its obligations hereunder to any such Person.
(d) Notwithstanding anything to the contrary contained
in this SECTION 3.10, the Borrower shall have no obligation to
indemnify an Issuing Bank under this SECTION 3.10 in respect of
any liability incurred by such Issuing Bank arising out of the
gross negligence or willful misconduct of such Issuing Bank.
3.11. TRANSITIONAL PROVISIONS. SCHEDULE 3.11 contains
a schedule of certain Letters of Credit issued for the account of
Southland outstanding as of the Effective Date by one or more of
(i) the Issuing Banks and (ii) the Senior Lenders other than the
Issuing Banks. Subject to the satisfaction of the conditions
precedent contained in ARTICLE IV, on the Effective Date (i) such
Letters of Credit, to the extent still outstanding, shall be
deemed to be converted into Facility Letters of Credit issued
pursuant to SECTION 3.04 and subject to the provisions of this
Agreement, and for this purpose the fees specified in SECTION
3.08 shall be payable as if such Letters of Credit had been
issued on the Effective Date, (ii) the face amount of such
Letters of Credit shall be included in the calculation of
Facility Letter of Credit Obligations which when, aggregated with
all other Facility Letter of Credit Obligations outstanding as of
the Effective Date, shall not exceed the Letter of Credit
Subfacility, and (iii) all liabilities of Southland with respect
to such Letters of Credit shall constitute Obligations.
3.12. AMOUNT OF LETTER OF CREDIT SUBFACILITY. (a) The
amount of the Letter of Credit Subfacility shall initially be
equal to $150,000,000. Except as set forth in SECTION
2.02(e)(ii) with respect to a termination of the Revolving Credit
Commitments, upon five (5) Business Days' prior written notice
thereof the Administrative Agent and each Issuing Bank, or upon
such other prior written notice as the Administrative Agent may
elect to accept in any particular instance, in substantially the
form of EXHIBIT 16-A, the Borrower may from time to time
permanently reduce the Letter of Credit Subfacility (without
premium or penalty) in a minimum amount of $5,000,000 and in
increments of $1,000,000 in excess thereof to an amount which is
not less than the then outstanding Facility Letter of Credit
Obligations. Any reduction of the Letter of Credit Subfacility
shall permanently reduce each Senior Lender's Revolving Credit
Commitment ratably. Any termination of the Revolving Credit
Commitments pursuant to SECTION 2.02(e) shall terminate each
Issuing Bank's Letter of Credit Commitment.
(b) The amount of the Letter of Credit Subfacility
shall be determined as set forth in SECTION 3.12(a) whether or
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not the aggregate of all of the Issuing Banks' then effective
Letter of Credit Commitments shall exceed the amount of the then
Letter of Credit Subfacility.
(c) Upon five (5) Business Days' prior written notice
thereof to the Administrative Agent and each Issuing Bank, or
upon such other prior written notice as the Administrative Agent
may elect to accept in any particular instance, the Borrower may:
(i) with the written consent of such Senior Lender (or
Affiliate thereof), designate as an Issuing Bank any Senior
Lender (or Affiliate thereof) which is not then an Issuing
Bank and the Letter of Credit Commitment of such newly-
designated Issuing Bank; PROVIDED, HOWEVER, that, if at any
time the aggregate Letter of Credit Commitments then in
effect are less than the amount of the Letter of Credit
Subfacility, the Borrower and the Administrative Agent shall
have the right to designate as an Issuing Bank any Senior
Lender (or Affiliate thereof) which is not then an Issuing
Bank and the Letter of Credit Commitment of such newly-
designated Issuing Bank; PROVIDED, FURTHER, HOWEVER, that
the Letter of Credit Commitment of any Issuing Bank so
designated by the Borrower and the Administrative Agent
shall not exceed the lesser of (A) the amount by which the
Letter of Credit Subfacility exceeds the aggregate Letter of
Credit Commitments prior to such designation and (B) an
amount equal to such Senior Lender's Pro Rata Share of the
Letter of Credit Subfacility then in effect; and
(ii) whether or not in connection with a reduction of
the Letter of Credit Subfacility pursuant to SECTION
3.12(a), or the addition of an Issuing Bank pursuant to this
SECTION 3.12(c), reduce or increase any Issuing Bank's
Letter of Credit Commitment, subject to SECTION 3.12(d)
below.
(d) The Borrower's discretion to designate additional
Issuing Banks pursuant to SECTION 3.12(c)(i) and to reduce or
increase each Issuing Bank's Letter of Credit Commitment pursuant
to SECTION 3.12(a) or 3.12(c)(ii) or otherwise to act pursuant to
this SECTION 3.12, shall at all times be subject to the
qualifications and restrictions that (i) at no time shall any
Issuing Bank's Letter of Credit Commitment exceed the amount
agreed to by such Issuing Bank or, in the case of an Issuing Bank
designated as such by the Borrower, the amount specified or
determined in accordance with SECTION 3.12(c)(i) and (ii) the
Borrower shall not reduce any Issuing Bank's Letter of Credit
Commitment to an amount less than the amount of all of the then
existing Facility Letter of Credit Obligations in respect of
Facility Letters of Credit issued by such Issuing Bank.
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3.13. OBLIGATIONS SEVERAL. The obligation of each
Issuing Bank and each Senior Lender under this ARTICLE III is
several and not joint, and no Issuing Bank or Senior Lender shall
be responsible for the Letter of Credit Commitment or
participation obligation hereunder, respectively, of any other
Issuing Bank or Senior Lender.
ARTICLE IV
CONDITIONS TO LOANS AND FACILITY LETTERS OF CREDIT
4.01. CONDITIONS PRECEDENT TO INITIAL LOANS AND
FACILITY LETTERS OF CREDIT. The obligation of each Senior Lender
on the Effective Date to make its Senior Term Loan and any
Revolving Loan requested to be made by it, and the agreement of
each Issuing Bank on the Effective Date to issue Facility Letters
of Credit, shall be subject to the satisfaction of all of the
following conditions precedent:
(a) DOCUMENTS. The Administrative Agent shall have
received on or before the Closing Date all of the following:
(i) this Agreement, executed by Southland, together
with all Schedules hereto which shall be in each case true,
complete and correct in all material respects as of the
Effective Date;
(ii) for the benefit of each Senior Lender, a
Senior Term Note and Revolving Credit Note dated the
Effective Date, executed by Southland and made payable
to the order of such Senior Lender;
(iii) an original and duly executed Notice of
Borrowing completed in accordance with the provisions
of SECTION 2.01(b) and/or SECTION 2.02(b);
(iv) original and duly executed amendments or
supplements to each of the Security Agreement, Patent
Security Agreement, Trademark Security Agreement and
the Third Party Pledge Agreements, in each case dated
as of the date hereof, in substantially the forms of
EXHIBITS 8-B, 10-B, 11-B, 12-B and 13-B, respectively;
(v) Southland's and each Third Party Pledgor's
Articles of Incorporation, as amended, modified or
supplemented to the Effective Date, certified to be
true, correct and complete by the Secretary of State of
such Person's State of incorporation as of a recent
date prior to the Effective Date, together with good
standing certificates from the Secretaries of State of
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such States in which Southland or such Third Party
Pledgor is qualified to do business as the
Administrative Agent may request, each to be dated a
recent date prior to the Effective Date;
(vi) A certificate of the Secretary or Assistant
Secretary of Southland and each Third Party Pledgor, in
each case dated the Effective Date, certifying (A) the
names and true signatures of the incumbent officers of
Southland or such Third Party Pledgor authorized to
sign the Loan Documents executed by such Person, (B)
the By-Laws of such Person as in effect on the date of
such certification, (C) the resolutions of such
Person's Board of Directors approving and authorizing
the execution, delivery and performance of the Loan
Documents executed by such Person, and (D) that there
have been no changes in the Articles of Incorporation
of such Person since the date of the most recent
certification thereof by the Secretary of State of the
State of such Person's incorporation;
(vii) Favorable legal opinions, each dated the
Effective Date and otherwise in form and substance
satisfactory to the Administrative Agent, addressed to the
Agents, the Senior Lenders and the Issuing Banks from:
(A) Bryan F. Smith, Vice President and
General Counsel of Southland, dated the Effective
Date, in substantially the form of EXHIBIT 17-A
attached hereto;
(B) Shearman & Sterling, New York and
California counsel to Southland, dated the
Effective Date, in substantially the form of
EXHIBIT 17-B attached hereto;
(C) Johnson & Wortley, Texas counsel to
Southland, dated the Effective Date, in substantially
the form of EXHIBIT 17-C attached hereto; and
(D) local counsel to the Administrative Agent, in
form and substance satisfactory to the Administrative
Agent, in the States of Florida, Maryland and Virginia
with respect to (I) the Loans and other Obligations
arising under this Agreement are secured by the Liens
granted under the existing Collateral Documents and
(II) the existing mortgages and Uniform Commercial Code
filings in such States are effective to perfect such
Liens under the respective laws of such States.
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The Borrower hereby directs, and shall cause each of the
Third Party Pledgors to direct, their counsel to prepare and
deliver to the Agents, the Senior Lenders and the Issuing
Banks the respective opinions described in CLAUSES (A), (B)
and (C) above; the Administrative Agent hereby directs its
counsel to prepare and deliver to the Agents, the Senior
Lenders and the Issuing Banks the respective opinions
described in CLAUSE (D) above;
(viii) the financial statements and materials
referred to in SECTION 5.01(viii), in form and
substance satisfactory to the Administrative Agent;
(ix) a letter to Southland, dated on or near the
Effective Date, from Coopers & Lybrand, in
substantially the form attached as EXHIBIT 18;
(x) a certificate signed by the principal financial
officer or treasurer of Southland certifying that all
conditions precedent have been met and no Potential Event of
Default or Event of Default has occurred or is continuing;
(xi) a fully executed copy of the Master Assignment
Agreement; and
(xii) such additional documentation as the
Administrative Agent may reasonably request.
(b) FEES AND EXPENSES PAID. Southland shall have paid
to the Administrative Agent, for the benefit of the Persons
entitled thereto, all fees and expenses due and payable on or
before the Effective date, including the Administrative Agent's
Fee, the Structuring Fee, the Closing Fee and all other fees
required to be paid in connection with this proposed Agreement.
(c) REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of Southland contained in SECTION
5.01 and in any other Loan Documents (other than representations
and warranties which expressly speak only as of a different date)
shall be true and correct in all material respects on and as of
the Effective Date as though made on and as of that date.
(d) NO DEFAULT. No Event of Default or Potential
Event of Default shall have occurred and be continuing or would
result from the making of the Loans requested or deemed to be
made on the Effective Date or the issuance of or participation in
the Facility Letters of Credit requested to be issued or
converted on the Effective Date.
(e) NO LEGAL IMPEDIMENTS. No law, regulation, order,
judgment or decree of any Governmental Authority shall, and the
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Administrative Agent shall not have received any notice that
litigation is pending or threatened which seeks to enjoin,
prohibit or restrain the making of the Loans requested or deemed
to be made on the Effective Date or the issuance of or
participation in the Facility Letters of Credit requested to be
issued or converted on the Effective Date.
(f) COMPLIANCE WITH REAL ESTATE PROCEDURES. Southland
shall have complied in all material respects with the procedures
prescribed in the Real Estate Procedures Memorandum.
(g) NO NOTICE FROM SENIOR LENDERS. The Administrative
Agent shall not have received any notification from the Requisite
Senior Lenders that any condition precedent set forth in this
SECTION 4.01 has not then been satisfied.
(h) NO CHANGE IN CONDITION. No change in the
business, assets, operations or condition (financial or
otherwise) of Southland or any of its Subsidiaries shall have
occurred since December 31, 1993 which change will, or is
reasonably likely to, result in a Material Adverse Effect.
4.02. CONDITIONS PRECEDENT TO ALL SUBSEQUENT REVOLVING
LOANS AND FACILITY LETTERS OF CREDIT. The obligation of each
Senior Lender to make any Revolving Loan requested to be made by
it and the agreement of each Issuing Bank to issue any Facility
Letter of Credit pursuant to ARTICLE III, on any date after the
Effective Date, is subject to the following conditions precedent
as of such date:
(a) NOTICE OF BORROWING. With respect to a request
for a Revolving Loan, the Administrative Agent shall have
received in accordance with the provisions of SECTION 2.02(b), on
or before any Funding Date, an original and duly executed Notice
of Borrowing.
(b) ADDITIONAL MATTERS. As of the Funding Date for
any Revolving Loan and the date of issuance of any Facility
Letter of Credit:
(i) All of the representations and warranties of
the Borrower contained in SECTION 5.01 (other than the
statements set forth in SECTION 5.01(iii)(A)) and in
any other Loan Document (in each case, other than
representations and warranties which expressly speak
only as of a different date) shall be true and correct
in all material respects on and as of that Funding Date
or issuance date, as though made on and as of that
date;
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(ii) No Event of Default or Potential Event of
Default shall have occurred and be continuing or would
result from the making of the requested Revolving Loan
or issuance of the requested Facility Letter of Credit;
and
(iii) No law or regulation shall prohibit, and no
order, judgment or decree of any Governmental Authority
shall, and no litigation shall be pending or threatened
which in the judgment of the Administrative Agent or
the Requisite Senior Lenders would, enjoin, prohibit or
restrain, or impose or result in the imposition of any
material adverse condition upon, any Senior Lender or
Issuing Bank from making the requested Revolving Loan
or issuing or participating in the requested Facility
Letter of Credit.
Each submission by the Borrower to the Administrative
Agent of a Notice of Borrowing with respect to a Revolving Loan
and the acceptance by the Borrower of the proceeds of each such
Loan made hereunder, or submission to an Issuing Bank of a
request for the issuance of a Facility Letter of Credit and the
issuance of such Facility Letter of Credit, shall constitute a
representation and warranty by the Borrower as of the Funding
Date in respect of such Revolving Loan or the issuance of such
Facility Letter of Credit that all the conditions contained in
this SECTION 4.02 have been satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. REPRESENTATIONS AND WARRANTIES. In order to
induce the Senior Lenders and the Issuing Banks to enter into
this Agreement and to make the Loans and the other financial
accommodations to Southland and to issue the Facility Letters of
Credit described herein, Southland hereby represents and warrants
to each Senior Lender, each Issuing Bank and the Administrative
Agent that the following statements are true, correct and
complete:
(i) ORGANIZATION; CORPORATE POWERS. Southland and
each Subsidiary of Southland (A) is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization, (B) is duly qualified to do
business as a foreign corporation and in good standing under the
laws of each jurisdiction in which it owns or leases real
property or in which failure to be so qualified and in good
standing would be likely to have a Material Adverse Effect, (C)
has filed and maintained effective (unless exempt from the
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requirements for filing) a current Business Activity Report with
the appropriate Governmental Authority in the states of Minnesota
and New Jersey, and (D) has all requisite corporate power and
authority to own, operate and encumber its property and assets
and to conduct its business as presently conducted.
(ii) AUTHORITY. (A) Southland has the requisite
corporate power and authority (x) to execute, deliver and perform
each of the Loan Documents executed by it, or to be executed by
it, and (y) to file the Loan Documents filed by it, or to be
filed by it, with any Governmental Authority.
(B) The execution, delivery and performance (or
filing, as the case may be) of each of the Loan Documents to
which it is party and the consummation of the transactions
contemplated thereby, have been duly approved by the Board of
Directors of Southland and no other corporate proceedings on the
part of Southland are necessary to consummate such transactions.
(C) Each of the Loan Documents to which it is party
has been duly executed and delivered (or filed, as the case may
be) by Southland and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms,
is in full force and effect and no material term or condition
thereof has been amended, modified or waived from the terms and
conditions contained in the Loan Documents without the prior
written consent of the Administrative Agent, and no material
default by any such party exists thereunder.
(iii) SUBSIDIARIES AND OWNERSHIP OF CAPITAL STOCK;
INVESTMENTS. (A) Part A of SCHEDULE 5.01(iii) attached hereto
(I) contains a summary of the corporate structure of Southland
and its Subsidiaries and (II) accurately sets forth (a) the
correct legal name of each Subsidiary, the jurisdiction of its
incorporation or organization and the jurisdictions in which it
is qualified to transact business as a foreign corporation or
otherwise and (b) the authorized, issued and outstanding shares
or interests of each class of equity Securities of the Borrower
and each of its Subsidiaries and the owners of such shares or
interests. None of such issued and outstanding equity Securities
is subject to any vesting, redemption, or repurchase agreement,
and there are no warrants or options outstanding with respect to
such equity Securities. There are outstanding no shares of any
class of capital stock of Southland other than Common Stock, and
not more than five percent (5%) of the Common Stock, on a fully-
diluted basis, is subject to issuance upon the exercise of
outstanding options, warrants or other similar rights to acquire
shares of such stock. The outstanding equity Securities of the
Borrower and each of its Subsidiaries are duly authorized,
validly issued, fully paid and nonassessable free and clear of
any Liens (except for the Liens granted pursuant to the Loan
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Documents and Liens described in CLAUSE (i) of the definition of
"Customary Permitted Liens") and are not Margin Stock.
(B) Part B of SCHEDULE 5.01(iii) accurately sets
forth, as of October 31, 1994, the aggregate outstanding amount
of all Investments of Southland or any of its Subsidiaries (other
than Cash Equivalents and interests in Subsidiaries of Southland
or such Subsidiary) as of such date. Except for permitted
Investments in excess of $5,000,000 disclosed in writing to the
Administrative Agent, neither Southland nor any Subsidiary of
Southland holds a direct or indirect partnership, joint venture
or other equity interest in any Person (other than a Subsidiary
of Southland) as the result of an Investment with respect to
which the unrecovered amount is greater than or equal to
$5,000,000.
(iv) NO CONFLICT. The execution, delivery and
performance of each Loan Document to which it is party by
Southland do not and will not (A) constitute a tortious
interference with any Contractual Obligation of any Person or
conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under any
Requirement of Law or Contractual Obligation of Southland, or
require termination of any Contractual Obligation, the
consequences of which violation, breach or default or
termination, singly or in the aggregate, are likely to have a
material adverse effect on the ability of Southland to perform
its obligations under any Loan Document or likely to have a
Material Adverse Effect, or likely to subject either Agent, any
of the Senior Lenders or any of the Issuing Banks to any
liability (whether criminal or civil, other than as a result of a
regulatory requirement applicable to it in its capacity as a bank
or commercial lender), or (B) result in or require the creation
or imposition of any Lien whatsoever upon any of the properties
or assets of Southland (other than Liens in favor of the
Administrative Agent arising pursuant to the Loan Documents), or
(C) require any approval of stockholders.
(v) GOVERNMENT CONSENTS. The execution, delivery and
performance of each Loan Document to which it is party by
Southland do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or
by any Governmental Authority, except filings, consents or
notices which have been, or will in due course, be made, obtained
or given (or the failure to obtain which will not have a Material
Adverse Effect), and except any consents, approval or filings
required as to a Senior Lender because of a regulatory
requirement applicable to it in its capacity as a bank or a
commercial lender.
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(vi) GOVERNMENTAL REGULATION. Southland is not
subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act,
the Investment Company Act of 1940 or any other federal or state
statute or regulation such that its ability to incur indebtedness
is limited or its ability to consummate the transactions
contemplated hereby is materially impaired.
(vii) RESTRICTED JUNIOR PAYMENTS. Since November 14,
1994, neither Southland nor any Subsidiary of Southland has
directly or indirectly declared, ordered, paid or made or set
apart any sum or property for any Restricted Junior Payment or
agreed to do so, except as may be permitted pursuant to this
Agreement or the Second Amended and Restated Credit Agreement.
(viii) FINANCIAL POSITION. Complete and accurate
copies of the following financial statements and materials have
been delivered to each of the Senior Lenders: the Annual Reports
of Southland on Form 10-K for each of the Fiscal Years ended
during 1992 and 1993 (including audited financial statements) and
the Quarterly Report on Form 10-Q for the first three fiscal
quarters of 1994. All financial statements included in such
materials were prepared in conformity with GAAP, except as
otherwise noted therein, and fairly present the consolidated
financial position of Southland and its Subsidiaries as at the
respective dates thereof and the consolidated results of
operations and changes in the financial position of Southland and
its Subsidiaries for each of the periods covered thereby,
subject, in the case of any unaudited interim financial
statements, to changes resulting from audit and normal year-end
adjustments. As of the Effective Date, Southland does not have
any Accommodation Obligation, contingent liability or liability
for any taxes, long-term lease or commitment, not reflected in
its audited financial statements for its Fiscal Year ended
December 31, 1993, or otherwise disclosed to the Administrative
Agent in writing prior to the Effective Date, which has or is
likely to have a Material Adverse Effect.
(ix) FUNDAMENTAL CHANGES. Since December 31, 1993,
Southland has not entered into any agreement with respect to a
merger or consolidation or adopted a plan of recapitalization or
liquidation, except as permitted by this Agreement.
(x) INDEBTEDNESS; PRIOR CREDIT AGREEMENT OBLIGATIONS.
SCHEDULE 1.01-B accurately describes all Indebtedness for
borrowed money and Accommodation Obligations of the Borrower and
its Subsidiaries, and with respect to any Indebtedness or
Accommodation Obligations with a principal amount in excess of
$5,000,000, there are no defaults in the payment of principal or
interest on any such Indebtedness or Accommodation Obligations
and no payments thereunder have been deferred or extended beyond
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their stated maturity (except as disclosed on such Schedule).
Except for Past Default Interest or as otherwise provided in the
Master Assignment Agreement, (A) all obligations and liabilities
of Southland under the First Amended and Restated Credit
Agreement and the Second Amended and Restated Credit Agreement
have been paid in full or assumed under this Agreement and (B)
there are no setoffs, defenses or counterclaims with respect to
such obligations and liabilities.
(xi) LITIGATION; ADVERSE EFFECTS. Except as set forth
in SCHEDULE 5.01(xi) hereto or as otherwise disclosed in writing
to the Senior Lenders pursuant to SECTION 6.01(viii) prior to the
Effective Date (or as disclosed in the quarterly or annual
reports filed with the Commission and delivered to the Senior
Lenders prior to the Effective Date), (A) there is no action,
suit, proceeding, governmental investigation or arbitration, at
law or in equity, before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, pending, or to the
Knowledge of Southland, probable of assertion against Southland
or any of the Subsidiaries of Southland or any property of any of
them which could reasonably be expected (I) to result in any
Material Adverse Effect, (II) materially and adversely to affect
the ability of any party to any of the Loan Documents to perform
its obligations thereunder, or (III) materially and adversely to
affect the ability of Southland to perform its obligations to the
Senior Lenders or the Senior Lenders' ability to enforce such
obligations, and (B) there is no material loss contingency within
the meaning of GAAP which has not been reflected in the
consolidated financial statements of Southland. Neither
Southland nor any of Southland's Subsidiaries is (x) in violation
of any applicable law which violation has or is likely to have a
Material Adverse Effect, or (y) subject to or in default with
respect to any final judgment, writ, injunction, decree, rule or
regulation of any court or Governmental Authority which has or is
likely to have a Material Adverse Effect. Except as set forth in
SCHEDULE 5.01(xi) hereto, there is no action, suit, proceeding or
investigation pending or, to the Knowledge of the Borrower,
threatened against or affecting Southland or any of the
Subsidiaries of Southland challenging the validity or the
enforceability of any of the Loan Documents.
(xii) NO MATERIAL ADVERSE CHANGE. Since December 31,
1993, there has occurred no event which materially and adversely
affects, and no material adverse change in, the business,
ownership, operations, properties, assets or condition (financial
or otherwise) of Southland or Southland and its Subsidiaries,
taken as a whole, or the ability of Southland to perform its
obligations under the Loan Documents to which it is a party and
the transactions contemplated thereby, except financial
obligations incurred pursuant to the Loan Documents.
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(xiii) TAX EXAMINATIONS. The Federal income tax
returns of Southland have been examined by the Internal Revenue
Service (or closed by applicable statutes) for all tax periods
prior to and including the taxable year ending December 31, 1988.
All deficiencies which have been asserted against Southland as a
result of such examination for each taxable year in respect of
which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and no
issue has been raised in any such examination which, by
application of similar principles, reasonably can be expected to
result in a deficiency which will have a Material Adverse Effect
unless such issue is being contested in good faith or such
deficiency has been reserved for in Southland's audited financial
statements for its Fiscal Year ended December 31, 1993. To its
Knowledge, Southland has not taken any reporting positions in its
Federal income tax returns for which it does not have a
reasonable basis and does not anticipate any further tax
liability with respect to the years which have not been examined
by the Internal Revenue Service (or closed by applicable
statutes), taken as a whole, except for tax liabilities which
will not have a Material Adverse Effect and (x) which have been
reserved for in Southland's audited financial statements for its
Fiscal Year ended December 31, 1993 or (y) are being contested in
good faith. For purposes of this SECTION 5.01(xiii), the term
"Southland" shall include each other corporation with which
Southland files consolidated or combined income tax returns or
reports.
(xiv) PAYMENT OF TAXES. All tax returns and reports
of Southland and each Subsidiary of Southland required to be
filed, the failure of which to file has or is likely to have a
Material Adverse Effect, have been timely filed, and all taxes,
assessments, fees and other governmental charges thereupon and
upon their respective properties, assets, income and franchises
which are due and payable, the failure of which to pay when due
and payable has or is likely to have a Material Adverse Effect,
have been paid when due and payable. Southland has no Knowledge
of any proposed tax assessment against Southland or any
Subsidiary of Southland, that is likely to have a Material
Adverse Effect, which is not being actively contested in good
faith by such Person.
(xv) CONDUCT OF BUSINESS. Southland and its
Subsidiaries are principally engaged only in the businesses
described in Southland's Annual Report on Form 10-K for its 1993
Fiscal Year and other businesses permitted by SECTION 8.06.
(xvi) MATERIAL ADVERSE AGREEMENTS. Neither Southland
nor any Subsidiary of Southland is a party to or subject to any
material Contractual Obligation or other restriction contained in
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their respective charters, By-laws or similar governing documents
which has or is likely to have a Material Adverse Effect.
(xvii) PERFORMANCE. Neither Southland nor any
Subsidiary of Southland is in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any Contractual Obligation applicable to
it, and no condition exists which, with the giving of notice of
the lapse of time or both, would constitute a default, in each
case, except where the consequences, direct or indirect, of such
default or defaults, if any, would not have a Material Adverse
Effect.
(xviii) SECURITIES ACTIVITIES. Neither Southland nor
any Subsidiary of Southland is engaged principally in the
business of extending credit for the purpose of purchasing or
carrying any Margin Stock.
(xix) DISCLOSURE. The representations and warranties
of Southland made to the Senior Lenders contained in the Loan
Documents, and all certificates and other documents delivered to
the Agents, or any of them, in connection therewith, taken as a
whole, do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
Southland has not withheld any fact from the Senior Lenders in
regard to any matter with respect to which Southland has
Knowledge or reasonably should have Knowledge and which has or is
likely to have a Material Adverse Effect.
(xx) REQUIREMENTS OF LAW. Southland and each Person
acting on behalf of Southland is in compliance with all
Requirements of Law (including, without limitation, the
Securities Act and the Securities Exchange Act, and the
applicable rules and regulations thereunder, state Securities law
and "Blue Sky" law) applicable to them and their respective
businesses, in each case where the failure to so comply would
have a Material Adverse Effect.
(xxi) PATENTS, TRADEMARKS, PERMITS, ETC. Southland and
each Subsidiary of Southland owns, is licensed or otherwise have
the lawful right to use, or have all permits and other
governmental approvals, patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or
necessary for the conduct of its business as currently conducted
which are material to its business, ownership, operations,
properties, assets or condition (financial or otherwise), taken
as a whole. To the Knowledge of Southland, the use of such
permits and other governmental approvals, patents, trademarks,
trade names, copyrights, technology, know-how and processes by
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Southland and each of its Subsidiaries, does not infringe on the
rights of any Person, subject to such claims and infringements as
do not, in the aggregate, give rise to any liability on the part
of Southland or any of its Subsidiaries which has or is likely to
have a Material Adverse Effect.
(xxii) ENVIRONMENTAL MATTERS. (A) Except as disclosed
on SCHEDULE 5.01(xxii) or as disclosed to the Senior Lenders
pursuant to SECTION 6.02 (or as disclosed in the quarterly or
annual reports filed with the Commission and delivered to the
Senior Lenders prior to the Effective Date), neither Southland
nor any of its Subsidiaries (I) has received notice or otherwise
learned of any claim, demand, action, event, condition, report or
investigation indicating or concerning any potential or actual
liability which would individually or in the aggregate have a
Material Adverse Effect arising in connection with: (x) any
noncompliance with or violation of the requirements of any
applicable federal, state and local environmental health and
safety statutes and regulations or (y) the release or threatened
release of any toxic or hazardous waste, substance or
constituent, or other substance into the environment, (II) has
any threatened or actual liability in connection with the release
or threatened release of any toxic or hazardous waste, substance
or constituent, or other substance into the environment which
would individually or in the aggregate have a Material Adverse
Effect or (III) has received notice that Southland or any of its
Subsidiaries is or may be liable to any Person under CERCLA or
any analogous state law.
(B) Southland has entered into an effective and fully-
executed administrative consent order (the "Order") with the New
Jersey Department of Environmental Protection pursuant to the New
Jersey Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6
et seq. ("ECRA") which Order provides that Southland will comply
with the requirements of ECRA, and Southland has obtained the
financial assurance required under the Order. The Order is in
full force and effect and has not been rescinded or revoked and
Southland is in compliance with the terms and conditions of the
Order.
(C) Southland and each of its Subsidiaries is in
compliance with the financial responsibility requirements of
federal and state environmental laws, including, without
limitation, those contained in 40 C.F.R., Parts 264 and 265,
Subps. H, and any state law equivalents.
(xxiii) ERISA. No Defined Benefit Plan has or will
have as of the most recent plan year any "accumulated funding
deficiency", as defined in SECTION 302(a)(2) of ERISA and SECTION
412(a) of the Code, whether or not waived. Each Benefit Plan
which is intended to be a qualified plan under SECTION 401(a) of
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the Internal Revenue Code as currently in effect has been
determined by the Internal Revenue Service to be qualified under
SECTION 401(a) of the Internal Revenue Code as currently in
effect (or timely applications for such determinations are
pending with the Internal Revenue Service) and the trust related
thereto is exempt from federal income tax under SECTION 501(a) of
the Internal Revenue Code. Each Benefit Plan has been
administered in substantial compliance with ERISA, and each
Benefit Plan intended to be qualified under SECTION 401(a) of the
Internal Revenue Code has been administered in substantial
compliance with such SECTION. Neither Southland, any Subsidiary
of Southland nor any ERISA Affiliate has any liability to the
PBGC other than the payment of premiums, and there are no premium
payments which have become due which are unpaid. Neither
Southland, any Subsidiary of Southland, nor any ERISA Affiliate
has breached any of the responsibilities, obligations or duties
imposed on it by ERISA with respect to any Benefit Plan resulting
or which will result in an obligation of Southland, any such
Subsidiary or any ERISA Affiliate to pay money which payment has
or will have a Material Adverse Effect. Neither Southland, any
Subsidiary of Southland, any ERISA Affiliate, nor any fiduciary
of or any trustee to any Benefit Plan has engaged in a nonexempt
"prohibited transaction" described in SECTION 406 of ERISA or
SECTION 4975 of the Internal Revenue Code, or taken any action
which would constitute or result in a Termination Event, with
respect to any Benefit Plan which prohibited transaction or
Termination Event has caused or would in the future cause a
Material Adverse Effect. No Defined Benefit Plan has been
terminated by the plan administrator thereof or by the PBGC for
which there is any liability of Southland or any Subsidiary of
Southland or any ERISA Affiliate for unfunded accrued benefits in
excess of $5,000,000. The present value of the accrued benefits
of all Defined Benefit Plans as of the end of the most recent
plan year of such plans did not exceed the current value of the
assets of all Defined Benefit Plans by more than $5,000,000, and
neither Southland nor any such Subsidiary knows or has reason to
know of any facts or circumstances occurring since such year
which would change the value of such assets or such benefits of
such Defined Benefit Plan such that the value of such benefits
would exceed the value of such assets by more than $5,000,000.
For purposes of the preceding sentence, the current value as of
any day of the assets of any Defined Benefit Plan and the present
value as of any day of the accrued benefits under any Defined
Benefit Plan shall be such values as calculated for purposes of
completing Form 5500 for such Defined Benefit Plan for the plan
year of such Defined Benefit Plan ending on such day. No
liability having a Material Adverse Effect has been, or is
expected to be, incurred by Southland or any of its Subsidiaries
with respect to any applicable collective bargaining agreement.
Full payment has been made of all contributions which Southland,
any of its Subsidiaries or any ERISA Affiliate is required under
the terms of any Multiemployer Plan or applicable collective
bargaining agreement to have paid as a contribution to any
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Multiemployer Plan, except that this representation and warranty
shall not apply to any such contributions which at any one time
are in the aggregate less than $3,000,000 and are being
reasonably contested by either Southland, its Subsidiaries or its
ERISA Affiliates. Full payment has been made of all withdrawal
liability which Southland or any of its Subsidiaries or any ERISA
Affiliate is required under the terms of any Multiemployer Plan
to have paid to any Multiemployer Plan. Southland and each
Subsidiary of Southland has delivered to the Administrative Agent
all of the following: a copy or summary plan description of each
Benefit Plan in existence or committed to, the most recent Form
5500 filed in respect of each such Benefit Plan in existence
(other than Benefit Plans not required under applicable law or
regulations to file Form 5500), a copy of the most recent report
of valuation prepared with respect to each Benefit Plan which is
a Defined Benefit Plan, a list designating each Multiemployer
Plan to which Southland, any Subsidiary of Southland or any ERISA
Affiliate is obligated to make an annual contribution in excess
of $500,000 and listing the amount of such annual contribution, a
copy of any information which is provided to Southland, any
Subsidiary of Southland or any ERISA Affiliate regarding
withdrawal liability under any such plan, and a copy of the
collective bargaining agreement or trade association agreement
pursuant to which such contribution is required to be made.
(xxiv) CONSENTS AND AUTHORIZATIONS. Southland has
obtained all consents and authorizations required pursuant to any
of its material Contractual Obligations with any other Person and
shall have obtained all consents and authorizations of, and
effected all notices to and filings with, any Governmental
Authority, as may be necessary to allow Southland, lawfully (i)
to execute, deliver and perform its obligations under the Loan
Documents and each other agreement or instrument to be executed
and delivered by it pursuant thereto or in connection therewith
and (ii) to create and perfect or continue the perfection of the
Liens on the Collateral owned by it in the manner and for the
purpose contemplated by, and to the extent required by, this
Agreement, the Collateral Documents and the Real Estate
Procedures Memorandum, except where the failure to obtain any
such consent or authorization would not have a Material Adverse
Effect.
(xxv) NON-CONTRAVENTION. Except as set forth on
SCHEDULE 5.01(xxv) or with respect to Excluded Property under
(and as defined in) the Security Agreement, the Patent Security
Agreement or the Trademark Security Agreement, respectively, no
Contractual Obligation to which Southland is a party or by which
it or any of its properties is bound or to which it or any of its
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properties is subject restricts Southland from granting security
interests or liens in its real or personal property.
(xxvi) TITLE TO PROPERTY; LIENS; PLEDGE OF COLLATERAL.
(A) Southland has good, sufficient and legal title to
all of its properties and assets reflected in the most recent
financial statements delivered pursuant to SECTION 6.01, except
for assets disposed of in the ordinary course of business since
the date of such financial statements and assets otherwise
disposed of in accordance herewith, and all of such properties
and assets are free and clear of all Liens except for Liens
permitted by SECTION 8.02(b).
(B) Each of the Collateral Documents to which
Southland or any of its Subsidiaries is a party creates valid
Liens in the Collateral covered thereby securing the payment of
all of the Obligations purported to be secured thereby which
Liens (I) shall have the same relative priorities as in effect
immediately prior to the Effective Date and (II) except with
respect to Collateral having a fair market value at any time not
exceeding $5,000,000, are perfected, to the extent a valid Lien
can be perfected, and is required to be perfected by the
Collateral Documents or the Real Estate Procedures Memorandum, by
(w) possession, (x) the filing of a mortgage, deed of trust,
fixture filing or similar instrument relating to interests in
real property, (y) the filing of a financing statement under the
Uniform Commercial Code in any State or (z) filing with the U.S.
Patent and Trademark Office.
(C) The granting and perfecting of the security
interest in the capital stock of the Subsidiaries of Southland
constituting a portion of the Collateral for the benefit of the
Senior Lenders, as contemplated by the terms of the Collateral
Documents, is not made in violation of the registration
provisions of the Securities Act, any other applicable federal
Securities laws, applicable state Securities or "Blue Sky" law,
any applicable provisions of the Texas Business Corporation Act
or any other Requirements of Law.
(xxvii) NO IMPAIRMENT. The consummation of the
transactions contemplated by the Loan Documents will not impair
the ownership of or rights under (or the license or other right
to use, as the case may be) any permits and governmental
approvals, patents, trademarks, trade names, copyrights,
technology, know-how or processes by Southland or any of its
Subsidiaries in any manner which has or is likely to have a
Material Adverse Effect.
(xxviii) OBLIGATIONS CONSTITUTE SENIOR INDEBTEDNESS.
The obligations of the Borrower for principal of and interest on
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ARTICLE VI
REPORTING COVENANTS
The Borrower covenants and agrees that so long as any
Senior Lender shall have any obligation hereunder and until
payment in full of all of the Obligations, unless the Requisite
Senior Lenders shall otherwise give prior written consent
thereto:
6.01. FINANCIAL STATEMENTS. Southland shall maintain
or cause to be maintained a system of accounting established and
administered in accordance with sound business practices to
permit preparation of financial statements in conformity with
GAAP, and each of the financial statements described below shall
be prepared from such system and records. The Borrower shall
deliver or cause to be delivered to each Senior Lender:
(i) As soon as practicable, and in any event within
thirty-five (35) days after the end of each month other than
December and within forty (40) days after the end of each
December, the internal report on operations of Southland in
respect of such month and for the period from the beginning of
the current Fiscal Year to the end of such month, in
substantially the same format, and containing substantially the
same types of information in the same level of detail, as the
internal report on operations of Southland covering the month of
October, 1994 and the period commencing January 1, 1994 and
ending October, 1994 and provided to the Senior Lenders prior to
the Effective Date (the "Report on Operations"), including,
without limitation, such information with respect to each of
Southland's business units, certified by the principal financial
officer or treasurer of Southland that the consolidated balance
sheet and statements of earnings and changes in financial
position included in the Report on Operations fairly present the
consolidated financial position of Southland and its Subsidiaries
as at the dates indicated, subject to normal year-end adjustment.
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(ii) As soon as practicable, and in any event within
fifty (50) days after the end of each fiscal quarter in each
Fiscal Year (except the fourth quarter in each Fiscal Year),
Southland's Quarterly Report on Form 10-Q filed with the
Commission in respect of such fiscal quarter, which shall be
prepared and presented in accordance with the rules and
regulations of the Commission applicable thereto at the time of
such filing, together with a summary, prepared in reasonable
detail, of asset dispositions consummated since the beginning of
the current Fiscal Year, PROVIDED, HOWEVER, that if at any time
Southland is not required under the Commission's rules and
regulations to file a Quarterly Report on Form 10-Q in respect of
any fiscal quarter, it shall furnish to each Senior Lender in
lieu thereof, within the time specified above, the information
that would have been required to be included therein if Southland
had been required to file such Quarterly Report with the
Commission, prepared and presented in accordance with the rules
and regulations which would have been applicable thereto,
certified by the principal financial officer or treasurer of
Southland that the consolidated balance sheets and statements of
earnings and changes in financial position of Southland and its
Subsidiaries included therein fairly present the consolidated
financial position of Southland and its Subsidiaries as at the
dates indicated in accordance with GAAP, subject to normal year
end adjustment.
(iii) As soon as practicable, and in any event within
ninety-five (95) days after the end of each Fiscal Year,
Southland's Annual Report on Form 10-K filed with the Commission
in respect of such Fiscal Year, which shall be prepared and
presented in accordance with the rules and regulations of the
Commission applicable thereto at the time of such filing,
together with a summary, prepared in reasonable detail, of asset
dispositions consummated during the preceding Fiscal Year,
PROVIDED, HOWEVER, that the report of Coopers & Lybrand or other
independent certified public accountants of recognized national
standing satisfactory to the Administrative Agent, which
accompanies the consolidated balance sheets and statements of
earnings and changes in financial position of Southland and its
Subsidiaries included in such Form 10-K shall be unqualified as
to going concern and scope of audit, PROVIDED, FURTHER, that if
at any time Southland is not required under the Commission's
rules and regulations to file an Annual Report on Form 10-K in
respect of any Fiscal Year, it shall furnish to each Senior
Lender in lieu thereof, within the time specified above, the
information that would have been required to be included therein
if Southland had been required to file such Annual Report with
the Commission, prepared and presented in accordance with the
rules and regulations which would have been applicable thereto,
accompanied by a report thereon of Coopers & Lybrand or other
independent certified public accountants of recognized national
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standing satisfactory to the Administrative Agent, which report
shall be unqualified as to going concern and scope of audit and
state that the consolidated balance sheets and statements of
earnings and changes in financial position of Southland and its
Subsidiaries included therein fairly present the consolidated
financial position of Southland and its Subsidiaries as at the
dates indicated in conformity with GAAP and that the examination
by such accountants in connection with such consolidated
financial statements has been made in accordance with generally
accepted auditing standards.
(iv) Together with each delivery of any financial
statements pursuant to SECTIONS 6.01(ii) and 6.01(iii), (A) an
Officers' Certificate of Southland substantially in the form of
EXHIBIT 19, stating that the executive officers signatory thereto
have reviewed the terms of this Agreement and the principal Loan
Documents, and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions
and condition of Southland and its Subsidiaries taken as a whole,
during the accounting period covered by such financial state-
ments, and that such review has not disclosed the existence
during or at the end of such accounting period, and that the
signers do not have knowledge of the existence as at the date of
the Officers' Certificate, of any condition or event which
constitutes an Event of Default or Potential Event of Default,
or, if any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action
Southland or its applicable Subsidiaries have taken, is taking
and proposes to take with respect thereto; and (B) a Compliance
Certificate demonstrating in reasonable detail compliance at the
end of such accounting periods (and during such periods to the
extent such compliance is required hereby) with the covenants
contained in ARTICLE IX.
(v) Simultaneously with the delivery of an Annual
Report on Form 10-K or the financial statements referred to in
SECTION 6.01(iii), (A) a statement of the firm of independent
certified public accountants which reported on the financial
statements included therein that nothing has come to their
attention to cause such independent certified public accountants
to believe that the financial covenant calculations in the
Compliance Certificate are inaccurate, or that on the last day of
such accounting period Southland is not in compliance with
SECTIONS 8.01(ii), (iv), (xi), (xii) and (xv); 8.02(a)(ii) and
(iv); 8.03(ii), (iii), (v) and (vii); 8.05(i), (iii), (iv), (v)
and (vi); and 8.11 and (B) a letter to Southland from Coopers &
Lybrand, in substantially the form attached as EXHIBIT 18, with
respect to the financial statements included therein.
(vi) As soon as practicable, and in any event no later
than September 15 of each Fiscal Year, Southland's financial
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forecast for the remainder of such Fiscal Year and the two
subsequent Fiscal Years, in substantially the form of the
financial forecast prepared by Southland and delivered to the
Senior Lenders prior to the Effective Date.
(vii) Promptly upon Southland obtaining Knowledge (A)
of any condition or event which constitutes an Event of Default
or Potential Event of Default, or becoming aware that any Senior
Lender has given any notice or taken any other action with
respect to a claimed Event of Default or Potential Event of
Default under this Agreement, (B) of any condition or event which
would be required to be disclosed in a current report filed by
Southland with the Commission on Form 8-K (Items 1, 2 and 4 of
such Form as in effect on the Effective Date), or (C) of any
condition or event which would be likely to have a Material
Adverse Effect, an Officers' Certificate specifying the nature
and period of existence of any such condition or event, or
specifying the notice given or action taken by such Senior Lender
and the nature of such claimed default, Event of Default,
Potential Event of Default, event or condition, and what action
Southland has taken, is taking and proposes to take with respect
thereto.
(viii) Promptly upon Southland obtaining Knowledge of
(A) the institution of, or threat of, any action, suit,
proceeding, governmental investigation or arbitration against or
affecting Southland or any of its Subsidiaries or any property of
Southland or any of its Subsidiaries not previously disclosed in
writing by Southland to the Senior Lenders pursuant to this
SECTION 6.01(viii), or (B) any material development in any
action, suit, proceeding, governmental investigation or
arbitration already disclosed, which is likely to, in either
case, have a Material Adverse Effect, Southland shall promptly
give notice thereof to the Senior Lenders and provide such other
information as may be reasonably available to it to enable the
Senior Lenders and their counsel to evaluate such matters.
(ix) Promptly upon becoming aware of the occurrence of
any Reportable Event, Termination Event, or "prohibited
transaction", as such term is defined in Section 4975 of the
Internal Revenue Code, in connection with any Benefit Plan or
Multiemployer Plan or any trust created thereunder, a written
notice specifying the nature thereof, what action Southland, any
Subsidiary of Southland or any ERISA Affiliate, as applicable,
has taken, and, when known, any action taken or threatened by the
Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto.
(x) With reasonable promptness, copies of (A) all
notices received by Southland, any Subsidiary of Southland or any
ERISA Affiliate of the PBGC's intent to terminate any Defined
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Benefit Plan or to have a trustee appointed to administer any
Defined Benefit Plan; (B) upon the request of any Senior Lender,
each actuarial report and each annual report (Form 5500 Series,
including any Schedule B (Actuarial Information) thereto) filed
by Southland, any Subsidiary of Southland or any ERISA Affiliate
with the Internal Revenue Service with respect to any or all
Benefit Plans; (C) all notices received by Southland, any
Subsidiary of Southland or any ERISA Affiliate from a
Multiemployer Plan sponsor, pursuant to Section 4202 of ERISA,
involving a withdrawal liability payment in excess of $100,000;
and (D) all funding waiver requests filed by Southland, any
Subsidiary of Southland or any ERISA Affiliate with the Internal
Revenue Service with respect to any Benefit Plan and all
communications received by Southland, any Subsidiary of Southland
or any ERISA Affiliate from the Internal Revenue Service with
respect to any such funding waiver request.
(xi) On or before the first anniversary of the
Effective Date, Southland shall deliver to the Administrative
Agent and Senior Lenders a business plan for the next succeeding
Fiscal Year, in form and substance satisfactory to the Senior
Lenders, addressing, among other matters, Southland's capital
structure.
(xii) As soon as practicable, and in any event no
later than April 30 of each Fiscal Year, a statement of earnings
for the immediately preceding Fiscal Year and balance sheet as of
the last day of such Fiscal Year for each Subsidiary of Southland
which accounts for more than five percent (5%) of either
Consolidated Net Income or the total assets of Southland and its
Subsidiaries on a consolidated basis.
(xiii) With reasonable promptness, such other
information, reports, filings, projections, business plans and
data with respect to Southland or any of its Subsidiaries as from
time to time may be reasonably requested by the Administrative
Agent or the Requisite Senior Lenders.
6.02. ENVIRONMENTAL NOTICES. Except as disclosed on
SCHEDULE 5.01(xxii), the Borrower shall notify each Senior
Lender, in writing, promptly upon the Borrower's learning that
either Southland or any of its Subsidiaries has received notice
or otherwise learned of any claim, demand, action, event,
condition, or report or investigation indicating any potential or
actual liability arising in connection with: (A) a non-
compliance with or violation of the requirements of any
applicable federal, state or local environmental health and
safety statute or regulation which individually or in the
aggregate would be likely to have a Material Adverse Effect; (B)
the release or threatened release of any toxic or hazardous
waste, substance or constituent, or other substance into the
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environment which individually or in the aggregate would be
likely to have a Material Adverse Effect or which release
Southland or one of its Subsidiaries would have a duty to report
to a Governmental Authority under CERCLA or any analogous state
law; or (C) the existence of any Environmental Lien on any
properties or assets of Southland or its Subsidiaries; PROVIDED,
HOWEVER, if the Borrower or any of its Subsidiaries has received
a notice from any Governmental Authority stating (i) that
Southland or any of its Subsidiaries is or may be liable to any
person under CERCLA or any analogous state law or (ii) alleging a
violation of any federal, state or local environmental health and
safety statute or regulation where such alleged violation which
would be likely to have a Material Adverse Effect and is not
cured or such notice is not withdrawn within thirty (30) days
from the date of receipt thereof, then the Borrower shall deliver
a copy of such notice to each Senior Lender.
6.03. OTHER REPORTS. The Borrower shall deliver or
cause to be delivered to the Senior Lenders (i) copies of all
financial statements, reports and notices, if any, sent or made
available generally by Southland to its Securities holders or
filed with the Commission, and of all press releases made
available generally by Southland or any of its Subsidiaries to
the public concerning material developments in the business of
Southland or any such Subsidiary, (ii) copies of any management
reports prepared by Southland's independent certified public
accountants in connection with the annual audit and (iii) such
other information in respect of the condition (financial or
otherwise) or operations of Southland or any of its Subsidiaries
that the Administrative Agent may request from time to time.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any
Senior Lender shall have any obligation hereunder and until
payment in full of all of the Obligations, unless the Requisite
Senior Lenders shall otherwise give prior written consent
thereto:
7.01. CORPORATE EXISTENCE, ETC. Southland shall at
all times maintain its corporate existence and preserve and keep
in full force and effect its rights and franchises the loss or
termination of which would be likely to have a Material Adverse
Effect. Southland shall cause to be maintained, preserved and
kept the corporate existence and rights and franchises of each of
its Subsidiaries if the loss or termination thereof would be
likely to have a Material Adverse Effect, except for transactions
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permitted pursuant to SECTION 8.08. The Borrower shall promptly
provide the Senior Lenders with a complete list of the
Subsidiaries of Southland together with the delivery of the
financial statements required by SECTION 6.01(iii).
7.02. COMPLIANCE WITH LAWS, ETC. Southland shall, and
shall cause its Subsidiaries to, exercise all due diligence in
order to comply with all Requirements of Law and all restrictive
covenants, noncompliance with which would be likely to have a
Material Adverse Effect.
7.03. PAYMENT OF TAXES AND CLAIMS. Southland shall
pay, and cause each of its Subsidiaries to pay, (i) all taxes,
assessments and other charges of Governmental Authorities which,
to its Knowledge, it is obligated to pay, including any such tax,
assessment or other charge on any of its properties or assets or
in respect of any of its franchises, business, income or property
before any penalty or interest accrues thereon, and (ii) all
claims (including, without limitation, claims for labor,
services, materials and supplies) for sums, material in the
aggregate to Southland or any such Subsidiary, as the case may
be, which have become due and payable and which by law have or
may become a Lien (other than a Customary Permitted Lien) upon
any of Southland's or such Subsidiary's properties or assets,
prior to the time when any penalty or fine shall be incurred with
respect thereto; PROVIDED that no such taxes, assessments and
governmental charges referred to in CLAUSE (i) above (including
interest or penalties thereon) or claims referred to in CLAUSE
(ii) above (including any penalties or fines with respect
thereto) need be paid if such taxes, assessments, charges of
Governmental Authorities or claims are being contested in good
faith by appropriate proceedings promptly instituted and
diligently conducted and if such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP
shall have been made therefor.
7.04. MAINTENANCE OF PROPERTIES; INSURANCE. Southland
shall maintain or cause to be maintained in good repair, working
order and condition, excepting ordinary wear and tear and damage
due to casualty, all of its properties material to the operations
of Southland and its Subsidiaries taken as a whole (other than
closed convenience stores deemed by management not to be
material) and will make or cause to be made all appropriate
repairs, renewals and replacements thereof, consistent with past
practice. Southland shall maintain or cause to be maintained,
with financially sound and reputable insurers, insurance policies
and programs in such amounts (subject to customary deductibles
and retentions) and against such risks as is usually carried by
responsible companies of similar size engaged in similar
businesses and owning similar assets in the general areas in
which Southland and its Subsidiaries operate.
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7.05. INSPECTION OF PROPERTY; BOOKS AND RECORDS;
DISCUSSIONS. Southland shall permit, and cause each of its
Subsidiaries to permit, any authorized representative(s)
designated by the Administrative Agent or the Requisite Senior
Lenders to inspect any of the properties of Southland or any of
its Subsidiaries, including their financial and accounting
records, and to make copies and take extracts therefrom, and to
discuss their affairs, finances and accounts with their officers
and independent certified public accountants, all upon reasonable
notice and at such reasonable times during normal business hours,
as often as may be reasonably requested. Each such inspection by
or on behalf of the Administrative Agent (or any Senior Lender
acting on behalf of the Requisite Senior Lenders) shall be at the
Borrower's expense. Southland will, and will cause each of its
Subsidiaries to, keep proper books of record and account in which
entries in conformity with GAAP (and all legal requirements)
shall be made of all dealings and transactions in relation to
their businesses and activities.
7.06. FUTURE LIENS ON PERSONAL PROPERTY. Promptly,
and in any event within thirty (30) days after the removal,
termination or expiration of any prohibitions of the granting of
a security interest in all or any part of the Excluded Property
(as defined in the Security Agreement or any pledge agreement),
the Borrower shall execute and deliver to the Administrative
Agent all further instruments and documents (including, without
limitation, certificates and instruments representing shares of
stock or evidencing indebtedness), and take all further action
that may be necessary or desirable, or that the Administrative
Agent may reasonably request, to grant, perfect and protect a
security interest in favor of the Administrative Agent in such
Excluded Property or part thereof, as security for the
Obligations. Upon the request of the Administrative Agent or the
Requisite Senior Lenders, the Borrower will cause any or all of
its Subsidiaries to pledge to the Administrative Agent, as
security for the Obligations, all or any part of the capital
stock held by any such Subsidiary and issued by any Subsidiary of
such Subsidiary, and in furtherance thereof to execute and
deliver to the Administrative Agent a pledge agreement
satisfactory to the Administrative Agent.
ARTICLE VIII
NEGATIVE COVENANTS
The Borrower covenants and agrees that so long as any
Senior Lender shall have any obligation hereunder and until
payment in full of all of the Obligations, unless the Requisite
Senior Lenders shall otherwise give prior written consent
thereto:
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8.01. INDEBTEDNESS. Southland shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly
create, incur, assume or otherwise become or remain directly or
indirectly liable with respect to, any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and
extensions, renewals, replacements and refinancings of
Permitted Existing Indebtedness (other than
Subordinated Indebtedness), not exceeding the principal
amount outstanding on the Effective Date (together
with, in the case of a refinancing, interest accrued
thereon and reasonable costs incurred in connection
with the refinancing);
(iii) Subordinated Indebtedness and extensions,
renewals, replacements and refinancings thereof which
satisfy the criteria set forth in the definition of
"Subordinated Indebtedness", not exceeding the
principal amount outstanding on the Effective Date
(together with, in the case of a refinancing, interest
accrued thereon and reasonable costs incurred in
connection with the refinancing);
(iv) Present or future Indebtedness of any
Subsidiary of Southland to Southland in an amount not
exceeding $250,000,000; and present and future
Indebtedness of Southland to any of its Subsidiaries or
of any such Subsidiary to any other such Subsidiary;
PROVIDED, HOWEVER, that any Indebtedness of any such
Subsidiary to Southland, in excess of $10,000,000,
shall be evidenced by promissory notes which shall be
pledged to the Administrative Agent, PROVIDED, FURTHER,
that any Indebtedness of Southland to any such
Subsidiary shall be unsecured and subordinated in right
of payment to the Obligations;
(v) (A) Capital Lease obligations (other than
such obligations included in Permitted Existing
Indebtedness) and Indebtedness incurred in connection
with Capital Expenditures (and within a reasonable
period of time thereafter), if such Capital Lease
obligations and Indebtedness (1) are incurred in
connection with the acquisition of assets at fair value
after the Effective Date, (2) do not exceed the cost of
the assets acquired and (3) are either unsecured or
secured solely by Liens which do not extend (or
otherwise permit recourse) to any property other than
the property leased under such Capital Lease or
constituting such Capital Expenditure, (B) sale and
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leaseback transactions, if (1) the documents executed
in connection with such transaction do not provide the
purchaser/lessor with recourse to any property other
than the property being purchased and leased and (2)
the amount of the Indebtedness incurred in connection
with such transaction does not exceed 100% of the fair
market value of the assets being purchased and leased,
(C) Indebtedness of a Person that becomes a Subsidiary
of Southland existing at the time such Person becomes
such a Subsidiary, if the amount of the Indebtedness
does not exceed 80% of the fair value of the assets of
the Subsidiary at the time and (D) extensions,
renewals, replacements or refinancings thereof, not
exceeding the principal amount outstanding before
giving effect to the extension, renewal, replacement or
refinancing (together with, in the case of a
refinancing, interest accrued thereon and reasonable
costs incurred in connection with the refinancing);
(vi) Transaction Costs, not included in the
Obligations, incurred in connection with the offer and
sale of Subordinated Indebtedness and the transactions
contemplated hereby;
(vii) Indebtedness in respect of Letters of
Credit (other than Facility Letters of Credit)
reasonably incident to the Borrower's business;
(viii) Indebtedness in respect of foreign
currency exchange agreements reasonably incident to the
Borrower's business and Interest Rate Contracts
permitted pursuant to SECTION 8.17;
(ix) Indebtedness in respect of Accommodation
Obligations permitted by SECTION 8.04;
(x) surety bonds and appeal bonds required in the
ordinary course of business or in connection with the
enforcement of rights or claims of Southland or its
Subsidiaries or in connection with judgments which do
not result in an Event of Default hereunder or other
breach hereof;
(xi) Indebtedness of Southland Canada, Inc. to
obligees other than Southland or its other Subsidiaries
in an amount not exceeding $30,000,000 (or the Canadian
dollar equivalent thereof) in the aggregate at any one
time outstanding, PLUS Permitted Existing Indebtedness
owing by Southland Canada, Inc. and any refinancings
thereof, PROVIDED, HOWEVER, that at no time shall the
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aggregate of all of such Indebtedness exceed
$90,000,000 (or the Canadian dollar equivalent);
(xii) the Yen Royalty Financing Indebtedness;
(xiii) Capital Lease obligations of Southland
under the Lease Agreement dated as of February 15,
1987, as amended and restated as of December 21, 1990,
between Southland and Cityplace Center East
Corporation;
(xiv) unsecured Indebtedness which is either (A)
Commercial Paper or (B) owing to the Purchaser (or either of
them) in connection with payments by the Purchaser (or
either of them) of the principal of or interest on (or other
amounts owing with respect to) Commercial Paper, PROVIDED
that the instrument evidencing the Indebtedness permitted by
this SECTION 8.01(xiv)(B) shall provide that no payment
(whether in respect of principal, interest or otherwise) of
such Indebtedness shall be permitted or required other than
(1) payments after the date which is one year after payment
in full in cash of the Obligations and termination of the
Commitments and (2) so long as there does not exist an Event
of Default or Potential Event of Default and the Revolving
Loan Subfacility does not then equal zero, payments of the
principal amount of such Indebtedness made solely with
proceeds of subsequent issuances of Commercial Paper by
Southland; and
(xv) other present or future Indebtedness not in
excess of $40,000,000 at any time outstanding;
PROVIDED, that any Indebtedness arising from an
election by Southland to pay a "Benefit" for "Value"
pursuant to Section 9 of Southland's Equity
Participation Plan shall be limited so that the amount
payable by Southland in respect of all such
Indebtedness complies with the restrictions set forth
in SECTION 8.05(iv);
PROVIDED, that no Indebtedness for borrowed money permitted
hereunder, except for Permitted Existing Indebtedness to the
extent provided therein or in extensions or renewals thereof,
shall contain any provisions making a default under or in respect
of some other Indebtedness for money borrowed, a default
thereunder, unless such cross-default provisions are applicable
only with respect to defaults which have resulted in the
acceleration of payment obligations for money borrowed in an
amount not less than, in any particular case, $15,000,000.
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8.02. SALES OF ASSETS; LIENS.
(a) SALES. Southland shall not, and shall not permit
any of its Subsidiaries to, sell, assign, transfer, lease, convey
or otherwise dispose of any properties or assets, whether now
owned or hereafter acquired, or any income or profits therefrom,
or enter into any agreement to do so, other than pursuant to a
sale, assignment, transfer, lease, conveyance or other
disposition (i) upon foreclosure on the Yen Royalty Financing
Collateral by the Yen Royalty Lender, (ii) dispositions not
covered by CLAUSES (i), (iii) or (iv) involving assets with a
sales price of not more than $50,000,000 in the aggregate in any
calendar year (including any insurance proceeds or a condemnation
award with respect to property (except Cityplace Center) having a
fair market value in excess of $10,000,000 with respect to which
the Borrower does not restore or replace the property damaged,
lost or taken), PROVIDED that, if all or any part of the
consideration for any such disposition consists of promissory
notes, such promissory notes are pledged (and, if applicable,
delivered) to the Administrative Agent in accordance with the
Security Agreement, (iii) constituting sales of inventory and
transactions with franchisees occurring in the ordinary course of
business; PROVIDED, HOWEVER, that neither Southland nor any of
its Subsidiaries shall sell, assign, or otherwise transfer any
interest in accounts receivable except in connection with a
disposition of any business unit as a going concern or (iv)
constituting a sale of vacant sites, surplus land or surplus
convenience store properties which are no longer being used as or
in connection with an operating retail convenience store of
Southland made for immediate cash consideration or promissory
notes on which not more than $25,000,000 (in the aggregate) is
outstanding at any one time, PROVIDED that such promissory notes
are pledged (and, if applicable, delivered) to the Administrative
Agent in accordance with the Security Agreement.
(b) LIENS. Southland shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly create, incur,
assume or permit to exist any Lien on or with respect to any of
their properties or assets (including all Collateral) except:
(i) Liens securing the Obligations;
(ii) Permitted Existing Liens;
(iii) any interest or title of a lessor or
secured by a lessor's interest under any lease
permitted by this Agreement;
(iv) Customary Permitted Liens;
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(v) purchase money Liens (including the interest
of a lessor under a Capital Lease) and Liens on
property existing at the time of acquisition thereof by
Southland or any of its Subsidiaries securing
Indebtedness permitted by SECTION 8.01(v), PROVIDED
that the Lien does not extend (or otherwise permit
recourse) to any property other than the property being
purchased or acquired;
(vi) Liens with respect to judgments or
attachments which do not result in an Event of Default
hereunder or other breach hereof;
(vii) Liens identified as permitted Liens in the
Real Estate Collateral Documents;
(viii) Liens securing reimbursement obligations
for trade Letters of Credit permitted by SECTION
8.01(vii) which encumber only goods, or documents of
title covering goods, which are purchased in
transactions for which such trade Letters of Credit are
issued;
(ix) Environmental Liens with respect to
liability or damages not in excess of $5,000,000;
(x) Liens on assets of a Person that becomes a
Subsidiary of Southland existing at the time such
Person becomes such a Subsidiary and securing
Indebtedness permitted by SECTION 8.01(v)(C);
(xi) Liens on property and (for so long as no
Investment in Southland Canada, Inc. is outstanding
under Section 8.03(iii)) capital stock of Southland
Canada, Inc., securing Indebtedness permitted under
SECTION 8.01(xi);
(xii) Liens on the Yen Royalty Financing
Collateral securing the Yen Royalty Financing
Indebtedness;
(xiii) Liens constituting collateral assignments
of the interest of Southland as lessor under any
sublease (and any tenant improvements made in
connection with such sublease) of any part of Cityplace
East Tower currently leased to Southland under the
Lease Agreement dated February 15, 1987, as amended and
restated as of December 21, 1990, between Southland and
Cityplace Center East Corporation; and
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(xiv) to the extent Indebtedness secured thereby
is permitted to be extended, renewed, replaced or
refinanced pursuant to SECTION 8.01, a future Lien upon
any property which is subject to a Lien described in
SECTION 8.02(b)(ii), (v), (x) or (xii), if such future
Lien attaches only to the same property, secures only
such permitted extensions, renewals, replacements or
refinancings and is of like quality, character and
extent.
8.03. INVESTMENTS. Southland shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly make or
own any Investment in any Person except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments; PROVIDED
that Southland shall not, directly or indirectly, make
any additional Investments, in cash or in kind, in the
Cityplace real estate development project in Dallas,
Texas, except to the extent necessary to fulfill
existing completion guaranties and to satisfy
requirements of any Governmental Authority in effect on
July 31, 1987;
(iii) Investments between Southland and its
Affiliates, other than Investments by Southland Canada,
Inc. or any other Foreign Affiliate in Southland,
PROVIDED that (A) the aggregate amount of such
Investments shall not exceed $300,000,000 at any one
time outstanding, (B) the aggregate amount of
Investments by Southland in Southland Canada, Inc. and
any other Foreign Affiliate shall not exceed
$50,000,000 at any one time outstanding, (C) the
aggregate amount of Investments by Southland or its
Subsidiaries in Melin Enterprises, Inc., a Colorado
corporation, shall not exceed $5,000,000 at any one
time outstanding and (D) Investments constituting
Indebtedness shall be permitted only to the extent
permitted by SECTION 8.01(iv);
(iv) Investments in the capital stock of newly
acquired convenience store businesses (and food service
businesses dedicated to Southland's convenience store
and distribution businesses), PROVIDED THAT, after
giving effect to such Investment, such businesses are
owned and operated by a Person that is a Subsidiary of
Southland, PROVIDED, FURTHER, that, all of the shares
of such stock shall be pledged to the Administrative
Agent pursuant to the Security Agreement to secure the
Obligations;
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(v) Investments by Southland Canada, Inc. and
other Foreign Affiliates in Southland in compliance
with all applicable laws and agreements; PROVIDED that
(a) the amount of such Investments shall not exceed
$50,000,000 at any one time outstanding, (b) before the
Investment is made, Southland Canada or the Foreign
Affiliate making the Investment shall execute and
deliver to the Administrative Agent a Subordination
Agreement substantially in the form of EXHIBIT 20, and
(c) all such Investments shall be evidenced by a non-
negotiable subordinated promissory note which by its
terms shall be subject to the provisions of such
Subordination Agreement, executed by Southland in favor
of Southland Canada or such other Foreign Affiliate and
delivered to the Administrative Agent pursuant to the
provisions of such Subordination Agreement;
(vi) The promissory notes referred to in SECTIONS
8.02(a)(ii) and 8.02(a)(iv), up to the amount stated
therein; and
(vii) Other Investments not in excess of
$30,000,000.
8.04. ACCOMMODATION OBLIGATIONS. Southland shall not,
and shall not permit any of its Subsidiaries to, directly or
indirectly create or become or be liable with respect to any
Accommodation Obligation EXCEPT (i) guaranties resulting from
endorsement of negotiable instruments for collection in the
ordinary course of business; (ii) any guaranty of the Obligations
by any Subsidiary of Southland; (iii) reasonable obligations,
warranties and indemnities made under any contracts effectuating
any sale or transfer permitted under SECTION 8.02; (iv)
obligations, warranties and indemnities, not relating to
Indebtedness of any Person, which have been or are undertaken or
made in the ordinary course of business (including reasonable and
customary indemnities in engagement letters for professionals
with respect to transactions permitted by this Agreement) and not
for the benefit or in favor of an Affiliate of Southland; (v)
Accommodation Obligations of Southland with respect to any
Indebtedness of any of its Subsidiaries permitted by SECTION 8.01
or any other obligation or liability of any of its Subsidiaries,
except to the extent that such other obligation or liability
otherwise constitutes a breach of this Agreement; (vi)
Accommodation Obligations for Subsidiaries or Foreign Affiliates
(including, for purposes of this SECTION 8.04(vi), all Joint
Ventures) in lieu of Investments permitted under SECTION 8.03;
(vii) Accommodation Obligations constituting Permitted Existing
Indebtedness and extensions and renewals thereof, and
substitutions therefor in the same or a lesser amount and in
respect of the same transaction; (viii) Accommodation Obligations
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for the benefit of Southland's franchisees arising in the
ordinary course of business; (ix) Accommodation Obligations
arising in connection with the Transaction Documents; (x)
indemnities made in the Yen Royalty Financing Agreement; (xi)
Accommodation Obligations of Southland pursuant to the engagement
letter dated December 9, 1988 between Southland and Drexel
Burnham Lambert, Inc., in connection with the exchange offer
described therein; (xii) Accommodation Obligations in an amount
not to exceed $10,000,000 in the aggregate at any one time
outstanding with respect to any obligation or liability of any
Joint Venture or Foreign Affiliate; (xiii) indemnification
obligations (not directly or indirectly supporting payment of any
other Indebtedness) undertaken on or after November 20, 1989 in
favor of (a) any financial advisor, accountant, legal counsel or
investment banker engaged to provide services related to a
capital restructuring or the prepackaged bankruptcy restructuring
in respect of claims arising out of or resulting from such
services, and (b) any bondholder in its capacity as a member of
the steering committee of holders of outstanding public
indebtedness or public preferred stock in assisting Southland in
the negotiation, preparation, and implementation of a capital
restructuring or the prepackaged restructuring in respect of
claims arising out of or resulting from services provided in such
capacity; (xiv) reasonable and customary indemnification
obligations (not directly or indirectly supporting payment of any
other Indebtedness) in favor of any dealer, placement agent or
issuing and paying agent engaged to provide services related to
the Commercial Paper Facility in respect of claims arising out of
or resulting from such services; and (xv) indemnities continuing
or made in favor of the Assignors or the Past Default Interest
Manager under (and, in each case, as defined in) the Master
Assignment Agreement.
8.05. RESTRICTED JUNIOR PAYMENTS. The Borrower shall
not, and shall not permit any of its Subsidiaries to, declare or
make any Restricted Junior Payment, except:
(i) payments due on Subordinated Indebtedness and
permitted to be made pursuant to the terms of such
Subordinated Indebtedness, and repayment of
Subordinated Indebtedness from the proceeds of new
Subordinated Indebtedness;
(ii) any dividends or distributions to Southland
on the capital stock of any of its Subsidiaries or from
any of such Subsidiaries to any other of such
Subsidiaries;
(iii) so long as there does not exist an Event of
Default or a Potential Event of Default under SECTION
11.01(a) or (by reason of a breach of one or more
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covenants set forth in ARTICLE IX) SECTION 11.01(b) or
an Event of Default or such Potential Event of Default
would result therefrom, Southland may repurchase or
redeem its Senior Subordinated Debentures, PROVIDED
that all repurchases or redemptions in excess of the
amount required to satisfy sinking fund payments which
shall become due with respect to such debentures prior
to the Revolving Credit Termination Date shall be made
either (A) with the proceeds of Common Stock or
Subordinated Indebtedness issued after the Effective
Date or (B) in an aggregate additional amount not
exceeding 75% of the cumulative excess, for all Fiscal
Years commencing after the Effective Date and ending on
or before the date of repurchase or redemption, of (1)
actual Consolidated Net Income (adjusted for
extraordinary items and, to the extent not included in
extraordinary items in accordance with GAAP, unusual
items in excess of $5,000,000 arising in or outside of
the ordinary course of business in each case which have
been included in the determination of Consolidated Net
Income) over (2) Consolidated Net Income reflected in
the five-year forecast dated as of November 11, 1994,
as delivered to the Senior Lenders prior to the
Effective Date;
(iv) so long as there does not exist an Event of
Default or Potential Event of Default, payments in
respect of the repurchase of capital stock of Southland
or arising from an election by Southland to pay a
"Benefit" for "Value" pursuant to Section 9 of
Southland's Equity Participation Plan or otherwise
required or permitted pursuant to agreements with
employees of Southland, upon death, retirement or
termination of employment of such employees, which
payments (including payments on Indebtedness of
Southland arising from any such election under its
Equity Participation Plan) shall not in the aggregate
exceed $2,000,000 per annum, PLUS the amount of
consideration paid by the purchasers of such capital
stock upon its issuance or reissuance by Southland;
(v) so long as there does not exist an Event of
Default or Potential Event of Default, dividends
payable in kind, but not in cash, on any class or
series of Southland's preferred stock and payments of
cash (in an aggregate amount not in excess of $500,000)
in lieu of the issuance of fractional shares; and
(vi) the payments described in CLAUSES (1) and (2) of
SECTION 8.01(xiv)(B) with respect to Indebtedness permitted
under SECTION 8.01(xiv)(B).
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8.06. CONDUCT OF BUSINESS. Southland shall not, and
shall not permit any of its Subsidiaries to, engage in any
business other than (i) the businesses engaged in by Southland
and its Subsidiaries on December 31, 1993 and (ii) any business
or activities substantially similar or related thereto
(including, without limitation, food distribution and food
service businesses).
8.07. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.
Southland shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly enter into or permit to exist any
transaction (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any
service) with any holder or holders of more than five percent
(5%) of any class of equity Securities of Southland, or with any
Affiliate thereof or of any such holder, on terms that are less
favorable to any such corporation than those that might be
obtained in an arm's-length transaction at the time from Persons
who are not such a holder or Affiliate. Nothing contained in
this SECTION 8.07 shall prohibit (i) any transaction expressly
permitted by SECTION 8.05, (ii) customary directors' indemnities,
(iii) the execution, delivery and performance by Southland of (A)
the Shareholders Agreement dated as of March 5, 1991 by and among
Southland, Ito-Yokado Co., Ltd., IYG Holding Company and certain
other holders of Common Stock and (B) the Employment Agreements
each dated as of March 5, 1991 between Southland and John P.
Thompson and Jere W. Thompson, respectively, and, in each case,
extensions and renewals thereof on the terms as in effect on the
date hereof and (iv) compensation arrangements for officers,
directors and employees of Southland and its Subsidiaries
approved by the board of directors (or a duly authorized
committee thereof) of Southland.
8.08. RESTRICTION ON FUNDAMENTAL CHANGES. Southland
shall not, and shall not permit any of its Subsidiaries with
total assets in excess of $5,000,000 to, enter into any merger or
consolidation, or liquidate, wind-up or dissolve (or suffer any
liquidation or dissolution), or convey, lease, sell, transfer or
otherwise dispose of, in one transaction or series of
transactions, all or any substantial part of its business,
property or assets, whether now or hereafter acquired, except for
(i) the merger of a wholly-owned Subsidiary of Southland into
Southland, (ii) the sale or other transfer of all or any
substantial part of the business, property or assets of any
Subsidiary of Southland to Southland or any other Subsidiary of
Southland, (iii) with respect to Subsidiaries of Southland with
less than $5,000,000 in total assets, the merger or consolidation
of a Subsidiary of Southland with or into any other Subsidiary of
Southland, or (iv) as permitted by SECTION 8.02(a).
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8.09. ERISA. The Borrower shall not, and shall not
permit any of its Subsidiaries or ERISA Affiliates to:
(i) Engage in any prohibited transaction for
which an exemption is not available or has not been
previously obtained from the Department of Labor and in
connection with which the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate could be subject to
either a civil penalty assessed pursuant to Section
502(i) of ERISA, or a tax imposed under Section 4975 of
the Internal Revenue Code, in an amount which exceeds
$5,000,000;
(ii) Fail to make full payment when due of all
amounts which, under the provisions of any Benefit
Plan, the Borrower, any of its Subsidiaries or any
ERISA Affiliate is required to pay as contributions
thereto, or permit to exist any accumulated funding
deficiency (as defined in Section 302(a) of ERISA and
Section 412(a) of the Internal Revenue Code) with
respect to any Benefit Plan, or fail to pay any
installment necessary to amortize any waived funding
deficiency, with respect to any Benefit Plan;
(iii) (A) Fail to make any payments of withdrawal
liability to any Multiemployer Plan, or (B) fail to
make any contribution payments to any Multiemployer
Plan that the Borrower, any of its Subsidiaries or any
ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any
law pertaining thereto, PROVIDED, HOWEVER, that this
CLAUSE (B) shall not apply to any such payments which
at any one time are in the aggregate less than
$3,000,000 and are being reasonably contested by either
Southland, any of its Subsidiaries or any ERISA
Affiliate;
(iv) Terminate any Defined Benefit Plan so as to
result in any liability of the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate under Title IV
of ERISA in an amount which would have a Material
Adverse Effect; or
(v) Permit to exist any occurrence of any
Reportable Event, or any other event or condition
which, in the reasonable opinion of the Administrative
Agent communicated to the Borrower in accordance with
SECTION 13.10, presents a material risk of a liability
of the Borrower, any Subsidiary of the Borrower or any
ERISA Affiliate under ERISA or the Internal Revenue
Code which could have a Material Adverse Effect; or
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(vi) (A) Enter into any new Benefit Plans under
which Southland, its Subsidiaries and ERISA Affiliates
would have annual costs in the aggregate among all such
Benefits Plans in excess of $5,000,000, or (B) modify
any existing Benefit Plan so as to increase its
obligations thereunder in an amount which could have a
Material Adverse Effect.
8.10. COMMERCIAL PAPER FACILITY. Southland shall not
amend the terms of the documents governing or relating to the
Commercial Paper Facility (including the amount of the Commercial
Paper Facility) other than (i) increases in the maximum amount of
Commercial Paper which may at any time be outstanding and (ii)
extensions of the date beyond which Southland may not issue
Commercial Paper pursuant to such documents (including an
extension of the guaranty of the Purchaser with respect to the
Commercial Paper).
8.11. SALES AND LEASEBACKS. Southland shall not, and
shall not permit any of its Subsidiaries to become liable,
directly or by way of Accommodation Obligation, with respect to
any lease (including a Capital Lease), of any property (whether
real or personal or mixed) whether now owned or hereafter
acquired, (i) which Southland or a Subsidiary of Southland has
sold or transferred or is to sell or transfer to any other
Person, or (ii) which Southland or a Subsidiary of Southland
intends to use for substantially the same purposes as any other
property which has been or is to be sold or transferred by that
entity to any other Person in connection with such lease, except
(a) as permitted by SECTION 8.01(v)(B) and (b) transactions
involving properties owned by Southland or its Subsidiaries on
the date hereof which have an aggregate fair market value of not
more than $30,000,000.
8.12. SUBORDINATED INDEBTEDNESS.
(a) NO CHANGE. Southland shall not, and shall not
permit any of its Subsidiaries to, amend or otherwise change the
terms applicable to any Subordinated Indebtedness.
(b) NOTICES. Southland shall deliver to the
Administrative Agent (i) a copy of each notice or other
communication delivered by or on behalf of Southland to any
trustee under any Subordinated Indebtedness indenture, such
delivery to be made at the same time and by the same means as
such notice or other communication is delivered to such trustee,
and (ii) a copy of each notice or other communication received by
Southland from any trustee under any Subordinated Indebtedness
indenture, such delivery to be made promptly after such notice or
other communication is received by Southland.
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8.13. AMENDMENT OF CHARTER OR BY-LAWS. Neither
Southland nor any of its Subsidiaries shall amend its charter
documents or By-Laws, except upon at least ten days' prior
written notice to the Administrative Agent and then only if no
Event of Default or Potential Event of Default would result
therefrom.
8.14. DISPOSAL OF SUBSIDIARY STOCK. Except as
permitted by SECTION 8.02 or SECTION 8.08, Southland will not (i)
directly or indirectly sell, assign, pledge or otherwise encumber
or dispose of any shares of capital stock or other equity
Securities of (or warrants, rights or options to acquire shares
or other equity Securities of) any of its Subsidiaries, except to
qualify directors if required by applicable law; or (ii) permit
any of its Subsidiaries directly or indirectly to sell, assign,
pledge or otherwise encumber or dispose of any shares of capital
stock or other Securities of (or warrants, rights or options to
acquire shares or other Securities of) such Subsidiary, or any
other Subsidiary of Southland, except to qualify directors if
required by applicable law and except that any Subsidiary of
Southland may issue additional shares of its capital stock to any
other Subsidiary of Southland or to Southland if such shares are
pledged pursuant to the Security Agreement.
8.15. MARGIN REGULATIONS. No portion of the proceeds
of any credit extended under this Agreement shall be used in any
manner which might cause the extension of credit or the
application of such proceeds to violate Regulation G, Regulation
U or Regulation X or any other regulation of the Federal Reserve
Board or to violate the Securities Exchange Act or the Securities
Act, in each case as in effect on the date or dates of such
Borrowing and such use of proceeds.
8.16. RESTRICTIONS ON SOUTHLAND INTERNATIONAL, INC.
Southland shall not permit Southland International, Inc.,
directly or indirectly, (i) to create, incur, assume or otherwise
become or remain directly or indirectly liable with respect to
any Indebtedness, except the Obligations, (ii) to conduct any
business operations or to own any assets, other than to own and
to hold the capital stock of Southland International, N.V. and
Southland Canada, Inc., or (iii) to create, incur, assume or
permit to exist any Lien on or with respect to any of its
properties or assets, except any Lien securing the Obligations.
8.17. INTEREST RATE CONTRACTS. Southland shall not,
and shall not permit any of its Subsidiaries to, enter into any
Interest Rate Contract (or amend any Interest Rate Contract to
increase the notional amount of Indebtedness subject thereto) if,
after giving effect to the Interest Rate Contract (or amendment,
as the case may be), the aggregate notional amount of
Indebtedness subject to Interest Rate Contracts then in effect is
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in excess of $700,000,000. At no time shall Southland or any of
its Subsidiaries have in effect an Eligible Interest Rate
Contract which has a termination date after the Revolving Credit
Termination Date or any other Interest Rate Contract which has a
termination date more than two (2) years after the Revolving
Credit Termination Date. In the event a Senior Lender elects to
enter into an Interest Rate Contract with Southland which meets
the requirements set forth in SECTION 1.01 in the definition of
"Eligible Interest Rate Contract", Southland and such Senior
Lender shall have the right jointly to designate such Interest
Rate Contract as an Eligible Interest Rate Contract for the
purposes of this Agreement, and such designation shall become
effective only if the Administrative Agent executes an
Acknowledgement as to Eligible Interest Rate Contract (in
substantially the form included in EXHIBIT 5) with respect to
such Interest Rate Contract.
ARTICLE IX
FINANCIAL COVENANTS
The Borrower covenants and agrees that so long as any
Senior Lender shall have any obligation hereunder and until
payment in full of all of the Obligations, unless the Requisite
Senior Lenders shall otherwise give prior written consent
thereto:
9.01. SENIOR INDEBTEDNESS TO EBITDA. Southland shall
not on any Quarterly Determination Date occurring during any
period set out below permit the ratio of (i) Senior Indebtedness
as of such Quarterly Determination Date to (ii) EBITDA as
determined as of such Quarterly Determination Date for the four
(4) calendar quarters ending on such date, to be greater than the
ratio set out below opposite such period:
<TABLE>
<CAPTION>
Period Maximum Ratio
-------------------------- ----------------
<S> <C>
Effective Date through
September 30, 1995 4.85x
October 1, 1995 through
September 30, 1996 4.10x
October 1, 1996 through
September 30, 1997 3.50x
October 1, 1997 and
thereafter 3.00x
</TABLE>
9.02. MINIMUM INTEREST COVERAGE RATIO. Southland
shall not on any Quarterly Determination Date occurring during
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any period set out below permit the ratio of (i) EBITDA to (ii)
Consolidated Cash Interest Expense, in each case as determined as
of such Quarterly Determination Date for the four (4) calendar
quarters ending on such date, to be less than the ratio set out
below opposite such period:
<TABLE>
<CAPTION>
Period Minimum Ratio
-------------------------- -------------
<S> <C>
Effective Date through
September 30, 1995 2.35x
October 1, 1995 through
September 30, 1996 2.70x
October 1, 1996 through
September 30, 1997 3.00x
October 1, 1997 and
thereafter 3.20x
</TABLE>
9.03. MINIMUM FIXED CHARGE COVERAGE RATIO. Southland
shall not on any Quarterly Determination Date occurring during
any period set out below permit the ratio of (i) EBITDA, MINUS
Capital Expenditures to (ii) Consolidated Fixed Charges, in each
case as determined as of such Quarterly Determination Date for
the four (4) calendar quarters ending on such date, to be less
than the ratio set out below opposite such period:
<TABLE>
<CAPTION>
Period Minimum Ratio
------------------------- -------------
<S> <C>
Effective Date through
December 31, 1994 0.55x
January 1, 1995 through
March 31, 1995 0.60x
April 1, 1995 through
June 30, 1995 0.65x
July 1, 1995 through
September 30, 1995 0.75x
October 1, 1995 through
September 30, 1996 1.00x
October 1, 1996 through
September 30, 1997 0.90x
October 1, 1997 through
September 30, 1998 1.15x
October 1, 1998 and
thereafter 1.30x
</TABLE>
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ARTICLE X
REAL ESTATE COVENANTS
The Borrower covenants and agrees that so long as any
Senior Lender shall have any obligation hereunder and until
payment in full of all of the Obligations, unless the Requisite
Senior Lenders shall otherwise give prior written consent
thereto:
10.01. TAXES. If the United States or any State or
any subdivision thereof having jurisdiction shall levy, assess,
or charge any tax (excluding any income, franchise or doing
business tax), assessment or imposition upon any Real Estate
Collateral Document or the Obligations secured thereby, or the
interest of the Administrative Agent, the Senior Lenders or the
Issuing Banks in the real property which is the subject of such
Real Estate Collateral Document, or upon the Administrative
Agent, the Senior Lenders or the Issuing Banks by reason of or as
holder of any of the foregoing, then the Borrower shall promptly
pay, or cause to be paid (or, to the extent permitted by law,
reimburse the Administrative Agent, or any Senior Lender or
Issuing Bank or other party which shall have paid) such taxes,
assessments or impositions. The Borrower shall exhibit to the
Administrative Agent, the Senior Lenders or the Issuing Banks, at
any time upon request of any such party or parties, official
receipts showing payment of all such taxes, assessments and
charges which the Borrower is required or elects to pay or cause
to be paid.
10.02. FURTHER ASSURANCES. In accordance with the
Real Estate Procedure Memorandum, upon request of the
Administrative Agent from time to time, the Borrower shall, or
shall cause the appropriate Person to, execute, acknowledge,
deliver and cause to be recorded (if so requested) all such
additional instruments and further assurances of title (and will
cause each of the Subsidiaries to do the same) and will do or
cause to be done all such further acts and things as may
reasonably be necessary to preserve the lien of each Real Estate
Collateral Document, and priority thereof, and fully effectuate
the intent of each Real Estate Collateral Document. In the event
that the Borrower shall fail to do any of the foregoing, or so
cause the same to be done, the Administrative Agent may, in its
sole discretion, do so in the name of the Borrower, and the
Borrower hereby irrevocably appoints the Administrative Agent as
its attorney-in-fact to do any of the foregoing.
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10.03. CONDEMNATION. The Borrower shall, immediately
upon learning of the institution of any proceeding for the
condemnation or other taking of the real property subject to any
Real Estate Collateral Document, notify the Administrative Agent
of the pendency of such proceeding affecting property which the
Borrower values in excess of $10,000,000, and agrees that the
Administrative Agent at its discretion may participate in any
such proceeding, and the Borrower from time to time will deliver
to the Administrative Agent all instruments reasonably requested
by the Administrative Agent to permit such participation.
10.04. FUTURE LIENS ON REAL PROPERTY IN FAVOR OF THE
SENIOR LENDERS. The Borrower shall execute and deliver to the
Administrative Agent, promptly after the acquisition or leasing
of any real property and in accordance with the Real Estate
Procedures Memorandum, a mortgage, deed of trust, assignment or
other appropriate instrument evidencing a Lien upon any such
acquired property, lease or interest, the same to be in form and
substance substantially the same as the Real Estate Collateral
Documents executed and delivered on or about December 15, 1987
and to be subject only to (i) Customary Permitted Liens, (ii)
Liens permitted by SECTION 8.02(b)(v) and (iii) such other Liens
as the Requisite Senior Lenders may reasonably approve, it being
understood that the granting of such additional security for the
Obligations is a material inducement to the execution and
delivery of this Agreement by each Senior Lender.
10.05. REAL ESTATE PROCEDURES. Southland will
complete the tasks contemplated by the Real Estate Procedures
Memorandum as promptly as practicable after the Effective Date.
ARTICLE XI
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
11.01. EVENTS OF DEFAULT. Each of the following
occurrences shall constitute an Event of Default under this
Agreement:
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower
shall fail to pay when due (i) any interest on any Loan or any
fee or other amount payable hereunder (other than amounts
described in SECTIONS 11.01(a)(ii) or 11.01(a)(iii)), and such
failure shall continue for five (5) Business Days, or (ii) any
Reimbursement Obligation, or (iii) any amount payable for
principal on the Loans, including any mandatory prepayment
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payable under SECTION 2.06(b), but excluding any voluntary
prepayment payable under SECTION 2.06(a).
(b) BREACH OF CERTAIN COVENANTS. The Borrower shall
fail duly and punctually to perform or observe any agreement,
covenant or obligation binding on the Borrower under ARTICLE VIII
or ARTICLE IX, other than an agreement, covenant or obligation
covered by SECTION 11.01(a).
(c) BREACH OF REPRESENTATION OR WARRANTY. Any
representation or warranty made or deemed made by the Borrower to
the Administrative Agent, any Senior Lender or any Issuing Bank
herein or in any of the other Loan Documents or in any statement
or certificate at any time given by the Borrower or any of its
Subsidiaries pursuant to any of the Loan Documents shall be false
or misleading in any material respect on the date as of which
made.
(d) OTHER DEFAULTS. The Borrower shall default in the
payment of any Obligation which is not referred to in SECTION
11.01(a) or in the performance of or compliance with any term
contained in this Agreement or in any of the Loan Documents or
any default or event of default shall occur under any of the
Collateral Documents (other than as covered by SECTION 11.01(a)
or 11.01(b)), and such default or event of default shall continue
for thirty (30) days after (i) the Administrative Agent or any
Senior Lender (acting through the Administrative Agent) notifies
the Borrower or the applicable Subsidiary of Southland of any
such default, or (ii) the Borrower or such Subsidiary
acknowledges such default in writing. Notwithstanding the
foregoing, the failure of the Borrower to deliver the Officers'
Certificate required pursuant to SECTION 6.01(iv) shall
constitute an Event of Default on the day such Officers'
Certificate is due whether or not it continues thereafter and
whether or not any notice is given to or received by the
Borrower.
(e) DEFAULT AS TO OTHER INDEBTEDNESS. The Borrower or
any Subsidiary of the Borrower shall fail to make any payment
when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) on any Indebtedness, other
than an Obligation, if the aggregate amount of such Indebtedness
is $15,000,000 or more, and such failure shall continue for five
(5) Business Days or beyond the applicable cure period therefor,
whichever is less; or any breach, default or event of default
shall occur, or any other event shall occur or condition shall
exist, under any instrument, agreement or indenture pertaining
thereto, if the effect thereof (with or without the giving of
notice or lapse of time or both) is to accelerate, or permit the
holder(s) of such Indebtedness to accelerate, the maturity of any
such Indebtedness and such breach, default, event of default,
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event or condition shall continue for thirty (30) days or beyond
the applicable cure period therefor, whichever is less; or any
such Indebtedness shall be declared to be due and payable or
required to be prepaid (other than by a regularly scheduled
required prepayment prior to the stated maturity thereof), or the
holder of any Lien (other than Liens upon property leased to the
Borrower which were created by the landlord prior to the
commencement of the lease), in any amount, shall commence
foreclosure of such Lien upon property of the Borrower or any of
its Subsidiaries having a value in excess of $1,000,000 and such
foreclosure shall continue against such property to a date less
than thirty (30) days prior to the date of the proposed
foreclosure sale; PROVIDED, HOWEVER, that the failure to make a
payment, or any such breach, default or event of default, under
the Yen Royalty Financing Agreement or otherwise in respect of
the Yen Royalty Financing Indebtedness shall not constitute an
Event of Default hereunder unless recourse or recovery in respect
thereof in excess of $15,000,000 is claimed or sought against
Southland personally or against or out of any of the Collateral
other than the Yen Royalty Financing Collateral; PROVIDED,
FURTHER, HOWEVER, that if, upon the maturity (whether by lapse of
time, acceleration or otherwise) of any Commercial Paper
permitted to be issued hereunder, the Purchaser (as opposed to
Southland) makes payment (in accordance with the terms applicable
to the Commercial Paper) of the Indebtedness evidenced by such
Commercial Paper, Southland's failure to pay shall not be an
Event of Default for purposes of this SECTION 11.01(e) to the
extent such failure to pay is cured (at the maturity of such
Commercial Paper) by the payment by the Purchaser.
(f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER,
ETC. (i) An involuntary case shall be commenced against the
Borrower or any of its Subsidiaries and the petition shall not be
dismissed within sixty (60) days after commencement of the case,
or a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Borrower or any of
its Subsidiaries in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereinafter in
effect; or any other similar relief shall be granted under any
applicable federal or state law.
(ii) A decree or order of a court having jurisdiction
in the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over the Borrower or any of its Subsidiaries or over all
or a substantial part of the property of the Borrower or any of
is Subsidiaries, shall be entered; or an interim receiver,
trustee or other custodian of the Borrower or any of its
Subsidiaries or of all or a substantial part of the property of
the Borrower or any of its Subsidiaries shall be appointed or a
warrant of attachment, execution or similar process against any
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substantial part of the property of the Borrower or any of its
Subsidiaries shall be issued and any such event shall not be
stayed, dismissed, bonded or discharged within sixty (60) days of
entry, appointment or issuance.
(g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER,
ETC. The Borrower or any of its Subsidiaries shall have an order
for relief entered with respect to it or commence a voluntary
case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or shall consent to the entry of
an order for relief in an involuntary case, or to the conversion
of an involuntary case to a voluntary case, under any such law,
or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial
part of its property; the Borrower or any of its Subsidiaries
shall make any assignment for the benefit of creditors or shall
be unable or fail, or admit in writing its inability, to pay its
debts as such debts become due; or the Board of Directors of the
Borrower or any of its Subsidiaries (or any committee thereof)
adopts any resolution or otherwise authorizes any action to
approve any of the foregoing.
(h) JUDGMENTS AND ATTACHMENTS. Any money judgment,
arbitration award (other than a money judgment or award covered
by insurance, but only if the insurer has admitted liability with
respect to such money judgment), writ or warrant of attachment,
or similar process involving in any case an amount in excess of
$5,000,000 shall be entered or filed against the Borrower or any
of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period
of sixty (60) days, or (ii) any judgment, arbitration award or
order of any court or administrative agency awarding material
damages shall be entered against the Borrower in any action under
the Federal Securities laws seeking rescission of the purchase or
sale of, or for damages arising from the purchase or sale of, any
Subordinated Indebtedness or in any action seeking reimbursement,
indemnification or contribution with respect to the payment of
any such claim, and such judgment, award or order shall have
become final after exhaustion of all available appellate
remedies.
(i) DISSOLUTION. Any order, judgment or decree shall
be entered against the Borrower or any of its Subsidiaries
decreeing its involuntary dissolution or split up and such order
shall remain undischarged and unstayed for a period in excess of
sixty (60) days; or the Borrower or, except as permitted by this
Agreement, any of its Subsidiaries shall otherwise dissolve or
cease to exist.
(j) COLLATERAL DOCUMENTS; FAILURE OF SECURITY OR
SUBORDINATION. For any reason any Collateral Document ceases to
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be in full force and effect and the Liens intended to be created
thereby cease to be or are not valid and perfected; or Liens in
favor of the Administrative Agent contemplated by this Agreement
or the Collateral Documents, or the subordination provisions of
the documents and instruments evidencing any Subordinated
Indebtedness shall, at any time, be invalidated or otherwise
cease to be in full force and effect, or such Liens and
Obligations shall be subordinated or shall not have the priority
contemplated by this Agreement, the Collateral Documents or such
subordination provisions, for any reason; and the Requisite
Senior Lenders shall have determined that any event described in
this SECTION 11.01(j) has or is likely to have Material Adverse
Effect.
(k) CHANGE OF CONTROL. A Change of Control shall have
occurred.
(l) UNFUNDED ERISA LIABILITIES. Any Defined Benefit
Plan shall be terminated within the meaning of Title IV of ERISA
or a trustee shall be appointed by an appropriate United States
District Court to administer any Defined Benefit Plan or the PBGC
shall institute proceedings to terminate any Defined Benefit Plan
or to appoint a trustee to administer any Defined Benefit Plan,
if, as of the date of such termination, appointment or
institution of proceedings, the liability (after giving effect to
the tax consequences thereof) of the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate to the PBGC under Section
4062 of ERISA exceeds the current value of assets accumulated in
such Defined Benefit Plan by more than $1,000,000 (or in the case
of a termination of a Defined Benefit Plan involving a
"substantial employer" (as defined in Section 4001(a)(2) of
ERISA), the Borrower's, such Subsidiary's or any ERISA
Affiliate's proportionate share of such excess shall exceed such
amount).
(m) WITHDRAWAL LIABILITY UNDER MULTIEMPLOYER PLANS.
Either (i) any Multiemployer Plan shall notify the Borrower, any
Subsidiary of the Borrower of any ERISA Affiliate that it has
incurred a withdrawal liability in an amount exceeding $1,000,000
and the installment payments of such liability shall not be paid
when required to be paid in accordance with applicable law or the
provisions of the subject Multiemployer Plan, or within five (5)
Business Days thereafter; or (ii) any Multiemployer Plan shall be
terminated within the meaning of Title IV of ERISA, or a trustee
shall be appointed by an appropriate United States District Court
to administer any Multiemployer Plan, or the PBGC shall commence
proceedings to terminate any Multiemployer Plan or to appoint a
trustee to administer any Multiemployer Plan and the aggregate
outstanding liability of the Borrower and all of its Subsidiaries
and all of its ERISA Affiliates with respect to such
Multiemployer Plan (assuming that the Multiemployer Plan has
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terminated as of the day of any such appointment or commencement
of proceedings) is an amount which exceeds $5,000,000.
(n) OTHER ERISA LIABILITIES. The Borrower or any of
its Subsidiaries or any ERISA Affiliate of the Borrower (i) shall
engage in any prohibited transaction for which an exemption is
not available or has not been previously obtained from the
Department of Labor and in connection with which the Borrower or
any such Subsidiary or any ERISA Affiliate could be subject to
either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Internal Revenue
Code, which penalty or tax is in excess of $5,000,000; (ii) shall
fail to make full payment when due of all amounts which under the
provisions or any Defined Benefit Plan it is required to pay as
contributions thereto, or permit to exist any accumulated funding
deficiency (as defined in Section 302(a) of ERISA and Section
412(a) of the Internal Revenue Code) or fail to pay any
installment necessary to amortize each waived funding deficiency
with respect to any Defined Benefit Plan, (iii) fail to make any
contribution payments of any Multiemployer Plan that the Borrower
or any ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan or under such
Multiemployer Plan or any law pertaining thereto, PROVIDED,
HOWEVER, that this CLAUSE (iii) shall not apply to any such
payments which at any one time are in the aggregate less than
$3,000,000 and are being reasonably contested by either
Southland, any of its Subsidiaries or any ERISA Affiliates, or
(iv) permit to exist any occurrence of any Reportable Event or
any other event or condition which, in the opinion of the
Administrative Agent communicated to the Borrower in accordance
with SECTION 13.10 hereto, presents a material risk of liability
of the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate under ERISA or the Internal Revenue Code in an amount
which exceeds $5,000,000.
(o) MATERIAL ADVERSE CHANGE. There shall have
occurred or been disclosed to the Senior Lenders any condition or
event which the Requisite Senior Lenders determine has or is
likely to have a Material Adverse Effect.
An Event of Default shall be deemed "continuing" until
cured or waived in writing in accordance with SECTION 13.08 to
the extent and under the circumstances provided for therein.
11.02. RIGHTS AND REMEDIES.
(a) ACCELERATION. Upon the occurrence of any Event of
Default described in the foregoing SECTION 11.01(f) or 11.01(g)
with respect to the Borrower, the Commitments shall automatically
and immediately terminate and the unpaid principal amount of and
any and all accrued interest on the Loans and all other
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Obligations shall automatically become immediately due and
payable, with all additional interest from time to time accrued
thereon and without presentment, demand, or protest or other
requirements of any kind (including, without limitation,
valuation and appraisement, diligence, presentment, notice of
intent to demand or accelerate and of acceleration), all of which
are hereby expressly waived by the Borrower, and the obligation
of each Senior Lender to make any Loan hereunder and of each
Senior Lender or Issuing Bank to issue or participate in any
Facility Letter of Credit shall thereupon terminate; and upon the
occurrence and during the continuance of any other Event of
Default, the Administrative Agent shall at the request, or may
with the consent, of the Requisite Senior Lenders, by written
notice to the Borrower, (i) declare that the Commitments are
terminated, whereupon the Commitments and the obligation of each
Senior Lender to make any Loan hereunder and of each Senior
Lender or Issuing Bank to issue or participate in any Facility
Letter of Credit shall immediately terminate, and/or (ii) declare
the unpaid principal amount of, and any and all accrued and
unpaid interest on, the Loans and all other Obligations to be,
and the same shall thereupon be, immediately due and payable with
all additional interest from time to time accrued thereon and
without presentment, demand, or protest or other requirements of
any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand
or accelerate and of acceleration), all of which are hereby
expressly waived by the Borrower.
(b) DEPOSIT FOR FACILITY LETTERS OF CREDIT. In
addition, upon demand by the Administrative Agent or the
Requisite Senior Lenders after the occurrence of any Event of
Default, the Borrower shall deposit with the Administrative Agent
for the benefit of the Senior Lenders with respect to each
Facility Letter of Credit then outstanding, promptly upon the
demand of the Administrative Agent, cash or Cash Equivalents in
an amount equal to the greatest amount for which such Facility
Letter of Credit may be drawn. Such deposit shall be held by the
Administrative Agent for the benefit of the Senior Lenders as
security for, and to provide for the payment of, the
Reimbursement Obligations.
(c) RESCISSION. If at any time after acceleration of
the maturity of the Loans, the Borrower shall pay all arrears of
interest and all payments on account of principal of the Loans
and Reimbursement Obligations which shall have become due
otherwise than by acceleration (with interest on principal and,
to the extent permitted by law, on overdue interest, at the rates
specified in this Agreement) and all Events of Default and
Potential Events of Default (other than nonpayment of principal
of and accrued interest on the Loans due and payable solely by
virtue of acceleration) shall be remedied or waived pursuant to
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SECTION 13.08, then by written notice to Borrower, the Requisite
Senior Lenders may elect, in the sole discretion of such
Requisite Senior Lenders, to rescind and annul the acceleration
and its consequences; but such action shall not affect any
subsequent Event of Default or Potential Event of Default or
impair any right or remedy consequent thereon. The provisions of
the preceding sentence are intended merely to bind the Senior
Lenders and the Issuing Banks to a decision which may be made at
the election of the Requisite Senior Lenders; they are not
intended to benefit the Borrower and do not give the Borrower the
right to require the Senior Lenders to rescind or annul any
acceleration hereunder, even if the conditions set forth herein
are met.
ARTICLE XII
THE ADMINISTRATIVE AGENT; THE CO-AGENT
12.01. APPOINTMENT. (a) Each Senior Lender and each
Issuing Bank hereby designates and appoints Citicorp as the
Administrative Agent of such Senior Lender and such Issuing Bank
under this Agreement and the Collateral Documents, and each
Senior Lender and each Issuing Bank hereby irrevocably authorizes
the Administrative Agent to take such action on its behalf under
the provisions of this Agreement and the Loan Documents and to
exercise such powers as set forth herein or therein, together
with such other powers as are reasonably incidental thereto. The
Administrative Agent agrees to act as such on the express
conditions contained in this ARTICLE XII.
(b) The provisions of this ARTICLE XII are solely for
the benefit of the Administrative Agent and the Senior Lenders
and Issuing Banks, and neither the Borrower nor any Subsidiary of
the Borrower shall have any rights to rely on or enforce any of
the provisions hereof (other than as expressly set forth in
SECTION 12.07 or 12.08). In performing its functions and duties
under this Agreement, the Administrative Agent shall act solely
as agent of the Senior Lenders and the Issuing Banks and does not
assume and shall not be deemed to have assumed any obligation
toward or relationship of agency of trust with or for the
Borrower or any Subsidiary of the Borrower.
12.02. NATURE OF DUTIES. The Administrative Agent
shall not have any duties or responsibilities except those
expressly set forth in this Agreement or in the Loan Documents.
The duties of the Administrative Agent shall be mechanical and
administrative in nature. The Administrative Agent shall not
have by reason of this Agreement a fiduciary relationship in
respect of any Senior Lender or Issuing Bank. Nothing in this
Agreement or any of the Loan Documents, expressed or implied, is
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intended to or shall be construed to impose upon the
Administrative Agent any obligations in respect of this Agreement
or any of the Collateral Documents except as expressly set forth
herein or therein. Each Senior Lender and each Issuing Bank
shall make its own independent investigation of the financial
condition and affairs of the Borrower in connection with the
making and the continuance of the Loans hereunder and with the
issuance of the Facility Letters of Credit and shall make its own
appraisal of the creditworthiness of the Borrower, and the
Administrative Agent shall not have any duty or responsibility,
either initially or on a continuing basis, to provide any Senior
Lender or Issuing Bank with any credit or other information with
respect thereto. If the Administrative Agent seeks the consent
or approval of the Requisite Senior Lenders to the taking or
refraining from taking any action hereunder, the Administrative
Agent shall send notice thereof to each Senior Lender. The
Administrative Agent shall promptly notify each Senior Lender at
any time that the Requisite Senior Lenders have instructed the
Administrative Agent to act or refrain from acting pursuant
hereto.
12.03. RIGHTS, EXCULPATION, ETC. Neither the
Administrative Agent nor any of its officers, directors,
employees or agents shall be liable to any Senior Lender or
Issuing Bank for any action taken or omitted by them hereunder or
under any of the Loan Documents, or in connection herewith or
therewith, except that the Administrative Agent shall be
obligated on the terms set forth herein for performance of its
express obligations hereunder and except that no Person shall be
relieved of any liability imposed by law for intentional tort.
The Administrative Agent shall not be liable for any
apportionment or distribution of payments made by it in good
faith pursuant to SECTION 2.07(b) or SECTION 3.06, and if any
such apportionment or distribution is subsequently determined to
have been made in error the sole recourse of any Holder of
Secured Obligations to whom payment was due, but not made, shall
be to recover from other Holders of Secured Obligations any
payment in excess of the amount to which they are determined to
have been entitled. The Administrative Agent shall not be
responsible to any Senior Lender or Issuing Bank for any
recitals, statements, representations or warranties herein or for
the execution, effectiveness, genuineness, validity,
enforceability, collectibility, or sufficiency of this Agreement
or any of the Collateral Documents or any of the other Loan
Documents, or for the financial condition of the Borrower or any
of its Subsidiaries. The Administrative Agent shall not be
required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this
Agreement or any of the Loan Documents or the financial condition
of the Borrower or any of its Subsidiaries, or the existence or
possible existence of any Potential Event of Default or Event of
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Default. The Administrative Agent may at any time request
instructions from the Senior Lenders with respect to any actions
or approvals which by the terms of this Agreement or of any of
the Loan Documents the Administrative Agent is permitted or
required to take or to grant, and if such instructions are
promptly requested, the Administrative Agent shall be absolutely
entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any
person for refraining from any action or withholding any approval
under any of the Loan Documents until it shall have received such
instructions from the Requisite Senior Lenders. Without limiting
the foregoing, no Senior Lender or Issuing Bank shall have any
right of action whatsoever against the Administrative Agent as a
result of the Administrative Agent acting or refraining from
acting under this Agreement, the Notes, the Collateral Documents
or any of the other Loan Documents in accordance with the
instructions of the Requisite Senior Lenders.
12.04. RELIANCE. The Administrative Agent shall be
entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with
respect to all matters pertaining to this Agreement or any of the
Collateral Documents and its duties hereunder or thereunder, upon
advice of counsel selected by it.
12.05. INDEMNIFICATION. To the extent that the
Administrative Agent is not reimbursed and indemnified by the
Borrower, the Senior Lenders will reimburse and indemnify the
Administrative Agent for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted
against it in any way relating to or arising out of this
Agreement, the Collateral Documents or any of the other Loan
Documents or any action taken or omitted by the Administrative
Agent under this Agreement, the Collateral Documents or any of
the other Loan Documents, proportionately based upon a fraction,
the numerator of which is the amount of such Senior Lender's
Commitment, and the denominator of which is the aggregate amount
of the Commitments of all Senior Lenders PROVIDED that no Senior
Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the
Administrative Agent's gross negligence or willful misconduct.
The obligations of the Senior Lenders under this SECTION 12.05
shall survive the payment in full of the Loans and Reimbursement
Obligations and the termination of this Agreement.
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12.06. THE ADMINISTRATIVE AGENT INDIVIDUALLY. In the
event the Administrative Agent at any time has a Commitment
hereunder (a) with respect to its Pro Rata Share of the
Commitments hereunder, the Loans made by it or its Affiliates and
any Notes issued to or held by it or its Affiliates, the
Administrative Agent shall have and may exercise the same rights
and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other
Senior Lender or holder of a Note and (b) the terms "Senior
Lenders" or "Requisite Senior Lenders" or any similar terms
shall, unless the context clearly otherwise indicates, include
the Administrative Agent or its Affiliates as a Senior Lender or
one of the Requisite Senior Lenders. The Administrative Agent
may accept deposits from, lend money to, and generally engage in
any kind of banking, trust or other business with the Borrower or
any of its Subsidiaries as if it were not acting as
Administrative Agent pursuant hereto.
12.07. SUCCESSOR ADMINISTRATIVE AGENT; RESIGNATION OF
AGENT. (a) The Administrative Agent may resign from the
performance of all its functions and duties hereunder at any time
by giving at least thirty (30) Business Days' prior written
notice to the Senior Lenders and the Borrower. Such resignation
shall take effect upon the acceptance by a successor
Administrative Agent of appointment pursuant to SECTION 12.07(b)
or 12.07(c) or as otherwise provided below.
(b) Upon any such notice of resignation by the
Administrative Agent, the Requisite Senior Lenders shall appoint
a successor Administrative Agent who shall be satisfactory to the
Borrower.
(c) If a successor Administrative Agent shall not have
been so appointed within said thirty (30) Business Day period,
the retiring Administrative Agent, with the consent of the
Borrower (which may not be withheld unreasonably), shall then
appoint a successor Administrative Agent who shall serve as
Administrative Agent until such time, if any, as the Requisite
Senior Lenders, with the consent of the Borrower, appoint a
successor Administrative Agent as provided above.
12.08. COLLATERAL MATTERS. (a) The Administrative
Agent is hereby authorized on behalf of all of the Holders of
Secured Obligations, without the necessity of any notice to or
further consent from any Holder of Secured Obligations, from time
to time prior to an Event of Default, to take any action with
respect to any Collateral or Collateral Documents which may be
necessary to perfect and maintain perfected the security interest
in and liens upon the Collateral granted pursuant to the Security
Agreement and the other Collateral Documents.
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(b) The Holders of Secured Obligations hereby
irrevocably authorize the Administrative Agent, at its option and
in its discretion, to release any Lien granted to or held by the
Administrative Agent upon any Collateral (i) upon termination of
the Commitments and payment and satisfaction of all Loans,
Reimbursement Obligations, other Facility Letter of Credit
Obligations (whether or not due) and all other Obligations which
have matured and which the Administrative Agent has been notified
in writing are then due and payable; or (ii) constituting
property being sold or disposed of if the Borrower certifies to
the Administrative Agent that the sale or disposition is made in
compliance with SECTION 8.02 (and the Administrative Agent may
rely conclusively on any such certificate, without further
inquiry); or (iii) constituting property in which the Borrower
owned no interest at the time the Lien was granted or at any time
thereafter; or (iv) constituting property leased to the Borrower
for which a landlord's consent to encumber was required but not
obtained or which the Borrower was otherwise not obligated to
encumber pursuant to the Real Estate Procedures Memorandum; or
(v) constituting property leased to the Borrower under a lease
which has expired or been terminated in a transaction permitted
under this Agreement or is about to expire and which has not
been, and is not intended by the Borrower to be, renewed or
extended; or (vi) consisting of an instrument evidencing Pledged
Debt (as defined in the Security Agreement) or other debt
instrument, if the indebtedness evidenced thereby has been paid
in full; or (vii) constituting property leased to the Borrower
under the Lease Agreement dated February 15, 1987, as amended and
restated as of December 21, 1990, between the Borrower and
Cityplace Center East Corporation and subsequently subleased by
the Borrower to a third party (including any tenant improvements
made in connection with such sublease); or (viii) if approved,
authorized or ratified in writing by the Administrative Agent or
the Requisite Senior Lenders. In addition, and not in limitation
of the foregoing, the release procedures set forth in the Real
Estate Procedures Memorandum shall apply with respect to real
property. Upon request by the Administrative Agent at any time,
the Senior Lenders will confirm in writing the Administrative
Agent's authority to release particular types or items of
Collateral pursuant to this SECTION 12.08(b).
(c) Without in any manner limiting the Administrative
Agent's authority to act without any specific or further
authorization or consent by the Requisite Senior Lenders (as set
forth in SECTION 12.08(b)), each Senior Lender agrees to confirm
in writing, upon request by the Borrower, the authority to
release Collateral conferred upon the Administrative Agent under
CLAUSES (i) through (vii) of SECTION 12.08(b). So long as no
Event of Default is then continuing, upon receipt by the
Administrative Agent of any such written confirmation from the
Requisite Senior Lenders of its authority to release any
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particular items or types of Collateral, and in any event upon
any sale and transfer of Collateral which is expressly permitted
pursuant to the terms of this Agreement, and upon at least five
(5) Business Days' prior written request by the Borrower, the
Administrative Agent shall (and is hereby irrevocably authorized
by the Holders of Secured Obligations to) execute such documents
as may be necessary to evidence the release of the Liens granted
to the Administrative Agent for the benefit of the Holders of
Secured Obligations herein or pursuant hereto upon such
Collateral PROVIDED, that (i) the Administrative Agent shall not
be required to execute any such document on terms which, in the
Administrative Agent's opinion, would expose the Administrative
Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse
or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or
obligations of the Borrower in respect of) all interests retained
by the Borrower, including (without limitation) the proceeds of
any sale, all of which shall continue to constitute part of the
Collateral.
(d) The Administrative Agent shall have no obligation
whatsoever to any Holder of Secured Obligations or to any other
Person to assure that the Collateral exists or is owned by the
Borrower or is cared for, protected or insured or has been
encumbered or that the Liens granted to the Administrative Agent
herein or pursuant hereto have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are
entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to the Administrative
Agent in this SECTION 12.08 or in any of the Collateral
Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, the
Administrative Agent may act in any manner it may deem
appropriate, in its sole discretion, given the Administrative
Agent's own interest in the Collateral as one of the Holders of
Secured Obligations and that the Administrative Agent shall have
no duty or liability whatsoever to any Holder of Secured
Obligations.
(e) The benefit of the Collateral Documents and of the
provisions of this Agreement relating to the Collateral shall
extend to and be available in respect of any Obligations
("Related Obligations") which arise under any Eligible Interest
Rate Contracts or which are otherwise owed to Persons other than
the Administrative Agent, the Senior Lenders and the Issuing
Banks, solely on the condition and understanding, as among the
Administrative Agent and all other Holders of Secured
Obligations, that (i) the Related Obligations shall be entitled
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to the benefit of the Collateral to the extent expressly set
forth in this Agreement and the Collateral Documents, and to such
extent the Administrative Agent shall hold, and have the right
and power to act with respect to, the Collateral on behalf of and
as agent for the holders of the Related Obligations; but the
Administrative Agent is otherwise acting solely as agent for the
Senior Lenders and the Issuing Banks and shall have no fiduciary
duty, duty of loyalty, duty of care, duty of disclosure or other
obligations whatsoever to any holder of Related Obligations; and
(ii) all matters, acts and omissions relating in any manner to
the Collateral, or the omission, creation, perfection, priority,
abandonment or release of any Lien, shall be governed solely by
the provisions of this Agreement and the Collateral Documents,
and no separate Lien, right, power or remedy shall arise or exist
in favor of any Holder of Secured Obligations under any separate
instrument or agreement or in respect of any Related Obligations;
and (iii) each Holder of Secured Obligations shall be bound by
all actions taken or omitted, in accordance with the provisions
of this Agreement and the Collateral Documents, by the
Administrative Agent and the Requisite Senior Lenders, each of
whom shall be entitled to act at its sole discretion and
exclusively in its own interest given its own Commitments and its
own interest in the Loans, Reimbursement Obligations, Facility
Letter of Credit Obligations and other Obligations to it arising
under this Agreement or the other Loan Documents, without any
duty or liability to any other Holder of Secured Obligations or
as to any Related Obligations and without regard to whether any
Related Obligations remain outstanding or are deprived of the
benefit of the Collateral or become unsecured or are otherwise
affected or put in jeopardy thereby; and (iv) no holder of
Related Obligations and no other Holder of Secured Obligations
(except the Administrative Agent and the Senior Lenders, to the
extent set forth in this Agreement) shall have any right to be
notified of, or to direct, require or be heard with respect to,
any action taken or omitted in respect of the Collateral or under
this Agreement or the Collateral Documents; and (v) no holder of
any Related Obligations shall exercise any right of setoff,
banker's lien or similar right except as expressly provided in
SECTION 13.06.
12.09. THE CO-AGENT. The Co-Agent shall not have, and
the Co-Agent hereby expressly disclaims, any rights or duties
hereunder beyond those of a Senior Lender and, if applicable, an
Issuing Bank. Except with respect to its rights and duties as a
Senior Lender and, if applicable, an Issuing Bank, neither the
Co-Agent nor any of its officers, directors, employees or agents
shall be liable to any Person for any action taken or omitted by
them hereunder or under any of the Loan Documents.
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ARTICLE XIII
MISCELLANEOUS
13.01. CONCERNING THE COLLATERAL AND THE COLLATERAL
DOCUMENTS. Each Senior Lender and each Issuing Bank authorizes
and directs the Administrative Agent to enter into the Collateral
Documents for the benefit of the Senior Lenders and the Issuing
Banks. Each Holder of Secured Obligations agrees that any action
taken by the Requisite Senior Lenders in accordance with the
provisions of this Agreement or the Collateral Documents, and the
exercise by the Requisite Senior Lenders of the powers set forth
herein or therein, together with such other powers as are
reasonably incidental thereto, shall be authorized and binding
upon all of the Holders of Secured Obligations.
13.02. ASSIGNMENTS AND PARTICIPATIONS. (a) (i) Each
Senior Lender shall have the right at any time, upon written
notice to the Administrative Agent of its intent to do so, to
sell, assign, transfer or negotiate all or any part of its
Commitments, Loans, Notes or interest in the Facility Letters of
Credit to one or more Senior Lenders. Each Senior Lender shall
have the right at any time, with the prior written consent of the
Borrower and the Administrative Agent (which consent shall be
executed in substantially the form of EXHIBIT 21), to sell,
assign, transfer or negotiate all or any part of its Commitments,
Loans, Notes or interest in the Facility Letter of Credit to one
or more commercial banks or other financial institutions. In the
case of any sale, assignment, transfer or negotiation of all or
part of such Loans, Notes or interest in the Facility Letters of
Credit authorized under this SECTION 13.02(a)(i), the assignee,
transferee or recipient shall have, to the extent of such sale,
assignment, transfer or negotiation, the same rights, benefits
and obligations as it would if it were a Senior Lender hereunder
and a holder of such Notes, including, without limitation, (A)
the right to approve or disapprove actions which, in accordance
with the terms hereof, require the approval of the Requisite
Senior Lenders and (B) the obligation to fund Loans directly to
the Administrative Agent pursuant to ARTICLE II hereof and to
participate in Facility Letters of Credit pursuant to ARTICLE III
hereof. All sales, assignments, transfers or negotiations of all
or part of such Loans, Notes or interests in the Facility Letters
of Credit authorized under this SECTION 13.02(a)(i) shall be
evidenced by, and made pursuant to, an Assignment and Acceptance.
(ii) Upon its receipt of a fully executed Assignment
and Acceptance, a processing and recordation fee of $2,500 and,
if applicable, the written consent of the Borrower and the
Administrative Agent, the Administrative Agent shall (A) accept
such Assignment and Acceptance, (B) record the information
contained therein, and (C) in the case of sales, assignments,
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transfers or negotiations made pursuant to the first sentence of
SECTION 13.02(a)(i), as applicable, give notice thereof to the
Borrower.
(b) Each Senior Lender may, with the prior written
consent of the Borrower and the Administrative Agent (which
consent shall be executed in substantially the form of EXHIBIT
21), sell participations to one or more banks or other financial
institutions in or to all or a portion of its rights and
obligations under this Agreement, the Loans owing to it, the
Facility Letters of Credit and the Note or Notes held by it;
PROVIDED, HOWEVER, that (i) such Senior Lender's obligations
under this Agreement shall remain unchanged, (ii) such Senior
Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Senior
Lender shall remain the holder of any such Note or Notes for all
purposes of this Agreement, (iv) the Borrower, the Administrative
Agent, the Senior Lenders and the Issuing Banks shall continue to
deal solely and directly with such Senior Lender in connection
with such Senior Lender's rights and obligations under this
Agreement, and the holder of any such participation shall not be
entitled to require such Senior Lender to take or omit to take
any action hereunder except action directly affecting the
extension of the date fixed for payment of the principal amount
of or interest on a Loan allocated to such participation or a
reduction of the principal amount of or the rate of interest
payable on the Loans or the release of all or substantially all
of the Collateral, except as otherwise permitted under the Loan
Documents, and (v) all costs and consequences incurred or
sustained by any holder of a participation shall be added to
those incurred or sustained by a Senior Lender for the purpose of
SECTION 2.04(f), 2.08(f), 2.08(h), 2.09, 3.08(c), 13.03 and
13.04, limited in the aggregate to the amounts that would have
been incurred or sustained by the Senior Lender granting the
participation to such holder, had such participation not been
granted.
(c) Notwithstanding anything to the contrary contained
in this Agreement, no Senior Lender shall make any assignment of
any of its Commitments, Loans, Notes or interests in Facility
Letters of Credit except in the form of units consisting of pro
rata interests in such Commitments, Loans, Notes or interests in
Facility Letters of Credit.
(d) Any Senior Lender may, in connection with any
assignment or participation or proposed assignment or
participation pursuant to this SECTION 13.02, disclose to the
assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Senior
Lender by the Administrative Agent or by or on behalf of the
Borrower; PROVIDED that, prior to any such disclosure, the
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assignee or participant, or proposed assignee or participant
shall agree to preserve in accordance with SECTION 13.26 the
confidentiality of any confidential information described
therein.
(e) Notwithstanding any other provision of this
Agreement, any Senior Lender may at any time create a security
interest in all or any portion of its rights under this Agreement
(including, without limitation, Obligations owing to it and Notes
held by it) in favor of any Federal Reserve bank in accordance
with Regulation A.
(f) Notwithstanding any other provision of this
Agreement, any Senior Lender may at any time, upon written notice
to the Administrative Agent of its intent to do so, sell, assign,
transfer, participate or negotiate all or any part of its rights
and obligations under this Agreement and the other Loan Documents
to any of its Affiliates without the consent of the Borrower or
the Administrative Agent.
(g) If CUSA ceases to be a Senior Lender under this
Agreement by virtue of any assignment made pursuant to this
Section 13.02, then, as of the effective date of such cessation,
Citibank's obligations to issue Facility Letters of Credit
pursuant to ARTICLE III shall terminate and Citibank shall be an
Issuing Bank hereunder only with respect to outstanding Facility
Letters of Credit issued prior to such date.
13.03. EXPENSES. (a) GENERALLY. The Borrower agrees
upon demand to pay, or reimburse, the Administrative Agent for
all the Administrative Agent's internal and external audit,
legal, appraisal, valuation and investigation expenses and for
all other out-of-pocket costs and expenses of every type and
nature (including, without limitation, the reasonable fees,
expenses and disbursements of Sidley & Austin and any other
attorneys retained by the Administrative Agent, auditors,
accountants, appraisers, investment bankers, printers, insurance
and environmental advisers, and other consultants and agents)
incurred by the Administrative Agent in connection with (A) its
own audit and investigation of the Borrower and the Borrower's
Subsidiaries; (B) the negotiation, preparation and execution of
this Agreement (including, without limitation, the satisfaction
or attempted satisfaction of any of the conditions set forth in
ARTICLE IV), the Collateral Documents and the other Loan
Documents and the making of the Loans hereunder; (C) the
creation, perfection or protection of the Administrative Agent's
Liens in the Collateral (including, without limitation, any fees
and expenses for title and lien searches, local counsel in
various jurisdictions, survey costs, title commitment and
insurance fees, filing and recording fees and taxes, duplication
costs and corporate search fees); (D) administration of this
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Agreement, the Loans and the Collateral, including consultation
with attorneys in connection therewith; and (E) the protection,
collection or enforcement of any of the Obligations or the
Collateral.
(b) AFTER DEFAULT. The Borrower further agrees to
pay, or reimburse the Administrative Agent, the Issuing Banks and
the Senior Lenders for all out-of-pocket costs and expenses,
including, without limitation, reasonable attorneys' fees
(including allocated costs of internal counsel, and costs of
settlement) incurred by the Administrative Agent, any Issuing
Bank or Senior Lender after the occurrence of an Event of Default
(i) in enforcing any Obligation or in foreclosing against the
Collateral or exercising or enforcing any other right or remedy
available by reason of such Event of Default; (ii) in connection
with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a "work-out" or in
any insolvency or bankruptcy proceeding; (iii) in commencing,
defending or intervening in any litigation or in filing a
petition, complaint, answer, motion or other pleadings in any
legal proceeding relating to the Borrower and related to or
arising out of the transactions contemplated hereby or by the
First Amended and Restated Credit Agreement or Second Amended and
Restated Credit Agreement; (iv) in taking any other action in or
with respect to any suit or proceeding (bankruptcy or otherwise);
(v) in protecting, preserving, collecting, leasing, selling,
taking possession of, or liquidating any of the Collateral; or
(vi) attempting to enforce or enforcing any security interest in
any of the Collateral or any other rights under the Collateral
Documents.
13.04. INDEMNITY. The Borrower further agrees to
defend, protect, indemnify, and hold harmless the Administrative
Agent, the Co-Agent and each and all of the Senior Lenders and
Issuing Banks and each of their respective officers, directors,
employees, attorneys and agents (including, without limitation,
those retained in connection with the satisfaction or attempted
satisfaction of any of the conditions set forth in ARTICLE IV)
(collectively called the "Indemnitees") from and against any and
all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of
counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding, whether or
not such Indemnitees shall be designated a party thereto),
imposed on, incurred by, or asserted against such Indemnitees
(whether direct, indirect or consequential and whether based on
any federal or state laws or other statutory regulations,
including, without limitation, Securities, environmental and
commercial laws and regulations, under common law or at equitable
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cause, or on contract or otherwise) in any manner relating to or
arising out of this Agreement, the Collateral Documents or the
other Loan Documents, or any act, event or transaction related or
attendant thereto, the Senior Lenders' Commitments, the making of
and participation in the Loans and the issuance of and
participation in Facility Letters of Credit hereunder, the
management of such Loans or Facility Letters of Credit (including
any liabilities or claims under Federal, state or local
environmental laws or regulations), or the use or intended use of
the proceeds of the Loans or Facility Letters of Credit hereunder
(collectively, the "Indemnified Matters"); PROVIDED that the
Borrower shall have no obligation to an Indemnitee hereunder with
respect to (i) matters for which such Indemnitee has been
compensated pursuant to SECTION 2.04(f) or other provision of the
Agreement and (ii) Indemnitee Matters caused by or resulting from
the willful misconduct or gross negligence of that Indemnitee, as
determined by a court of competent jurisdiction. To the extent
that the undertaking to indemnify, pay and hold harmless set
forth in the preceding sentence may be unenforceable because it
is violative of any law or public policy, the Borrower shall
contribute the maximum portion which it is permitted to pay and
satisfy under applicable law, to the payment and satisfaction of
all Indemnified Matters incurred by the Indemnities.
13.05. CHANGE IN ACCOUNTING PRINCIPLES. Except as
otherwise provided herein, if any changes in accounting
principles from those used in the preparation of the most recent
financial statements referred to in SECTION 5.01(viii) are
hereafter required or permitted by the rules, regulations,
pronouncements and opinions of the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants
(or successors thereto or agencies with similar functions) and
are adopted by the Borrower with the agreement of its independent
certified public accountants and such changes result in a change
in the method of calculation of any of the financial covenants,
standards or terms found in ARTICLE VIII and ARTICLE IX hereof,
the parties hereto agree to enter into negotiations in order to
amend such provisions so as to equitably reflect such changes
with the desired result that the criteria for evaluating the
Borrower's financial condition shall be the same after such
changes as if such changes had not been made, PROVIDED, HOWEVER,
that no change in generally accepted accounting principles that
would affect the method of calculation of any of the financial
covenants, standards or terms shall be given effect in such
calculations until such provisions are amended, in a manner
satisfactory to the Requisite Senior Lenders, to so reflect such
change in accounting principles.
13.06. SET-OFF. In addition to any Liens granted to
the Administrative Agent, any Senior Lender or any Issuing Bank
and any rights now or hereafter granted under applicable law and
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not by way of limitation of any such Lien or rights, upon the
occurrence and during the continuance of any Event of Default,
each Senior Lender and each Issuing Bank are hereby authorized by
the Borrower at any time or from time to time, without notice to
the Borrower, or to any other Person (any such notice being
hereby expressly waived) to set off and to appropriate and to
apply any and all deposits (general or special, including, but
not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured but not including trust
accounts) and any other Indebtedness at any time held or owing by
the Senior Lender or that Issuing Bank (or any Affiliate thereof,
and Southland hereby authorizes any such Affiliate to comply with
the directions of the applicable Senior Lender or Issuing Bank
with respect to such deposits or Indebtedness) to or for the
credit or the account of the Borrower against and on account of
the Obligations of the Borrower to that Senior Lender or the
Issuing Bank including, but not limited to, all Loans and
Facility Letters of Credit and all claims of any nature or
description arising out of or connected with this Agreement or
the Notes, irrespective of whether or not (i) that Senior Lender
or that Issuing Bank shall have made any demand hereunder or (ii)
the Requisite Senior Lenders shall have declared the principal of
and interest on the Loans and Notes and other amounts due
hereunder to be due and payable as permitted by ARTICLE XI and
although said obligations and liabilities, or any of them, may be
contingent or unmatured. Each Senior Lender and each Issuing
Bank agrees, and each other Holder of Secured Obligations shall
be entitled to any rights conferred upon it under this Agreement
only on the condition and understanding, that it shall not,
without the express consent of the Requisite Senior Lenders, and
that it shall, to the extent it is lawfully entitled to do so,
upon the request of the Requisite Senior Lenders, exercise its
set-off rights hereunder against any accounts of the Borrower now
or hereafter maintained with such Senior Lender or Issuing Bank
or other Holder of Secured Obligations.
13.07. RATABLE SHARING. (a) Subject to SECTION
2.07(b) and SECTION 3.06(b)(ii), the Senior Lenders agree among
themselves that (i) with respect to all amounts received by them
which are applicable to the payment of the Obligations (excluding
the fees described in SECTION 2.05 and the amounts described in
SECTIONS 2.04(f), 2.08(f), 2.08(h) and 2.09), equitable
adjustment will be made so that, in effect, all such amounts will
be shared among them ratably in accordance with their Pro Rata
Shares, whether received by voluntary payment, by the exercise of
the right of set-off or banker's lien, by counterclaim or cross
action or by the enforcement of any or all of the Obligations
(excluding the fees described in SECTION 2.05 and the amounts
described in SECTIONS 2.04(f), 2.08(f), 2.08(h) and 2.09) or the
Collateral and (ii) if any of them shall by voluntary payment or
by the exercise of any right of counterclaim, set-off, banker's
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lien or otherwise, receive payment of a proportion of the
aggregate amount of the Obligations held by it, which is greater
than its Pro Rata Share of the payments on account of the
Obligations (excluding the fees described in SECTION 2.05 and the
amounts described in SECTIONS 2.04(f), 2.08(f), 2.08(h) and
2.09), the one receiving such excess payment shall purchase,
without recourse or warranty, an undivided interest and
participation (which it shall be deemed to have done
simultaneously upon the receipt of such payment) in such
Obligations owed to the others so that all such recoveries with
respect to such Obligations shall be applied ratably in
accordance with their Pro Rata Shares.
(b) If all or part of such excess payment received by
a purchasing party under this SECTION 13.07 is thereafter
recovered from such party, such party's purchases shall be
rescinded and the purchase prices paid for such participation
shall be returned to such party to the extent necessary to adjust
for such recovery, but without interest except to the extent the
purchasing party is required to pay interest in connection with
such recovery. The Borrower agrees that any Senior Lender so
purchasing a participation from another Senior Lender pursuant to
this SECTION 13.07 may, to the fullest extent permitted by law,
exercise all its rights of payment (including, subject to SECTION
13.06, the right of set-off) with respect to such participation
as fully as if such Senior Lender were the direct creditor of the
Borrower in the amount of such participation.
13.08. AMENDMENTS AND WAIVERS. No amendment or
modification of any provision of this Agreement or of the Notes
shall be effective without the written agreement of the Requisite
Senior Lenders and the Borrower, and no termination or waiver of
any provision of this Agreement or of the Notes, or consent to
any departure by Borrower therefrom, shall in any event be
effective without the written concurrence of the Requisite Senior
Lenders, which the Requisite Senior Lenders shall have the right
to grant or withhold at their sole discretion; EXCEPT that any
amendment, modification, or waiver of any provision of ARTICLE II
or III relating to any increase of the Revolving Credit Facility,
the Commitments, the principal amount and the extension of the
final maturity of the Loans and Facility Letters of Credit, the
reduction of interest rates applicable to the Loans, the amount
of the fees payable pursuant hereto, the definitions of
"Requisite Senior Lenders" and "Pro Rata Share", the provisions
contained in SECTION 2.02(e)(iii) and in this SECTION 13.08 shall
be effective only if evidenced by a writing signed by or on
behalf of all Senior Lenders. No amendment, modification,
termination or waiver of any provision of any Note shall be
effective without the written concurrence of the holder of that
Note. No amendment to the provisions relating to the relative
priority of the Eligible Interest Rate Contracts and the other
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Obligations shall be effective without the written concurrence of
each Holder of Secured Obligations adversely affected thereby.
No amendment, modification, termination, or waiver of any
provision of ARTICLE XII hereof or any other provision referring
to the Administrative Agent or the Co-Agent shall be effective
without the written concurrence of the Administrative Agent or
the Co-Agent, as applicable. The Administrative Agent may, but
shall have no obligation to, with the concurrence of any Senior
Lender, execute amendments, modifications, waivers or consents on
behalf of that Senior Lender. Any waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or
further notice of demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected
in accordance with this SECTION 13.08 shall be binding on each
holder of the Notes at the time outstanding, each future holder
of the Notes, and, if signed by the Borrower, on the Borrower.
13.09. INDEPENDENCE OF COVENANTS. All covenants
hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of an Event of Default or
Potential Event of Default if such action is taken or condition
exists.
13.10. NOTICES. Unless otherwise specifically
provided herein, any notice or other communication herein
required or permitted to be given shall be in writing and may be
personally served, telecopied, telexed or sent by courier service
or United States mail and shall be deemed to have been given when
delivered in person or by courier service, upon receipt of a
telecopy or telex or four (4) Business Days after deposit in the
United States mail (registered or certified, with postage prepaid
and properly addressed). Notices to the Administrative Agent
pursuant to ARTICLE II shall not be effective until received by
the Administrative Agent. For the purposes hereof, the addresses
of the parties hereto (until notice of a change thereof is
delivered as provided in this SECTION 13.10) shall be (a) with
respect to the Borrower, as set forth below the Borrower's name
on the signature pages of this Agreement, (b) with respect to the
Senior Lenders and Issuing Banks, as set forth below each party's
name on the signature pages of this Agreement or of the
Assignment and Acceptance by which such Person became a Senior
Lender or Issuing Bank hereunder or (c) as to each party, at such
other address as may be designated by such party in a written
notice to all of the other parties.
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13.11. SURVIVAL OF WARRANTIES AND AGREEMENTS. All
agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the Notes
and the other Loan Documents, the making and repayment of the
Loans and issuance and discharge of Facility Letters of Credit
hereunder.
13.12. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES
CUMULATIVE. No failure or delay on the part of the
Administrative Agent, any Senior Lender, any holder of a Note or
any Issuing Bank in the exercise of any power, right or privilege
under any of the Loan Documents shall impair such power, right or
privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further
exercises thereof or of any other right, power or privilege. All
rights and remedies existing under the Loan Documents are
cumulative to and not exclusive of any rights or remedies
otherwise available.
13.13. ADVICE OF COUNSEL. The Borrower and each
Senior Lender and Issuing Bank understand that the Administrative
Agent's counsel represents only the interests of the
Administrative Agent and its Affiliates and that the Borrower,
other Senior Lenders and other Issuing Banks are advised to
obtain their own counsel. The Borrower represents and warrants
to the Administrative Agent and the other Holders of Secured
Obligations that it has discussed this Agreement with its
counsel.
13.14. MARSHALLING; PAYMENTS SET ASIDE. Neither any
Senior Lender, any Issuing Bank, nor the Administrative Agent
shall be under any obligation to marshall any assets in favor of
the Borrower or any other party or against or in payment of any
or all of the Obligations. To the extent that the Borrower makes
a payment or payments to the Administrative Agent or the Senior
Lenders or the Administrative Agent, the Senior Lenders enforce
their security interests or exercise their rights of setoff, and
such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable
cause, then to the extent of such recovery, the obligation or
part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in
full force and effect as if such payment had not been made or
such enforcement or set-off had not occurred.
13.15. SEVERABILITY. In case any provision in or
obligation under this Agreement or the Notes or the other Loan
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Documents shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
13.16. HEADINGS. Section headings in this Agreement
are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose or
be given any substantive effect.
13.17. GOVERNING LAW. THIS AGREEMENT AND THE LOAN
DOCUMENTS, AND ALL ISSUES RELATING TO THIS AGREEMENT AND THE LOAN
DOCUMENTS, INCLUDING THE VALIDITY, ENFORCEABILITY, INTERPRETATION
OR CONSTRUCTION OF THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY
PROVISION OF EITHER OF THEM (EXCEPT TO THE EXTENT THAT THE LAWS
OF OTHER JURISDICTIONS GOVERN THE PERFECTION OF SECURITY
INTERESTS IN PERSONAL PROPERTY AND THE TRANSFER OR CREATION OF
INTERESTS IN REAL PROPERTY), SHALL BE GOVERNED BY, AND SHALL BE
DETERMINED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK.
13.18. LIMITATION OF LIABILITY. No claim may be made
by the Borrower, any Senior Lender or other Person against the
Administrative Agent, the Co-Agent, any other Senior Lender, any
Issuing Bank or the Affiliates, directors, officers, employees,
attorneys or agents of any of them for any special, indirect,
consequential or punitive damages in respect of any claim for
breach of contract or any other theory of liability arising out
of or related to the transactions contemplated by this Agreement,
the First Amended and Restated Credit Agreement or the Second
Amended and Restated Credit Agreement, or any act, omission or
event occurring in connection therewith; and the Borrower and
each Senior Lender hereby waives, releases and agrees not to sue
upon any claim for any such damages, whether or not accrued and
whether or not known or suspected to exist in its favor.
13.19. SUCCESSORS AND ASSIGNS; SUBSEQUENT HOLDERS OF
NOTES. This Agreement and the other Loan Documents shall be
binding upon the parties hereto and their respective successors
and assigns and shall inure to the benefit of the parties hereto
and the successors and permitted assigns of the Senior Lenders.
The terms and provisions of this Agreement shall inure to the
benefit of any assignee or transferee of the Notes, and in the
event of such transfer or assignment, the rights and privileges
herein conferred upon Senior Lenders shall automatically extend
to and be vested in such transferee or assignee, all subject to
the terms and conditions hereof. The Borrower's rights or any
interest therein hereunder may not be assigned without the
written consent of all Senior Lenders.
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13.20. CONSENT TO JURISDICTION AND SERVICE OF PROCESS;
WAIVER OF JURY TRIAL. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST
THE BORROWER WITH RESPECT TO THIS AGREEMENT OR ANY NOTE OR ANY
OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT
OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER ACCEPTS,
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR
ANY OF THE OTHER LOAN DOCUMENTS FROM WHICH NO APPEAL HAS BEEN
TAKEN OR IS AVAILABLE. THE BORROWER IRREVOCABLY DESIGNATES AND
APPOINTS CT CORPORATION SYSTEM AS ITS AGENT TO RECEIVE ON ITS
BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH
COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY SUCH PERSONS TO
BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. SOUTHLAND
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE NOTICE ADDRESS SPECIFIED IN ACCORDANCE
WITH SECTION 13.10, SUCH SERVICE TO BECOME EFFECTIVE TEN (10)
DAYS AFTER SUCH MAILING. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT, THE ISSUING BANKS AND THE SENIOR LENDERS
IRREVOCABLY WAIVES TRIAL BY JURY AND ANY OBJECTION, INCLUDING
WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH JURISDICTION. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF ANY SENIOR LENDER TO BRING PROCEEDINGS AGAINST
THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
13.21. COUNTERPARTS; EFFECTIVENESS; INCONSISTENCIES.
This Agreement and any amendments, waivers, consents, or
supplements may be executed in counterparts, each of which when
so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same
instrument. This Agreement shall become effective against each
party hereto as of the date when all of the conditions set forth
in SECTION 4.01 have been satisfied or duly waived in accordance
with SECTION 13.08 (the "Effective Date"). Subject to the
provisions of this Agreement (including, without limitation, the
premises hereto), this Agreement and each of the other Loan
Documents shall be construed to the extent reasonable to be
consistent with the other, but to the extent that the terms and
conditions of this Agreement are actually inconsistent with the
terms and conditions of any other Loan Document, this Agreement
shall govern.
13.22. FOREIGN BANK CERTIFICATIONS. Each Senior
Lender that is not created or organized under the laws of the
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United States of America or a political subdivision thereof has
delivered to the Borrower and the Administrative Agent, or in the
case of a Senior Lender which becomes a party to this Agreement
after the date hereof, will deliver to the Borrower and the
Administrative Agent within fifteen (15) days after the date on
which such Senior Lender becomes a Senior Lender pursuant to
SECTION 13.02, a true and accurate certificate executed in
duplicate by a duly authorized officer of such Senior Lender in
the form set out in EXHIBIT 22-A or 22-B, as applicable, to the
effect that such Senior Lender is capable under the provisions of
an applicable tax treaty concluded by the United States of
America (in which case the certificate shall be accompanied by
two executed copies of Form 1001 of the Internal Revenue Service
of the United States of America, the "IRS") or under Section 1442
of the Internal Revenue Code (in which case the certificate shall
be accompanied by two copies of Form 4224 of the IRS) of
receiving payments of interest hereunder without deduction or
withholding of United States federal income tax. Each Senior
Lender further agrees to deliver to the Borrower and the
Administrative Agent from time to time a true and accurate
certificate executed in duplicate by a duly authorized officer of
such Senior Lender substantially in the form set out in
EXHIBIT 22-A or 22-B, as applicable, before or promptly upon the
occurrence of any event requiring a change in the most recent
certificate previously delivered by it to the Borrower and the
Administrative Agent pursuant to this SECTION 13.22. Further,
each Senior Lender which delivers EXHIBIT 22-A covenants and
agrees to deliver to the Borrower and the Administrative Agent
within fifteen (15) days prior to every third anniversary of the
Effective Date, on which this Agreement is still in effect, two
accurate and complete original signed copies of Form 1001 (or any
successor form or forms required under the Code or the applicable
regulations promulgated thereunder) and EXHIBIT 22-A, and each
Senior Lender that delivers EXHIBIT 22-B covenants and agrees to
deliver to the Borrower and the Administrative Agent within
fifteen (15) days prior to the beginning of each subsequent
taxable year of such Senior Lender during which this agreement is
still in effect, two accurate and complete original signed copies
of IRS Form 4224 (or any successor form or forms required under
the Internal Revenue Code or the applicable regulations
promulgated thereunder) and EXHIBIT 22-B. Each such certificate
shall certify as to one of the following:
(i) that such Senior Lender is capable of receiving
payments of interest hereunder without deduction or
withholding of United States of America federal income tax;
(ii) that such Senior Lender is not capable of
receiving payments of interest hereunder without deduction
or withholding of United States of America federal income
tax as specified therein but is capable of recovering the
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full amount of any such deduction or withholding from a
source other than the Borrower; or
(iii) that such Senior Lender is not capable of
receiving payments of interest hereunder without deduction
or withholding of United States of America federal income
tax as specified therein and that it is not capable of
recovering the full amount of the same from a source other
than the Borrower.
Each Senior Lender shall promptly furnish to the
Borrower and the Administrative Agent such additional documents
as may be reasonably required by the Borrower or the
Administrative Agent to establish any exemption from or reduction
of any taxes required to be deducted or withheld and which may be
obtained without undue expense to such Senior Lender.
13.23. PERFORMANCE OF OBLIGATIONS. The Borrower
agrees that the Administrative Agent, upon direction of the
Requisite Senior Lenders, may, but shall have no obligation to,
make any payment or perform any act required of the Borrower
under the Loan Documents or any of them, or take any other action
which such party in its reasonable discretion deems necessary or
desirable to protect or preserve the Collateral, including,
without limitation, any action to (i) pay or discharge taxes,
liens, security interests or other encumbrances levied or placed
on or threatened against any Collateral and (ii) effect any
repairs or obtain any insurance called for by the terms of any of
the Loan Documents and to pay all or any part of the premiums
therefor and the costs thereof.
13.24. LIMITATION ON AGREEMENTS. All agreements
between the Borrower and the Administrative Agent, any Senior
Lender or any Issuing Bank, whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason
of demand being made on the Notes or otherwise, shall the amount
paid, or agreed to be paid, to the Administrative Agent, any
Senior Lender or any Issuing Bank for the use, forbearance, or
detention of the money to be loaned under this Agreement or
otherwise or for the payment or performance of any covenant or
obligation contained herein or in any other Loan Document exceed
the maximum amount permissible under applicable law. If, as a
result of any circumstances whatsoever, fulfillment of any
provision hereof or of any of such documents, at the time
performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by applicable usury
law, then, IPSO FACTO, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if, from any such
circumstance, the Administrative Agent, any Senior Lender or any
Issuing Bank shall ever receive interest or anything which might
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be deemed interest under applicable law which would exceed the
highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal
amount owing on account of the Notes or the amounts owing on
other obligations of the Borrower to the Administrative Agent,
any Senior Lender or any Issuing Bank under the Loan Documents
and not to the payment of interest, or if such excessive interest
exceeds the unpaid balance of principal of the Notes and the
amounts owing on other obligations of the Borrower to the
Administrative Agent, any Senior Lender or any Issuing Bank under
the Loan Documents, as the case may be, such excess shall be
refunded to the Borrower. All sums paid or agreed to be paid to
the Administrative Agent, any Senior Lender or any Issuing Bank
for the use, forbearance or detention of the indebtedness of the
Borrower to the Administrative Agent, any Senior Lender or any
Issuing Bank shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full
term of such indebtedness until payment in full of the principal
(including the period of any renewal or extension thereof) so
that the interest on account of such indebtedness shall not
exceed the maximum amount permitted by applicable law. The terms
and provisions of this SECTION 13.24 shall control and supersede
every other provision of all agreements between the Borrower and
the Lender.
13.25. CONSTRUCTION. The parties acknowledge that
each party and its counsel have reviewed and revised this
Agreement and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this
Agreement or any amendments or exhibits hereto.
13.26. CONFIDENTIALITY. Subject to SECTION 13.02(d),
the Senior Lenders shall hold all non-public information obtained
pursuant to the requirements of this Agreement which has been
identified as such by the Borrower in accordance with its
customary procedures for handling confidential information of
this nature and in accordance with safe and sound banking
practices and in any event may make disclosure reasonably
required by a bona fide transferee or participant in connection
with the contemplated transfer of any Note or participation
therein or as required or requested by any Governmental Authority
or representative thereof or pursuant to legal process; PROVIDED,
that unless specifically prohibited by applicable law or court
order, each Senior Lender shall notify the Borrower of any
request by any Governmental Authority or representative thereof
(other than any such request in connection with an examination of
the financial condition of such Senior Lender by such
Governmental Authority) for disclosure of any such non-public
information prior to disclosure of such information; and FURTHER
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PROVIDED, that in no event shall any Senior Lender be obligated
or required to return any materials furnished by the Borrower.
13.27. NO NOVATION. This Agreement is an amendment and
restatement of the Second Amended and Restated Credit Agreement.
The Notes delivered by Southland to the Senior Lenders on the
Effective Date are given in renewal of and rearrangement and
substitution, but not in payment, for the "Notes" and "Readvanced
Term Notes" (in each case as defined in the Second Amended and
Restated Credit Agreement) issued by Southland to the Senior Lenders
(in their capacity as Senior Lenders under the First Amended and
Restated Credit Agreement or the Second Amended and Restated Credit
Agreement) or assigned to the Senior Lender pursuant to the Master
Assignment Agreement (the "Prior Notes"), it being acknowledged and
agreed that the Indebtedness evidenced by the First Amended and
Restated Credit Agreement, the Second Amended and Restated Credit
Agreement and the Prior Notes constitutes the same Indebtedness
evidenced by this Agreement and the Notes delivered pursuant hereto
and this Agreement and such Notes are in no way intended to
constitute a novation of the First Amended and Restated Credit
Agreement, the Second Amended and Restated Credit Agreement or such
Prior Notes or the outstanding principal amount of such Prior Notes.
IN WITNESS WHEREOF, this Agreement has been duly executed
as of the date first above written.
BORROWER: THE SOUTHLAND CORPORATION
By_____________________________
Name: David A. Urbel
Title: Vice President and Treasurer
Notice Address:
The Southland Corporation
2711 North Haskell Avenue
Dallas, Texas 75221
Attn: Vice President and Treasurer
Telecopier No. (214) 841-6571
with a copy to:
The Southland Corporation
2711 North Haskell Avenue
Dallas, Texas 75221
Attn: Legal Department
Telecopier No. (214) 828-7119
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ADMINISTRATIVE AGENT: CITICORP NORTH AMERICA, INC., as
Administrative Agent
By_____________________________
Name: Frank R. Garrott
Title: Vice President
Notice Address:
Citicorp North America, Inc.
2001 Ross Avenue
Suite 1400
Dallas, Texas 75201
Attn: Frank R. Garrott
Telecopier No. (214) 953-3888
with a copy to:
Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Attn: Edward D. Eddy, III
Telecopier No. (213) 896-6600
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CO-AGENT AND
SENIOR LENDER: THE SAKURA BANK, LIMITED, NEW YORK BRANCH
By:____________________________
Name: Yoshimi Miura
Title: Senior Vice President
Notice Address and
Domestic Lending Office:
The Sakura Bank, Limited, New York Branch
277 Park Avenue
New York, New York 10172-0121
Attn: Shinichi Miyashita
Telecopier No. (212) 888-7651
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3909
Attn: Terrence L. Dugan
Telecopier No. (212) 455-2505
Eurodollar Lending Office or
Eurodollar Affiliate:
The Sakura Bank, Limited, New York Branch
277 Park Avenue
New York, NY 10172-0098
Attn: Patricia Walsh
Telecopier No. (212) 754-6690
Pro Rata Share: 19.58333333%
Term Loan Commitment: $58,750,000.00
Revolving Credit Commitment: $58,750,000.00
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SENIOR LENDER
AND ISSUING BANK: THE ASAHI BANK, LTD., NEW YORK BRANCH
By:____________________________
Name: Mr. Junichi Yamada
Title: Senior Deputy General Manager
Notice Address and
Domestic Lending Office:
The Asahi Bank, Ltd., New York Branch
1 World Trade Center
Suite 6011
New York, NY 10048-0476
Attn: Mr Douglas E. Price
(Credit Matters)
Ms. Lily Chan
(Administrative Matters)
Telecopier No.: (212) 432-1135
Eurodollar Lending Office or
Eurodollar Affiliate:
The Asahi Bank, Ltd., New York Branch
1 World Trade Center
Suite 6011
New York, NY 10048-0476
Attn.: Mr. Douglas E. Price
Telecopier No.: (212) 432-1135
Pro Rata Share: 10.00000000%
Term Loan Commitment: $30,000,000.00
Revolving Credit Commitment: $30,000,000.00
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SENIOR LENDER: THE BANK OF TOKYO TRUST COMPANY
By:____________________________
Name: Tatsuo Tanaka
Title: Senior Vice President
Notice Address and
Domestic Lending Office:
The Bank of Tokyo Trust Company
1251 Avenue of the Americas
New York, New York 10116-3138
Attn: H. Kifune/Japanese Corporate Dept.
Telecopier No. (212) 782-6435
with a copy to:
The Bank of Tokyo Trust Company
1251 Avenue of the Americas
New York, New York 10116-3138
Attn: Mr. H. Thornhill
Telecopier No. (212) 782-6420
Eurodollar Lending Office or
Eurodollar Affiliate:
The Bank of Tokyo Trust Company
1251 Avenue of the Americas
New York, New York 10116-3138
Attn: H. Kifune/Japanese Corporate Dept.
Telecopier No. (212) 782-6435
Pro Rata Share: 10.00000000%
Term Loan Commitment: $30,000,000.00
Revolving Credit Commitment: $30,000,000.00
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SENIOR LENDER
AND ISSUING BANK: BANKERS TRUST COMPANY
By:________________________
Name: Dana Klein
Title: Vice President
Notice Address and
Domestic Lending Office:
Bankers Trust Company
130 Liberty St.
New York, NY 10006
Attn: Frank Russo
Telecopier No. ______________
with a copy to:
_____________________________
_____________________________
_____________________________
Attn: _______________________
Telecopier No. _____________
Eurodollar Lending Office or
Eurodollar Affiliate:
Bankers Trust Company
Attn: 130 Liberty St.
New York, NY 10006
Frank Russo
Telecopier No. _____________
Pro Rata Share: 4.16666667%
Term Loan Commitment: $12,500,000.00
Revolving Credit Commitment: $12,500,000.00
-135-
ISSUING BANK: CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
By:____________________________
Name: E. Lindsay Gordon
Title: Authorized Signatory
Notice Address:
Canadian Imperial Bank of Commerce,
New York Agency
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, GA 30339
Attn: Kim Perrone
Telecopier No. (401) 319-4950
-136-
SENIOR LENDER: CIBC, INC.
By:____________________________
Name: E. Lindsay Gordon
Title: Vice President
Notice Address and
Domestic Lending Office:
CIBC, Inc.
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, GA 30339
Attn: Mary Fann
Telecopier No. (401) 319-4950
Eurodollar Lending Office or
Eurodollar Affiliate:
CIBC, Inc.
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, GA 30339
Attn: Mary Fann
Telecopier No. (401) 319-4950
Pro Rata Share: 4.16666667%
Term Loan Commitment: $12,500,000.00
Revolving Credit Commitment: $12,500,000.00
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SENIOR LENDER: CHEMICAL BANK
By:____________________________
Name: Frances L. Bonham
Title: Vice President
Notice Address and
Domestic Lending Office:
Chemical Bank
Asia Pacific
220 Park Ave, NY, NY 10017
Attn: Fran Bonham
Telecopier No. 212-972-5363
with a copy to:
_____________________________
_____________________________
_____________________________
Attn: _______________________
Telecopier No. _____________
Eurodollar Lending Office or
Eurodollar Affiliate:
Chemical Bank
Asia/Pacific
220 Park Ave. NY,NY 10017
Attn: Fran Bonham
Telecopier No. 212-972-5363
Pro Rata Share: 4.16666667%
Term Loan Commitment: $12,500,000.00
Revolving Credit Commitment: $12,500,000.00
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ISSUING BANK: CITIBANK, N.A.
By_____________________________
Name:
Title: Vice President
Notice Address:
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attn:____________________
Telecopier No. (212) ________
SENIOR LENDER: CITICORP USA, INC.
By_____________________________
Name: Barbara A. Cohen
Title: Vice President
Notice Address
and Domestic Lending Office:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Attn:____________________
Telecopier No. (212) ________
Eurodollar Lending Office or
Eurodollar Affiliate:
Citicorp USA, Inc.
c/o Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attn:____________________
Telecopier No. (212) ________
Pro Rata Share: 19.58333333%
Term Loan Commitment: $58,750,000.00
Revolving Credit Commitment: $58,750,000.00
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SENIOR LENDER
AND ISSUING BANK: THE FUJI BANK, LIMITED, HOUSTON AGENCY
By:____________________________
Name: David L. Kelly
Title: Vice President and Senior Manager
Notice Address and
Domestic Lending Office:
The Fuji Bank, Limited, Houston Agency
1 Houston Center, Suite 4100
1221 McKinney Street
Houston, Texas 77010
Attn: Philip C. Lauinger III
(Credit Matters)
Jenny Lin
(Administrative Matters)
Telecopier No. (713) 759-0048
Eurodollar Lending Office or
Eurodollar Affiliate:
The Fuji Bank, Limited, Houston Agency
1 Houston Center, Suite 4100
1221 McKinney Street
Houston, Texas 77010
Attn: Philip C. Lauinger III
Telecopier No. (713) 759-0048
Pro Rata Share: 10.00000000%
Term Loan Commitment: $30,000,000.00
Revolving Credit Commitment: $30,000,000.00
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SENIOR LENDER
AND ISSUING BANK: THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By:____________________________
Name: Kazuo Momiyama
Title: Senior Vice President
Notice Address and
Domestic Lending Office:
The Industrial Bank of Japan
Trust Company
245 Park Avenue
New York, New York 10167
Attn: Noboru Himata
Telecopier No. (212) 986-7973
Eurodollar Lending Office or
Eurodollar Affiliate:
The Industrial Bank of Japan
Trust Company
245 Park Avenue
New York, New York 10167
Attn: Noboru Himata
Telecopier No. (212) 986-7973
Pro Rata Share: 4.16666667%
Term Loan Commitment: $12,500,000.00
Revolving Credit Commitment: $12,500,000.00
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SENIOR LENDER: THE MITSUI TRUST AND BANKING COMPANY,
LIMITED, NEW YORK BRANCH
By:____________________________
Name: Shigeru Tsujimoto
Title: Vice President & Manager
Notice Address and
Domestic Lending Office:
with a copy to:
The Mitsui Trust and Banking Company,
Limited, New York Branch
One World Financial Center
200 Liberty Street
New York, New York 10281
Attn: Gerard Machado
Telecopier No. 212-945-4170
Eurodollar Lending Office or
Eurodollar Affiliate:
The Mitsui Trust and Banking Company,
Limited, New York Branch
One World Financial Center
200 Liberty Street
New York, New York 10281
Attn: Richard Miller
Telecopier No. 212-945-4170
Pro Rata Share: 10.00000000%
Term Loan Commitment: $30,000,000.00
Revolving Credit Commitment: $30,000,000.00
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SENIOR LENDER: NATIONSBANK OF TEXAS, N.A.
By:____________________________
Name: Joseph G. Taylor
Title: Senior Vice President
Notice Address and
Domestic Lending Office:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Joseph G. Taylor
Telecopier No. (214) 508-0980
with a copy to:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Dan Killian
Telecopier No. (214) 508-0980
Eurodollar Lending Office or
Eurodollar Affiliate:
NationsBank of Texas, N.A.
901 Main Street, 14th Floor
Dallas, Texas 75202
Attn: Karen Puente
Telecopier No. (214) 508-0944
Pro Rata Share: 4.16666667%
Term Loan Commitment: $12,500,000.00
Revolving Credit Commitment: $12,500,000.00
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Tab 1
THIRD AMENDMENT TO CREDIT AND REIMBURSEMENT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AND REIMBURSEMENT
AGREEMENT (this "THIRD AMENDMENT") is made and entered into as
of February 10, 1995, by and between CITYPLACE CENTER EAST
CORPORATION, a Texas corporation (the "COMPANY") and THE
SANWA BANK, LIMITED, DALLAS AGENCY, a foreign bank agency
licensed under the laws of the State of Texas, acting for and on behalf of
THE SANWA BANK, LIMITED, a banking corporation duly organized and
existing under the laws of Japan (collectively, the "BANK").
W I T N E S S E T H:
WHEREAS, the Company and Bank are parties to a Credit and
Reimbursement Agreement dated as of February 15, 1987 (the "Original
Reimbursement Agreement"), as amended by a First Amendment to Credit
and Reimbursement Agreement dated as of December 21, 1990 (the "First
Amendment") and a Second Amendment to Credit and Reimbursement
Agreement dated as of January 4, 1993 (the "Second Amendment") (the
Original Reimbursement Agreement, as amended by the First Amendment
and the Second Amendment, being herein referred to as the
"AGREEMENT"); and
WHEREAS, Borrower has satisfied all of the Conditions to
Schedule of Terms on or prior to the Term Schedule Date and,
accordingly, the terms applicable to the Obligation are to be governed by
the Schedule of Terms; and
WHEREAS, based on the occurrence of certain events between
the date of the First Amendment and the date hereof, the Borrower and the
Bank desire to restate the Schedule of Terms in its entirety in order to
more properly reflect the current circumstance;
NOW, THEREFORE, it is agreed:
1. DEFINITIONS. All capitalized terms used herein and not
otherwise defined shall have the respective meanings provided such terms
in the Agreement.
2. AMENDMENTS TO AGREEMENT. On and as of the Term
Schedule Date, the Schedule of Terms is hereby amended and restated in
its entirety in the form of the Schedule of Repayment Terms attached
hereto as Schedule A.
3. GOVERNING LAW. This Third Amendment and the rights
and obligations of the parties hereunder shall be construed in accordance
with and governed by the laws of the State of Texas and the applicable
federal laws of the United States of America.
4. REFERENCES TO AGREEMENT. From and after the date first
above written, all references to the Agreement shall be deemed to be
references to the Agreement after giving effect to this Third Amendment.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Third Amendment to be executed and delivered as of the date first
above written.
COMPANY:
CITYPLACE CENTER EAST CORPORATION
By: ________________________
David A. Urbel
Treasurer
BANK:
THE SANWA BANK, LIMITED,DALLAS
AGENCY, acting for and on behalf
of THE SANWA BANK, LIMITED
By: ________________________
Matthew G. Patrick
Assistant Vice President
d-0161077.01
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SCHEDULE A
to Third Amendment to Credit and Reimbursement
Agreement dated as of February 10, 1995, by and between
Cityplace Center East Corporation, as Borrower, and
The Sanwa Bank, Limited, Dallas Agency,
acting for and on behalf of
The Sanwa Bank, Limited,
as Lender
SCHEDULE OF REPAYMENT TERMS
by and between
CITYPLACE CENTER EAST CORPORATION
as Borrower
and
THE SANWA BANK, LIMITED, DALLAS AGENCY
acting for and on behalf of
THE SANWA BANK, LIMITED
as Lender
* * *
US $290,000,000
* * *
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I N D E X
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ARTICLE I DEFINITIONS 1
1.01. Defined Terms 1
ARTICLE II REIMBURSEMENT OBLIGATION 24
2.01. Promise to Pay 24
ARTICLE III PAYMENT TERMS 24
3.01. Evidence of Indebtedness 24
3.02. Interest Rate 24
3.03. Calculation of Interest Rate 24
3.04. Payment of Principal of and Interest on the Loan 24
3.05. Manner and Application of Payments 25
3.06. Prepayments 25
3.07. Taxes 26
3.08. Increased Capital and Yield Protection 28
3.09. Lending Office 29
ARTICLE IV SECURITY 30
4.01. Liens and Security Interests 30
4.02. Cash Reserve Account 30
4.03. Lender Offset 31
4.04. Agreement to Deliver Additional Collateral
Documents 32
ARTICLE V CONDITIONS PRECEDENT 33
5.01. Collateral Documents 33
5.02. Third Amendment to Completion Guaranty
Agreement 33
5.03. Assignment of Trustee Deed of Trust 33
5.04. Confirmation of Collateral Assignment of
Management Agreement 33
5.05. Confirmation of Collateral Assignment of
Submanagement Agreement 33
5.06. Confirmation of Assignment of Listing Agreement 33
5.07. Confirmation of and Amendment to Other
Collateral Documents 33
5.08. Confirmation of Subordination, Attornment and
Non-Disturbance Agreement 34
5.09. Governmental Approvals 34
5.10. Appraisal 34
5.11. Insurance 34
5.12. Survey 34
i
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5.13. Title Insurance 34
5.14. UCC Searches 34
5.15. Rent Roll, Leases, and Estoppel Letters 34
5.16. Release 34
5.17. Financial Information 35
5.18. Officer's Certificate 35
5.19. Incumbency Certificate of Borrower 35
5.20. Incumbency Certificate of Southland 35
5.21. Resolutions of Borrower 35
5.22. Resolutions of Southland 35
5.23. Corporate Certificates of Borrower and Southland 36
5.24. Articles of Incorporation and Bylaws of Borrower
and Southland 36
5.25. Opinion of Counsel to Borrower 36
5.26. Opinion of Counsel to Southland 36
5.27. Certain Required Payments 36
5.28. Additional Information 36
ARTICLE VI REPRESENTATIONS AND WARRANTIES 37
6.01. Organization and Good Standing of Borrower 37
6.02. Authorization and Power 37
6.03. No Conflicts or Consents 37
6.04. Enforceable Obligations of Borrower 37
6.05. Priority of Liens 37
6.06. Financial Condition 37
6.07. Full Disclosure 38
6.08. No Default 38
6.09. Southland Lease 38
6.10. No Litigation 38
6.11. Taxes 38
6.12. Compliance with Law 39
6.13. Principal Office 39
6.14. ERISA 39
6.15. Government Regulation 39
6.16. Title to the Property 39
6.17. Use of Property 39
6.18. Completion of Improvements 39
6.19. Access Roads 40
6.20. Condition of Premises 40
6.21. Hazardous Substances 40
6.22. Fiscal Year 40
6.23. Easement and Use Agreement 40
6.24. Zoning Obligations 41
6.25. Survival of Representations and Warranties 41
ii
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII AFFIRMATIVE COVENANTS 42
7.01. Financial Statements, Reports and Documents of
Borrower 42
7.02. Financial Statements, Reports and Documents of
Southland 44
7.03. Payment of Taxes 45
7.04. Maintenance of Existence and Rights 46
7.05. Notice of Default 46
7.06. Other Notices 46
7.07. Compliance with Law 46
7.08. Compliance with Loan Documents 47
7.09. Operations and Properties 47
7.10. Books and Records; Access 47
7.11. Inspection of Property 47
7.12. Insurance 47
7.13. Authorizations and Approvals 47
7.14. Maintenance of Liens 47
7.15. Correction of Defects 48
7.16. Environmental Risk Assessment 48
7.17. Management of Property 48
7.18. Southland Lease 48
7.19. Leasing Commission and Tenant Finishout 49
7.20. Compliance with Government Development
Documents 49
7.21. Costs and Expenses 50
7.22. Further Assurances 50
7.23. Indemnity by Borrower 50
7.24. License Agreement 52
ARTICLE VIII NEGATIVE COVENANTS 53
8.01. Cash Flow Coverage Ratio 53
8.02. Debt 53
8.03. Liens 53
8.04. Distributions and Debt Repayment 53
8.05. Southland Lease 53
8.06. Subleases 53
8.07. Sales, Etc. of Assets 54
8.08. Name, Fiscal Year and Accounting Method 54
8.09. Consolidation, Merger, Conveyance, Transfer or
Lease 54
8.10. ERISA Compliance 54
8.11. Transactions with Affiliates 54
8.12. Environmental Matters 54
8.13. Lines of Business 55
8.14. License Agreement 55
8.15. Changes in Zoning Requirements 55
iii
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IX EVENTS OF DEFAULT 56
9.01. Events of Default 56
9.02. Remedies Upon Event of Default 58
9.03. Performance by Lender 58
ARTICLE X MISCELLANEOUS 60
10.01. Waiver 60
10.02. Payment of Expenses 60
10.03. Notice 60
10.04. Governing Law 61
10.05. Choice of Forum; Consent to Service of Process
and Jurisdiction 61
10.06. Invalid Provisions 62
10.07. Interest Rate 62
10.08. Entirety and Amendments 62
10.09. Parties Bound; Assignment 63
10.10. Participations 63
10.11. Headings 63
10.12. Time of the Essence 64
10.13. Confidentiality 64
10.14. Survival of Certain Provisions 64
iv
</TABLE>
<TABLE>
INDEX OF EXHIBITS
<CAPTION>
<S> <C>
EXHIBIT A: Renewal Assignment of Leases and Rents
EXHIBIT B: Renewal Assignment of Subleases and Rents
EXHIBIT C: Assignment of Deed of Trust and Other Security Documents
EXHIBIT D: Ratification and Confirmation of Assignment of Cash Reserve Account
EXHIBIT E: Ratification and Confirmation of Collateral Assignment of Rights
Under Exclusive Leasing and Marketing Agreement
EXHIBIT F: Ratification and Confirmation of Collateral Assignment of Management
Agreement and Service Contracts
EXHIBIT G: Ratification and Confirmation of Collateral Assignment and
Modification of Submanagement Agreement
EXHIBIT H: Ratification and Confirmation of and Amendment to Other Collateral
Documents
EXHIBIT I: Ratification and Confirmation of Subordination, Attornment and Non-
Disturbance Agreement (Southland Lease)
EXHIBIT J: Renewal Deed of Trust, Security Agreement, Financing Statement,
and Assignment of Rental
EXHIBIT K: Release
EXHIBIT L: Security Agreement
EXHIBIT M: Southland Estoppel Letter
EXHIBIT N: Sublease Estoppel Letter
EXHIBIT O: Third Amendment to Completion Guaranty Agreement
EXHIBIT P: Form of Opinion of Borrower's Counsel
EXHIBIT Q: Form of Opinion of Southland's Counsel
SCHEDULE 1: Amortization Schedule
SCHEDULE 2: Request for Advance
SCHEDULE 3: Schedule of Zoning Obligations
SCHEDULE 4: Underground Storage Tank Disclosure
v
</TABLE>
SCHEDULE OF REPAYMENT TERMS
THIS SCHEDULE OF REPAYMENT TERMS is a part of and shall govern the
terms of repayment of the indebtedness of CITYPLACE CENTER EAST CORPORATION,
a corporation duly organized and existing under the laws of the State of Texas
(herein called the "Borrower"), a subsidiary of THE SOUTHLAND CORPORATION, a
corporation duly organized and existing under the laws of the State of Texas
(herein called "Southland"), to THE SANWA BANK, LIMITED, DALLAS AGENCY, a
foreign bank agency, licensed under the laws of the State of Texas, acting for
and on behalf of THE SANWA BANK, LIMITED, a banking corporation duly organized
and existing under the laws of Japan (herein collectively called "Lender")
under SECTION 2.2(D) of that certain Credit and Reimbursement Agreement dated
as of February 15, 1987, as same has been amended by that certain First
Amendment to Credit and Reimbursement Agreement dated as of December 21, 1990,
that certain Second Amendment to Credit and Reimbursement Agreement dated as of
January 4, 1993, and that certain Third Amendment to Credit and Reimbursement
Agreement dated as of February 10, 1995 (such agreement, as amended, being
herein collectively referred to as the "REIMBURSEMENT AGREEMENT"), which terms
are as follow:
ARTICLE I
DEFINITIONS
1.01. DEFINED TERMS. For the purposes of this Agreement, unless
the context otherwise requires, the following terms shall have the respective
meanings assigned to them in this Article I or in the Section or recital
referred to:
"ADVANCE" shall mean the disbursement by Lender to Trustee
of the amount drawn under the Letter of Credit.
"AFFILIATE" of any Person shall mean any other Person which,
directly or indirectly, controls or is controlled by, or is under common
control with, such Person. For purpose of this definition, "control" and
the correlative meanings of the terms "controlled by" and "under common
control with" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting shares or
partnership interests or by contract or otherwise.
"AGREEMENT" shall mean this Schedule of Repayment Terms, of which this
ARTICLE I forms a part, together with all amendments, modifications and
restatements hereof and supplements and attachments hereto.
"AMORTIZED INSTALLMENT" shall mean the monthly payment of principal and
interest, calculated as of the Closing Date, and as shown on SCHEDULE 1
attached hereto, to be the monthly payment of principal and interest required
to amortize a loan with an unpaid principal balance equal to the Loan Amount as
of the Closing Date, at a rate of interest equal to the Annual Rate as of the
Closing Date, over a period of twenty-five (25) years. Should the Annual Rate
be modified at any time or from time-to-time during the term of the Loan, the
Amortized Installment shall be recalculated on the first day of the immediately
succeeding calendar month (the "FIRST DAY") to be the monthly payment of
principal and interest required to amortize a loan with an unpaid principal
balance equal to the unpaid principal balance of the Loan as of the First Day,
at a rate of interest equal to the new Annual Rate, over a period of time equal
to the number of months remaining between such First Day and the date
twenty-five (25) years following the Monthly Commencement Date.
"AMORTIZED INSTALLMENT DATE" shall mean any date an Amortized
Installment is due.
"ANNUAL OPERATING BUDGET" shall mean an annual cash budget of income,
operating expenses and capital expenditures for the Property submitted to the
Lender by the Borrower, and approved by the Lender in writing, specifying by
month in reasonable detail all estimated costs and expenses anticipated by the
Borrower to be incurred by it during such calendar year in connection with the
Borrower's ownership and operation of the Property. Borrower may from time to
time request that Lender approve a revised Annual Operating Budget for the
remainder of any calendar year. Lender shall not unreasonably withhold or
delay its approval to any Annual Operating Budget or any amendment thereto so
long as the costs and expenses shown therein meet all Conditions for Budget
Approval.
"ANNUAL RATE" shall mean 7-1/2% per annum, or such higher
rate as the parties hereto may from time to time mutually agree.
"APPRAISAL" shall mean an appraisal addressed to Lender (acceptable
to Lender as to form, substance and appraisal date), prepared by a professional
appraiser who is a Member of the Appraisal Institute ("MAI"), certifying as to
the value of the Property and prepared in accordance with all laws and
regulations applicable to Lender and the Participants with respect to the Loan.
"APPROVED LEASE PARAMETERS" shall mean Lease Parameters approved by
Lender, which approval shall not be unreasonably withheld or delayed.
"APPROVED LEASING AGENT" shall mean an exclusive leasing agent for
marketing subleases in the Premises which (a) is approved by the Lender, and
(b) is not an Affiliate of the Borrower or Southland.
"APPROVED LEASING AGREEMENT" shall mean an exclusive listing agreement
between Southland and an Approved Leasing Agent, which has been approved in
writing by the Lender (which approval shall not be unreasonably withheld or
delayed) and which shall in any event contain the following provisions: (a) a
fee structure acceptable to the Lender; (b) a requirement for the Approved
Leasing Agent to prepare and deliver monthly Leasing Activity Summaries as
required hereby; (c) a provision for termination by Southland or its successor
upon thirty (30) days' notice, without cause, and without payment of any
penalty; (d) a consent by the Approved Leasing Agent to the collateral
assignment of such contract to the Lender; (e) upon a foreclosure or deed in
lieu of foreclosure of the Property, the Lender, at its sole option, may elect
to (i) continue the listing agreement upon its existing terms, (ii) enter into
a new listing agreement with such Approved Leasing Agent upon terms
similar to the listing agreement, or (iii) terminate the listing agreement
pursuant to the termination provisions described in subparagraph
(c) above; and (f) should the Lender elect to continue the listing
agreement on the same terms and conditions as existed prior to the
foreclosure or deed in lieu of foreclosure, the Lender shall not be
responsible for any fees, commissions or other amounts payable by the
Borrower or Southland which accrued prior to the date of transfer nor
shall the Lender be liable for any loss, costs, damages, claims or other
expenses which accrued prior to the date of such transfer. Further, no
such agreement shall constitute an Approved Leasing Agreement unless
and until it has been collaterally assigned to the Lender to secure the
Obligation, in form and substance reasonably acceptable to the Lender.
"APPROVED MANAGEMENT AGREEMENT" shall mean (a) so long as all Conditions
to Southland Management Agreement have been met, the Southland Management
Agreement, and (b) in all other cases (including so long as the Southland
Management Agreement is in effect), an agreement relating to the management or
operation of the Property with an Approved Manager, as manager, which has been
approved in writing by the Lender (which approval shall not be unreasonably
withheld or delayed) and which shall in any event contain the following
provisions: (i) a compensation structure acceptable to the Lender; (ii) a
provision for termination by the party who is not the Approved Manager, or its
successor, upon thirty (30) days notice, without cause, and without payment of
any penalty; (iii) a consent by the manager to the collateral assignment of
such contract to the Lender; (iv) upon a foreclosure or deed in lieu of
foreclosure of the Property, the Lender, at its sole option, may elect to (A)
continue the management agreement upon its existing terms, (B) enter into a new
management agreement with such manager upon such terms similar to the Approved
Management Agreement, or (C) terminate the management agreement pursuant to the
termination provisions described in subparagraph (ii), above; and (v)
should the Lender elect to continue the management agreement on the
same terms and conditions as existed prior to the foreclosure or deed in
lieu of foreclosure, the Lender shall not be responsible for any fees,
commissions or other amounts payable by the Borrower which accrued
prior to the date of transfer nor shall the Lender be liable for any loss,
costs, damages, claims or other expenses which accrued prior to the date
3
of such transfer. Further, no such agreement shall constitute an Approved
Management Agreement unless and until it has been collaterally assigned
to the Lender to secure the Obligation, in form and substance reasonably
acceptable to the Lender.
"APPROVED MANAGER" shall mean a Property manager approved by the Lender
and which is not an affiliate of the Borrower or Southland.
"APPROVED SUBLEASE" shall mean a sublease for a portion of the
Improvements which (a) is executed on the form of sublease approved by Lender
(which approval of such form and any modifications thereto shall not be
unreasonably withheld or delayed), (b) includes a fully-executed Approved
Sublease Subordination, and (c) either (i) has been expressly approved by
Lender in writing (which approval shall not be unreasonably withheld or
delayed), or (ii) falls within the Approved Lease Parameters.
"APPROVED SUBLEASE SUBORDINATION" shall mean a subordination,
non-disturbance and attornment agreement to be executed by Southland, the
Borrower, the tenant under an Approved Sublease and the Lender, in form and
substance reasonably acceptable to the Lender, and including, without
limitation, the following terms: (a) a confirmation and consent to the
collateral assignment of such Approved Sublease to the Lender; (b) an agreement
of the subtenant to attorn to the then-owner of the Property upon a foreclosure
by the Lender of such collateral assignment of Approved Sublease; (c) an
agreement of the subtenant to enter into a new lease with the then-owner of the
Property, upon the same terms as such Approved Sublease, if the Southland Lease
is terminated in whole or with respect to any portion of the Premises subject
to such Approved Sublease; (d) an agreement that the Lender shall not be bound,
(i) unless reasonably approved by Lender in writing (A) by any
amendment to the economic terms of such Approved Sublease or (B) by
any material amendment to any other term of such Approved Sublease,
(ii) by any rent paid more than one (1) month in advance, or (iii) by any
security deposit unless such security deposit is paid to the Lender to be
segregated for availability under the Approved Sublease; and (e) an
agreement of the subtenant that neither the Lender nor any other owner of
the Property following foreclosure (1) shall be bound by or obligated for
any breach or default by the landlord under the Approved Sublease
occurring prior to the date such Person acquires fee title to the Property,
or (2) shall have any personal, partnership or corporate liability for
landlord's obligations thereunder except such Person's interest in the
Property.
"APPROVED SUBMANAGEMENT AGREEMENT" shall mean an Approved Management
Agreement between Southland and an Approved Manager.
4
"ASSIGNMENT OF CASH RESERVE ACCOUNT" shall mean that certain Assignment
of Cash Reserve Account dated as of December 21, 1990, executed by Borrower for
the benefit of Lender with respect to the Cash Reserve Account, confirmed by
the Confirmation of Assignment of Cash Reserve Account.
"ASSIGNMENT OF LEASES AND RENTS" shall mean the Renewal Assignment of
Leases and Rents in the form of EXHIBIT J attached hereto and incorporated
herein by reference, with blanks appropriately completed in conformance
herewith, either as originally executed, or as it may from time to time be
renewed, supplemented, modified or restated.
"ASSIGNMENT OF SUBLEASES AND RENTS" shall mean the Renewal Assignment of
Subleases and Rents in the form of EXHIBIT K attached hereto and incorporated
herein by reference, with blanks appropriately completed in conformance
herewith, either as originally executed, or as it may from time to time be
renewed, supplemented, modified or restated.
"ASSIGNMENT OF TRUSTEE DEED OF TRUST" shall mean that certain Assignment
of Deed of Trust and Other Security Documents dated February 10, 1995, to be
effective as of February 14, 1995, pursuant to which Trustee assigns to Bank
its Liens on the Property which secured the repayment of the Debt Securities
issued pursuant to the Indenture, in the form of EXHIBIT A attached hereto.
"BASE RATE" shall mean the rate per annum then most recently announced
by The Sanwa Bank, Limited, New York Branch as its "base", "prime commercial"
or "prime rate" of interest. Borrower acknowledges that these financial
institutions may, from time to time, extend credit to other borrowers at rates
of interest varying from, and having no relationship to, such reference rates.
Each change in the Base Rate shall become effective without prior notice to
Borrower automatically as of the opening of business on the date of such change
in the Base Rate.
"BORROWER" shall have the meaning assigned to it in the preamble hereof.
"BUDGET RESERVE" shall mean, for each Fiscal Year, an amount equal to
ten percent (10%) of the aggregate costs and expenses shown on the Annual
Operating Budget, including amendments thereto, for such Fiscal Year.
"BUILDING" shall have the meaning assigned to it in the Southland Lease.
"BUSINESS DAY" shall mean any day except Saturday, Sunday and any other
day which shall be in Dallas, Texas and New York, New York a legal holiday or a
day on which banking institutions are authorized by law or other government
action to close.
5
"CAPITAL STOCK" of any Person shall mean any and all shares, interests,
participations or other equivalents (however designated) of corporate stock and
any and all forms of partnership interests or other equity interests in a
Person, including but not limited to any type of preference stock which for
other purposes may not be treated as equity.
"CASH FLOW COVERAGE RATIO" shall mean (a) Net Operating Income, DIVIDED
BY (b) the sum of scheduled Amortized Installments.
"CASH RESERVE" shall mean, on any day, the amount of collected funds
held in the Cash Reserve Account.
"CASH RESERVE ACCOUNT" shall mean the account of Borrower at The Sanwa
Bank, Limited, New York Branch, Account No. 077742 and styled "CCEC Cash
Reserve Account", which account is pledged to Lender pursuant to the Assignment
of Cash Reserve Account.
"CHANGE IN CONTROL" shall mean (a) the failure of the
Owner and its Affiliates to directly or indirectly beneficially own (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) in the
aggregate 50% or more of (i) the outstanding shares of Common Stock of
Southland or (ii) the total voting power of all classes of Capital Stock of
Southland entitled to vote generally in the election of directors of
Southland unless, in each case, the Owner and its Affiliates directly or
indirectly beneficially own (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934) in the aggregate at least 5% more of
such Common Stock or voting power, as the case may be, than any other
person or persons (including any syndication or group deemed to be a
"person" for purposes of Section 13(d)(3) of the Securities Exchange Act
of 1934) acting together as a "group" (within the meaning of
Section 13(d) of the Securities Exchange Act of 1934) or (b) the failure of
the Owner and its Affiliates to directly or indirectly beneficially own
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934) in the aggregate 35% or more of (i) the outstanding shares of
Common Stock of Southland or (ii) the total voting power of all classes of
Capital Stock of Southland entitled to vote generally in the election of
directors of Southland.
"CLOSING DATE" shall mean the date of the Advance.
"CODE" shall mean the Uniform Commercial Code as adopted in the State of
Texas and any other state which governs creation or perfection (and the effect
thereof) of security interests in any collateral for the Loan.
"COLLATERAL" shall mean and include all collateral under, and
as defined in, any Collateral Document, and including in any event, the
forms of collateral described in ARTICLE IV hereof.
6
"COLLATERAL ASSIGNMENT OF LISTING AGREEMENT" shall mean that certain
Collateral Assignment of Rights Under Exclusive Listing and Marketing Agreement
dated March 6, 1993, pursuant to which Southland has assigned to Lender all of
its rights in the Exclusive Listing and Marketing Agreement for the Property
with Prentiss Properties Limited, Inc., as ratified and confirmed by the
Confirmation of Assignment of Listing Agreement.
"COLLATERAL ASSIGNMENT OF MANAGEMENT AGREEMENT" shall mean that certain
Collateral Assignment of Management Agreement dated February 15, 1987, pursuant
to which Borrower has assigned to Lender all of Borrower's right, title and
interest, but not its obligations in, under and to, the Southland Management
Agreement, as amended by the First Amendment thereto dated as of December 21,
1990, and as ratified and confirmed by the Confirmation of Collateral
Assignment of Management Agreement.
"COLLATERAL ASSIGNMENT OF SUBMANAGEMENT AGREEMENT" shall mean that
certain Collateral Assignment and Modification of Submanagement Agreement dated
December 18, 1992, pursuant to which Southland has assigned to Lender all of
Southland's right, title and interest, but not its obligations in, under and
to, that certain Management Agreement dated as of January 1, 1993 between
Southland (as successor by merger to Cityplace Development Corporation) and the
Approved Mananager, Premysis Real Estate Services, Inc., as amended and
extended by agreement dated as of January 1, 1995, and as ratified and
confirmed by the Confirmation of Collateral Assignment of Submanagement
Agreement.
"COLLATERAL DOCUMENTS" shall mean deeds of trust,
assignments, security agreements, financing statements, and other
documents and instruments from time to time executed and delivered
pursuant to this Agreement and any documents or instruments amending
or supplementing the same, and shall include, in any event, each of the
documents described in ARTICLE IV hereof.
"COMMON STOCK" shall mean common stock of Southland.
"COMPLETION GUARANTY AGREEMENT" shall mean that
certain Completion Guaranty Agreement dated as of February 15, 1987,
executed by Southland for the benefit of Lender with respect to the
completion of the Project, as same has been amended by that certain (a)
First Amendment to Completion Guaranty Agreement dated as of
December 21, 1990, (b) Second Amendment to Completion Guaranty
Agreement dated as of January 4, 1993 and (c) Third Amendment to
Completion Guaranty Agreement dated February 10, 1995, and any and
all further renewals thereof or modifications or supplements thereto.
"CONDITIONS FOR BUDGET APPROVAL" shall mean, with
respect to any proposed cost or expense, that such cost or expense
(a) shall be incurred by Borrower, (b) is reasonably necessary for the
7
operation of the Property, (c) is not the responsibility of Southland under
the Southland Lease, and (d) is reasonable in amount for the services or
goods to be furnished in a manner consistent with the quality of
construction and operation of the Property.
"CONDITIONS TO SOUTHLAND MANAGEMENT AGREEMENT" shall mean (a) Southland
has assigned or delegated its obligations under the Southland Management
Agreement to an Approved Manager pursuant to an Approved Submanagement
Agreement, (b) such Approved Submanagement Agreement is then in effect, (c) all
costs and expenses due and owing by the Borrower under the Southland Management
Agreement are "Expenses" passed through to and reimbursable by Southland under
the Southland Lease, (d) Southland has not failed or threatened to fail to pay
all of such costs and expenses of the Approved Submanagement Agreement as an
"Expense" under the Southland Lease, and (e) no circumstances or events have
occurred which (i) could have any material adverse effect whatsoever upon the
validity, enforceability or performance of, or (ii) could materially impair,
impede or jeopardize the ability of Southland to fulfill its obligations under,
this Agreement, any Approved Submanagement Agreement, the Southland Management
Agreement or any of the other Loan Documents.
"CONFIDENTIAL INFORMATION" shall mean, at any time, all confidential and
proprietary data and information made available by or on behalf of Borrower or
Southland pursuant to this Agreement in writing to the Lender or their
attorneys, certified public accountants or agents, which Borrower or Southland
clearly and conspicuously marked or communicated as "Confidential" prior to
such time, or otherwise requested by Borrower or Southland in writing to be
held confidential, but shall not include any data or information which (a) was
or became generally available to the public at or prior to such time (unless
divulged by the Lender or their respective attorneys, certified public
accountants or agents) or (b) was or became available to the Lender or their
attorneys, certified public accountants or agents on a non-confidential basis
from Borrower or Southland or any other source at or prior to such time.
"CONFIRMATION OF ASSIGNMENT OF CASH RESERVE ACCOUNT" shall mean the
Ratification and Confirmation of Assignment of Cash Reserve Account in the form
of EXHIBIT B attached hereto and incorporated herein by reference, with blanks
appropriately completed in conformity herewith, either as originally executed
or as it may from time to time be supplemented, amended, renewed or extended.
"CONFIRMATION OF ASSIGNMENT OF LISTING AGREEMENT" shall mean the
Ratification and Confirmation of Collateral Assignment of Rights Under
Exclusive Leasing and Marketing Agreement in the form of EXHIBIT C attached
hereto and incorporated herein by reference, with blanks appropriately
completed in conformity herewith, either as originally executed or as it may
8
from time to time be supplemented, modified, amended, renewed or extended.
"CONFIRMATION OF COLLATERAL ASSIGNMENT OF MANAGEMENT AGREEMENT"
shall
mean the Ratification and Confirmation of Collateral Assignment of Management
Agreement in the form of EXHIBIT D attached hereto and incorporated herein by
reference, with blanks appropriately completed in conformity herewith,
either as originally executed or as it may from time to time be
supplemented, modified, amended, renewed or extended.
"CONFIRMATION OF COLLATERAL ASSIGNMENT OF SUBMANAGEMENT
AGREEMENT" shall
mean the Ratification and Confirmation of Collateral Assignment of
Submanagement Agreement in the form of EXHIBIT E attached hereto and
incorporated herein by reference, with blanks appropriately completed in
conformity herewith, either as originally executed or as it may from time to
time be supplemented, modified, amended, renewed or extended.
"CONFIRMATION OF AND AMENDMENT TO OTHER COLLATERAL DOCUMENTS"
shall mean
the Ratification and Confirmation of and Amendment to Other Collateral
Documents in the form of EXHIBIT F attached hereto and incorporated herein by
reference, with blanks appropriately completed in conformity herewith, either
as originally executed or as it may from time to time be supplemented,
modified, amended, renewed or extended.
"CONFIRMATION OF SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
AGREEMENT" shall mean the Ratification and Confirmation of Subordination,
Attornment and Non-Disturbance Agreement (Southland Lease) in the form of
EXHIBIT G attached hereto and incorporated herein by reference, with blanks
appropriately completed in conformity herewith, either as originally
executed or as it may from time to time be supplemented, modified,
amended, renewed or extended.
"CONSEQUENTIAL LOSS" shall, with respect to Borrower's
prepayment (whether voluntary or involuntary because of acceleration of
the Obligation after an Event of Default) of all or any portion of the
then-outstanding principal amount of the Loan on any date other than the
Maturity Date, mean any direct and actual loss, cost, penalty or expense
reasonably incurred by Lender or any Participant as a result of the timing
of such pre-payment or in liquidating or redepositing such principal
amount, including without limitation any direct and actual loss, cost,
penalty or expense incurred by Lender or any Participant with respect to
the early termination of any interest rate exchange or other hedging
arrangement of the type commonly entered into by prudent lenders and
borrowers to reduce or eliminate the risks of increased interest rates, and
entered into by Lender or any Participant with respect to the Loan.
9
"CONTROLLED GROUP" shall mean (a) the controlled group
of corporations as defined in Section 1563 of the Internal Revenue Code
or (b) the group of trades or businesses under common control as defined
in Section 414(c) of the Internal Revenue Code, of which Borrower is a
part or may become a part.
"DEBT" shall mean (a) indebtedness for borrowed money or for
the deferred purchase price of property or services in respect of which the
Borrower is liable, contingently or otherwise, as obligor, guarantor or
otherwise, or in respect of which the Borrower otherwise assures a
creditor against loss, and (b) obligations under leases which shall have
been or should be, in accordance with Generally Accepted Accounting
Principles, recorded as capital leases in respect of which obligations the
Borrower is liable, contingently, or otherwise, or in respect of which
obligations the Borrower otherwise assures a creditor against loss.
"DEBTOR RELIEF LAWS" shall mean any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization, or similar laws affecting the rights, remedies, or recourses
of creditors generally, including without limitation the U.S. Bankruptcy Code
and all amendments thereto, as are in effect from time to time during the term
of the Loan.
"DEBT SECURITIES" shall mean Borrower's 7-7/8% Notes due
February 15, 1995, in the aggregate principal amount of U. S.
$290,000,000, issued by Borrower pursuant to the Indenture.
"DEED OF TRUST" shall mean the Renewal Deed of Trust,
Security Agreement, Financing Statement and Assignment of Rents
securing the payment of the Loan and the Obligation and the payment and
performance of all obligations specified in the Loan Documents and
herein, and evidencing a valid and enforceable first priority Lien against
the Property, in the form of Exhibit H attached hereto and incorporated
herein by reference, with blanks appropriately completed in conformity
herewith, either as originally executed or as it may from time to time be
renewed, supplemented, modified, amended or restated.
"DEFAULT RATE" shall mean a rate per annum equal to the
lesser of (a) the Base Rate in effect from day to day, plus two percent
(2%), or (b) the Maximum Rate.
"DOLLARS" and the sign "$" shall mean lawful currency of the
United States of America.
"EASEMENT AND USE AGREEMENT" shall mean the Easement and Use Agreement
between the Borrower and Oak Creek, dated December 4, 1990, as it may from time
to time be amended with Lender's written consent.
10
"ENVIRONMENTAL COMPLAINT" shall mean any complaint, order, citation or
notice with regard to air emissions, water discharges, noise emissions or any
other environmental matter affecting Borrower or the Property.
"ENVIRONMENTAL LAWS" shall mean (a) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C.A. 9601 ET SEQ., (b) the Resource Conservation and
Recovery Act of 1976, as amended by the Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C.A. 6901 ET SEQ., (c) the Clean Air
Act, 42 U.S.C.A. 7401 ET SEQ., as amended by the Clean Air Act
Amendments of 1990, (d) the Clean Water Act of 1977, 33 U.S.C.A.
1251 ET SEQ., (e) the Toxic Substances Control Act, 15 U.S.C.A.
2601 ET SEQ., (f) the Texas Water Code, (g) the Texas Solid Waste
Disposal Act, (h) all other federal, state, and local laws relating to
pollution or protection of the environment including, without limitation,
air pollution, water pollution, noise control and/or the handling, discharge,
disposal or recovery of on-site or off-site hazardous substances or
materials, as each of the foregoing may be amended from time to time,
and (i) any and all regulations promulgated under or pursuant to any of
the foregoing statutes, excluding, however, any Government
Development Documents or other zoning or abandonment ordinances.
"ENVIRONMENTAL LIABILITY" shall mean any claim, demand, obligation,
cause of action, order, violation, damage (including without limitation person,
property or natural resources), injury, judgment, penalty or fine, cost of
enforcement, cost of remedial action, clean-up, restoration or any other cost
or expense whatsoever, including reasonable attorneys' fees and disbursements,
resulting from the violation of any Environmental Law or the imposition of any
Environmental Lien, or otherwise arising under any Environmental Law.
"ENVIRONMENTAL LIEN" shall mean a Lien in favor of any
Governmental Authority or other Person (a) under any Environmental
Law or (b) for any liability or damages arising from or costs incurred by
such Governmental Authority or other Person in response to a release or
threatened release of hazardous or toxic waste, substance or constituent
into the environment.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations promulgated
thereunder by any Governmental Authority, as from time to time in effect.
"ESTIMATED NET PROCEEDS" shall mean, with respect to (a) a Permitted
Refinancing, the positive difference between (i) the value of the Property as
of the Value Interest Payment Date as shown in an Appraisal obtained by Lender
(at Borrower's sole cost and expense) dated no earlier than sixty (60) days
prior to the Value Interest Payment Date or as soon thereafter as reasonably
practicable, and (ii) $275,000,000 plus all Permitted Refinancing Closing Costs
or (b) a Permitted Sale, the positive
11
difference between (i) the Sales Price, and (ii) $275,000,000 plus all
Permitted Closing Costs.
"EXCESS CASH RESERVE AMOUNT" shall mean, at any
time, that amount held in the Cash Reserve Account in excess of
$15,000,000, after deduction therefrom of all amounts held in the Cash
Reserve Account through the date of a disbursement and on a Fiscal Year
to date basis for the Annual Operating Budget.
"EXTRAORDINARY BUDGET ITEMS" shall mean costs and
expenses which meet all Conditions for Budget Approval and which are
approved by Lender (which approval shall not be unreasonably withheld
or delayed) and which are not shown in the then current Annual Operating
Budget.
"EVENT OF DEFAULT" shall have the meaning assigned to
such term in Article IX hereof.
"FISCAL YEAR" shall mean the fiscal year of Borrower and
Southland, which shall be the twelve (12)-month period ending on
December 31 of each year or such other period as Borrower or Southland
may designate and the Lender may reasonably approve in writing.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean those generally
accepted accounting principles and practices which are recognized as such by
the American Institute of Certified Public Accountants or by the Financial
Accounting Standards Board or through other appropriate boards or committees
thereof, and which are consistently applied for all periods, after the date
hereof, so as to properly reflect the financial position of Borrower, except
that any accounting principle or practice required to be changed by the said
Financial Accounting Standards Board (or other appropriate board or committee
of the said Board) in order to continue as a generally accepted accounting
principle or practice may be so changed.
"GOVERNMENT DEVELOPMENT DOCUMENTS" shall mean (a) the zoning ordinances
covering the Property or any portion thereof, and (b) any laws, rules,
regulations, ordinances or agreements relating to the zoning, use or
development of the Property or any portion thereof, with or issued by any
Governmental Authority and including, without limitation, the Scheduled Zoning
Ordinances.
"GOVERNMENTAL AUTHORITY" shall mean any government (or any political
subdivision or jurisdiction thereof) including the United States, the State of
Texas, the County of Dallas, the City of Dallas, and any other court, bureau,
agency, planning and/or zoning commission or other governmental authority
having jurisdiction over Borrower, Southland or the Property.
12
"GOVERNMENTAL REQUIREMENTS" shall mean, (a) all laws, orders, decrees,
ordinances, rules and regulations of any Governmental Authority applicable to
the Borrower, Southland or the Property or any portion thereof, together with
all interpretations thereof, and (b) any one of them, and including, without
limitation, the Americans with Disabilities Act (to the extent applicable to
the Borrower, Southland or the Property).
"GOVERNMENTAL REQUIREMENTS APPLICABLE TO THE PROPERTY" shall mean the
Governmental Requirements applicable to the Property and including, without
limitation, the Government Development Documents.
"HAZARDOUS DISCHARGE" shall mean the happening of any
event involving the spill, discharge or cleanup of any Hazardous Material.
"HAZARDOUS MATERIAL" shall mean any hazardous, toxic
or dangerous waste, substance or material regulated under Environmental
Laws, including, without limitation, petroleum, petroleum products and
petroleum waste materials.
"IMPROVEMENTS" shall mean all of the improvements,
structures, equipment, and amenities already constructed upon the Land,
including without limitation, the Building.
"INDENTURE" shall mean that certain Indenture, dated as of
February 15, 1987, among Borrower, Lender and Trustee, pursuant to
which Borrower issued the Debt Securities, as it may from time to time be
supplemented or amended by one or more indentures supplemental
thereto entered into pursuant to the applicable provisions thereto.
"INSPECTING ARCHITECTS/ENGINEERS" shall mean such architects and/or
engineers as may be designated by Lender from time to time.
"INSURANCE POLICIES" shall mean insurance and reinsurance
policies issued by (a) responsible and reputable insurance companies or
associations having a Best's rating of at least B+:VII, (b) Lloyds of
London or (c) other insurers reasonably acceptable to the Lender, in such
amounts as shall be acceptable to the Lender. Such policies shall include
(i) real and personal property insurance written on builder's risk basis
during construction of the Improvements, and thereafter, on an all risk
basis, subject to such exclusions as are reasonably acceptable to the
Lender and, subject to such exclusions, in the broadest form and amount
then currently available at a reasonable cost, (ii) flood insurance if the
Premises are in an area which is considered a flood risk area by the U.S.
Department of Housing and Urban Development, (iii) comprehensive
general liability, auto liability and umbrella liability insurance in the
broadest form and amount then currently available at a reasonable cost,
and (iv) worker's compensation including employer's liability and any
other appropriate insurance normally carried by companies engaged in
13
similar business and owning similar properties, in the broadest form and
amount then currently available at a reasonable cost, including, without
limitation, rent interruption insurance. Such insurance policies shall name
Lender, as loss payee, mortgagee or additional insured, as their interests
may appear, as may be appropriate for the particular types of insurance.
"INTERCOMPANY DEBT" shall mean Debt of Borrower to any of its
Affiliates, subordinated to the payment and performance of the Obligation.
"INTEREST REIMBURSEMENT AGREEMENT" shall mean that certain Reimbursement
Agreement dated as of February 15, 1987, by and between Borrower and Lender, as
same has been amended by that certain First Amendment to Interest Reimbursement
Agreement dated as of December 21, 1990, pursuant to which Lender issued for
the account of Borrower and the benefit of Trustee a letter of credit to
support the interest obligations of Borrower under the Debt Securities.
"INTERNAL REVENUE CODE" shall mean the United States
Internal Revenue Code of 1986, as amended.
"LAND" shall mean the real property situated in Dallas County,
Texas described by metes and bounds upon Exhibit A attached to the
Deed of Trust and incorporated herein by reference.
"LENDER" shall have the meaning assigned to it in the preamble hereof.
"LEASE PARAMETERS" shall mean parameters for the terms of
subleases for portions of the Improvements and which shall in any event
include rental rate, expense pass-throughs, rental concessions, finish out
allowance, term, use limitations, extension options, creditworthiness
standards, pre-approved contractors and subcontractors and such other
standards and items as the Lender shall reasonably determine to be
required.
"LEASE PURCHASE PRICE" shall mean all amounts paid by
Southland under the Southland Lease to purchase the Property pursuant
to Section 7.6, 7.7 or 8.4 of the Southland Lease.
"LEASING ACTIVITY SUMMARY" shall mean a report pertaining to the
occupancy, leasing and marketing of the Premises as required by Lender to
monitor Southland's compliance with its obligations under the Southland Lease
and the Completion Guaranty, which summaries shall include, without limitation,
a report on all inquiries and requests for proposals received, all expressions
of interest, all offers submitted and the status thereof, all offers rejected
or accepted, all subleases executed, all requests for modification of existing
14
subleases received, and all Leasing Commissions and Tenant Finishout paid or
incurred.
"LEASING COMMISSIONS" shall mean leasing commissions and fees due and
payable with respect to Approved Subleases.
"LETTER OF CREDIT" shall mean that certain Irrevocable
Letter of Credit No. 677/259/00008 dated March 3, 1987, in the face
amount of US$290,000,000 issued by Lender, for the account of
Borrower and for the benefit of Trustee in support of the Debt Securities.
"LICENSE AGREEMENT" shall mean the License Agreement dated December 4,
1990, by and between the Borrower, Southland and Oak Creek, as it may from
time to time be amended with the Lender's written consent.
"LIEN" shall mean any lien, mortgage, security interest, tax lien,
pledge, encumbrance, or conditional sale or title retention arrangement, or
any other interest in property designed to secure the repayment of
indebtedness, whether arising by agreement or under any statute or law, or
otherwise.
"LISTING AGREEMENT" shall mean that certain Exclusive
Leasing and Marketing Agreement dated March 6, 1993, between
Southland and Prentiss Properties Limited, Inc., pursuant to which
Southland has granted to Prentiss Properties Limited, Inc. the exclusive
right to sublease the Premises.
"LOAN" shall mean, on any day, the unpaid principal balance of the Loan
Amount.
"LOAN AMOUNT" shall mean the amount paid or disbursed by Lender to
Trustee under the Letter of Credit LESS the amounts of all Special Lease
Payments and the Lease Purchase Price; PROVIDED, HOWEVER, that in no event
shall the Loan Amount exceed US$290,000,000.
"LOAN DOCUMENTS" shall mean this Agreement, each of the Collateral
Documents, the Completion Guaranty Agreement, the Assignment of Cash Reserve
Account and the confirmation thereof, and any such other agreements, documents,
and estoppel letters, any amendments or supplements thereto or modifications
thereof executed or delivered pursuant to the terms of this Agreement or any of
the other Loan Documents.
"MATERIAL ADVERSE EFFECT" shall mean any circumstances or events which
(a) could have any material adverse effect whatsoever upon the validity,
performance, or enforceability of any of the Loan Documents, or the Southland
Lease, (b) could materially impair, impede or jeopardize the ability of
Borrower or Southland to fulfill their respective obligations under this
Agreement, the
15
Loan Documents or the Southland Lease, or (c) causes an Event of Default or any
event which, with notice or lapse of time, or both, could become an Event of
Default.
"MATURITY DATE" shall mean the tenth (10th) anniversary of the Monthly
Commencement Date, or such earlier date pursuant to acceleration of the
maturity of the Loan as described herein or in the other Loan Documents.
"MAXIMUM RATE" shall mean, on any day, the highest non-usurious rate of
interest (if any) permitted by applicable law on such day. Lender hereby
notifies Borrower that, and discloses to Borrower that, for purposes of TEX.
REV. CIV. STAT. ANN. Art. 5069-1.04, as it may from time to time be amended,
the "applicable rate ceiling" shall be the "indicated rate" ceiling referred
to in Art. 5069-1.04(a)(1) and 5069-1.04(h)(2), from time to time in effect, as
limited by Art. 5069-1.04(b); PROVIDED, HOWEVER, that to the extent permitted
by applicable law, Lender reserves the right to change the "applicable rate
ceiling" from time to time by further notice and disclosure to Borrower in
accordance with applicable law; and, provided further, that the "highest
non-usurious rate of interest permitted by applicable law" for purposes of this
Agreement shall not be limited to the "applicable rate ceiling" under Art.
5069-1.04 if federal laws or other state laws now or hereafter in effect and
applicable to this Agreement (and the interest contracted for, charged and
collected hereunder) shall permit a higher rate of interest.
"MONTHLY COMMENCEMENT DATE" shall mean, (a) if the
Closing Date occurs on the first day of a calendar month, the Closing
Date, or (b) if the Closing Date does not occur on the first day of a
calendar month, the first day of the first full calendar month following the
Closing Date.
"MORTGAGED PROPERTY" shall have the meaning assigned
to it in the Deed of Trust.
"NET OPERATING INCOME" shall mean (a) the difference
between (i) total revenues and (ii) total expenses (exclusive of Amortized
Installments and income taxes of Borrower), PLUS (b) expenses not
requiring the outlay of cash.
"NET SUBLEASE INCOME" shall mean the Consolidated Net
Sublease Income as defined in the Southland Lease.
"OAK CREEK" shall mean Oak Creek Partners, Ltd., a Texas
limited partnership.
"OBLIGATION" shall mean all present and future indebtedness,
obligations, and liabilities, and all renewals and extensions thereof, or any
part thereof, arising pursuant to this Agreement, or as evidenced by the
other Loan Documents, including any Consequential Loss, and all interest
16
accruing thereon, and reasonable attorneys' fees incurred in the
enforcement or collection thereof, regardless of whether such
indebtedness, obligations, and liabilities are direct, indirect, fixed,
contingent, joint, several, individual or joint and several.
"OTHER TAXES" shall have the meaning assigned to it in
SECTION 3.07(B) hereof.
"OWNER" shall mean Ito-Yokado Co., Ltd., a Japanese
corporation, and Seven-Eleven Japan Co., Ltd., a Japanese corporation,
jointly, or Affiliates thereof, which own approximately 64.32% of the
issued and outstanding shares of Common Stock of Southland.
"PARTICIPANT" shall have the meaning assigned to it in
SECTION 10.10 hereof.
"PERMITTED CLOSING COSTS" shall mean the ordinary,
actual costs incurred by Borrower as seller of the Property (including
without limitation, brokerage commissions, recording taxes and fees,
attorneys' fees and other reasonable expenses) except costs and expenses
paid to Borrower or an Affiliate of Borrower and payments of the Loan.
"PERMITTED DEBT" shall mean (a) indebtedness created and
evidenced by this Agreement or any of the other Loan Documents,
(b) trade payables arising in the ordinary course of owning and operating
the Property, (c) unsecured Intercompany Debt of the Borrower, and
(d) all indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" shall mean (a) direct
obligations of, or obligations which the principal of and interest on are
unconditionally guaranteed by, the United States of America; (b) any U.S.
or Eurodollar time deposits, overnight bank deposits and other
interest-bearing deposit accounts (which may be represented by
certificates of deposit, including U.S. dollar certificates of deposit issued
in the United States or Eurodollar certificates of deposit) in the Lender, any
Participant or any national, state or foreign bank having a combined
capital and surplus of not less than US$100,000,000; (c) bankers'
acceptances drawn on and accepted by banks, including Lender and any
Participant, having a combined capital and surplus of not less than
US$100,000,000; (d) obligations of any agency or instrumentality of the
United States of America, provided that the full faith and credit of the
United States of America is pledged in support thereof; (e) commercial or
finance company paper, or any municipal notes or bonds which are rated
in the two highest rating categories by a nationally recognized rating
agency; and (f) repurchase agreements in U.S. Government securities
entered into with primary dealers recognized by the Federal Reserve Bank
of New York.
"PERMITTED LIENS" shall mean (a) the Liens granted to
Lender to secure the Obligation, (b) the Liens defined as Permitted
Exceptions in the Deed of Trust, (c) Liens for taxes not delinquent or
17
being contested in good faith, by appropriate proceedings and for which a
surety bond reasonably satisfactory to Lender has been obtained or
reserves are being maintained in accordance with Generally Accepted
Accounting Principles, (d) mechanic's and materialmen's Liens with
respect to obligations not overdue or being contested in good faith, by
appropriate proceedings and for which a surety bond reasonably
satisfactory to Lender has been obtained or reserves are being maintained
in accordance with Generally Accepted Accounting Principles,
(e) statutory or contractual landlord's Liens, (f) Liens resulting from
deposits to secure the payment of workmen's compensation or other
social security obligations, or to secure the performance of bids or
contracts in the ordinary course of business, (g) judgment Liens which are
being appealed by Borrower to the reasonable satisfaction of Lender, and
(h) other Liens consented to by Lender in writing.
"PERMITTED REFINANCING" shall mean any refinancing or
repayment of the Loan in which the Obligation is paid and discharged in
full.
"PERMITTED REFINANCING CLOSING COSTS" shall mean
(a) with respect to a Permitted Refinancing, the ordinary, actual closing
costs incurred or expected to be incurred by Borrower in connection
therewith or (b) with respect to any other repayment of the Loan in which
the Obligations are paid and discharged in full, the reasonable estimate of
ordinary closing costs which would have been incurred by Borrower had
such repayment been made through a refinancing.
"PERMITTED SALE" shall mean any sale of the Property as a
whole for an all-cash purchase price not less than the fair market value of
the Property in which the Obligation is paid and discharged in full.
"PERMITTED TRANSFER" shall mean a sale or conveyance of
the Property as a whole to an Affiliate of the Borrower other than
Southland which has been approved by Lender (such approval to not be
unreasonably withheld) if, in connection therewith, the Borrower executes
and delivers and causes the execution and delivery of such documents,
instruments and other information as Lender may reasonably request to
confirm (a) the Obligation, (b) the existence and priority of the Liens
securing same, and (c) the rights and interests underlying such liens,
pledges, assignments and security interests.
"PERSON" shall mean an individual, bankruptcy trustee, sole
proprietorship, joint venture, association, trust, estate, business trust,
corporation, non-profit corporation, sovereign government or agency,
instrumentality, or political subdivision thereof, or any similar entity or
organization.
18
"PLAN" shall mean any plan, including both single employer and
multi-employer plans, established or maintained for employees of
Borrower or any member of the Controlled Group to which
Section 4021(a) of ERISA applies.
"PREMISES" shall have the meaning assigned to it in the
Southland Lease.
"PROPERTY" shall mean the Land, together with the Improvements and all
other property and appurtenances constituting the Real Estate.
"REAL ESTATE" shall have the meaning assigned thereto in the
Deed of Trust.
"REGULATION X" shall mean Regulation X promulgated by the
Board of Governors of the Federal Reserve System, 12 C.F.R. Part 224,
or any other regulation hereafter promulgated by said Board to replace the
prior Regulation X and having substantially the same function.
"REIMBURSEMENT AGREEMENT" shall mean that certain
Credit and Reimbursement Agreement dated as of February 15, 1987, by
and between Borrower and Lender, as same has been amended by that
certain First Amendment to Credit and Reimbursement Agreement dated
as of December 21, 1990, that certain Second Amendment to Credit and
Reimbursement Agreement dated as of January 4, 1993, and that certain
Third Amendment to Credit and Reimbursement Agreement dated as of
February 10, 1995, of which this Schedule A forms a part.
"RELEASE" shall mean the agreement whereby Borrower and
Southland release Lender from any claims, in the form of EXHIBIT I
attached hereto and incorporated herein by reference, with blanks
appropriately completed in conformity herewith, either as originally
executed or as it may from time to time be supplemented, modified, or
amended.
"RENEWAL ASSIGNMENT OF LEASES AND RENTS" shall
mean the written agreement whereby Borrower assigns to Lender all
leases and rentals derived from the Property in the form of EXHIBIT J
attached hereto and incorporated herein by reference, with blanks
appropriately completed in conformity herewith, either as originally
executed or as it may from time to time be supplemented, modified,
amended, renewed or extended.
"RENEWAL ASSIGNMENT OF SUBLEASES AND RENTS" shall mean the written
agreement whereby Southland assigns to Lender all Subleases and the rents and
income derived therefrom in the form of EXHIBIT K attached hereto and
incorporated herein by reference, with blanks appropriately completed in
conformity herewith, either as originally executed or as it may from time to
time be supplemented, modified, amended, renewed or extended.
19
"RENTAL INTEREST" shall mean, for any Rental Interest
Payment Date, the amount of Net Sublease Income due and payable as of
such date pursuant to the Southland Lease; PROVIDED, HOWEVER,
that if on any Rental Interest Payment Date, the amount of Net Sublease
Income payable under the Southland Lease, as of such date, when added
to all other interest charged, paid or payable on the Loan (including
without limitation, interest at the Stated Rate, the Default Rate and the
Value Interest) exceeds interest calculated at the Maximum Rate, then
Rental Interest shall be reduced to an amount such that the aggregate rate
of interest on the Loan shall never exceed the Maximum Rate.
"RENTAL INTEREST PAYMENT DATE" shall mean the fifteenth (15th) Business
Day of each calendar month until the Obligation is paid in full.
"REQUEST FOR ADVANCE" shall mean the form of Request
for Advance attached hereto as SCHEDULE 2, appropriately completed
and certified by a responsible and authorized officer of the Borrower or
other employee of the Borrower designated by the Borrower.
"SALES PRICE" shall mean the contract sales price for the
Property pursuant to a Permitted Sale.
"SCHEDULED ZONING ORDINANCES" shall mean the
zoning ordinances affecting the Property shown in the Zoning Schedule.
"SECURITY AGREEMENT" shall mean the written security
agreement granting to Lender a security interest in all personal property of
the Borrower included in the Property as collateral for the Loan in
addition to any collateral which is described in the Deed of Trust and
covered by the security agreement included therein in the form of
EXHIBIT L attached hereto and incorporated herein by reference, with
blanks appropriately completed in conformity herewith, either as originally
executed or as it may from time to time be supplemented, modified,
amended, renewed or extended.
"SOUTHLAND" shall have the meaning assigned to it in the
preamble hereof.
"SOUTHLAND ESTOPPEL LETTER" shall mean the estoppel
letter duly executed by Southland, dated no earlier than ten (10) days prior
to the Closing Date, in the form of EXHIBIT M attached hereto and
incorporated herein by reference, with blanks appropriately completed in
conformity herewith, either as originally executed or as it may from
time-to-time be supplemented, modified or amended.
"SOUTHLAND LEASE" shall mean that certain Amended and
Restated Lease Agreement, dated as of December 21, 1990, executed by
Borrower, as landlord, and Southland, as tenant, and all renewals thereof,
or modifications or supplements thereto.
20
"SOUTHLAND MANAGEMENT AGREEMENT" shall mean
that certain Management Agreement dated February 15, 1987, between
Borrower, as owner of the Property, and Southland (as successor by
merger to Cityplace Management Corporation), as manager of the
Property, as amended.
"SOUTHLAND SUBORDINATION AGREEMENT" shall
mean the certain Amended and Restated Subordination, Attornment and
Non-Disturbance Agreement, dated as of December 21, 1990, between
Southland and Lender, executed in connection with the Southland Lease.
"SPECIAL LEASE PAYMENTS" shall mean all insurance
proceeds, awards, and cancellation fees, if any, paid to Lender or
Borrower pursuant to Section 7.6 or 7.7 of the Southland Lease, less
amounts expended from such proceeds and awards by Borrower, as the
landlord under the Southland Lease, to restore the Premises as and to the
extent required by the Southland Lease.
"STATED RATE" shall mean the Annual Rate; PROVIDED,
HOWEVER, that if interest at the Annual Rate, when added to all other
interest charged, paid or payable on the Loan (including, without
limitation, Value Interest, Rental Interest and interest at the Default Rate)
exceeds the Maximum Rate, then the Stated Rate shall be reduced to an
amount such that the aggregate rate of interest on the Loan shall never
exceed the Maximum Rate. If, however, on any Amortized Installment
Date, Lender does not receive interest on the Loan computed (as if no
Maximum Rate limitations were applicable) at the Annual Rate, because
the Annual Rate exceeds or would cause the Maximum Rate to be
exceeded, then Borrower shall, upon the written demand of Lender, pay
to Lender, in addition to interest otherwise required, on each Amortized
Installment Date thereafter, the Excess Interest Amount (hereinafter
defined) calculated as of such later interest payment date; PROVIDED,
HOWEVER, that in no event shall Borrower be required to pay, for any
appropriate computation period, interest at a rate exceeding or which
would cause interest on the Loan to exceed the Maximum Rate effective
during such period. The term "EXCESS INTEREST AMOUNT" shall
mean, on any date, with respect to the Loan, the amount by which (a) the
amount of all interest which would have accrued prior to such date on the
principal of such Loan (had the Annual Rate at all times been in effect,
without limitation by the Maximum Rate) EXCEEDS (b) the aggregate
amount of interest actually paid to Lender on the Loan on or prior to such
date.
"SUBLEASE ESTOPPEL LETTER" shall mean an estoppel
letter executed by each Subtenant under each Approved Sublease in the
form of EXHIBIT N attached hereto and incorporated herein by
reference, with blanks appropriately completed in conformity herewith,
either as originally executed or as it may from time to time be
supplemented, modified, amended, renewed or extended.
21
"SUBORDINATION AND ATTORNMENT AGREEMENT"
shall mean that certain Subordination, Attornment and Non-Disturbance
Agreement (Southland Lease) dated as of February 15, 1987, by and
between Southland, Borrower, Bank and Trustee with respect to certain
rights, obligations and benefits under the Southland Lease, as amended
and restated by the Southland Subordination Agreement and as ratified
and confirmed by the Confirmation of Subordination, Attornment and
Non-Disturbance Agreement.
"SURVEY" shall mean a current, certified survey of the Land in
form and substance satisfactory to Lender.
"TAXES" shall have the meaning assigned to it in SECTION 3.07(A) hereof.
"TENANT FINISHOUT" shall mean the labor, materials and
services required to prepare any portion of the Building for a subtenant
pursuant to an Approved Sublease, and additional elevators as reasonably
necessary when considering all relevant factors, including, without
limitation, the economic benefit derived from any additional elevator
service, which economic benefit analysis shall take into account (a) the
cost of such additional elevator service, (b) the resulting impact on
elevator service for the Improvements, (c) the corresponding need for the
resulting additional elevator service as it relates to existing and future
occupants of the Improvements, and their employees and clientele to
adequately service the occupants of the Improvements and their
employees and clientele in a manner consistent with a first-class office
property in the Dallas, Texas central business district, and (d) the
additional rent to be achieved from the Approved Sublease(s) requiring
such additional elevator.
"THIRD AMENDMENT TO COMPLETION GUARANTY AGREEMENT" shall mean the
Third
Amendment to Completion Guaranty Agreement dated as of February 10, 1995, in
the form of Exhibit O attached hereto which modifies and confirms the
obligations of Southland under the Completion Guaranty.
"TITLE COMPANY" shall mean American Title Company, as agent for Lawyers
Title Insurance Corporation, or another insurer reasonably satisfactory to
Lender.
"TITLE INSURANCE COMMITMENT" shall mean a commitment to issue the Title
Insurance Policy, issued by the Title Company, along with copies of all
instruments creating or evidencing exceptions or encumbrances to title.
"TITLE INSURANCE POLICY" shall mean a Mortgagee Policy
of Title Insurance equal to the Loan Amount insuring that the Lien of the
Deed of Trust constitutes a valid first lien against the Property, subject
only to the Liens defined as Permitted Exceptions in the Deed of Trust
and such other exceptions and encumbrances which Lender may approve,
22
such approval not to be unreasonably withheld, issued by the Title
Company.
"TRUSTEE" shall mean Bank of America National Trust &
Savings Association, a national banking association, as successor trustee
to Security Pacific National Bank, or any successor trustee who shall have
become such pursuant to the applicable provisions of the Indenture.
"UCC SEARCHES" shall mean a search of Code financing
statement filings affecting the Borrower and the Property including, but
not limited to filings designated as fixture filings.
"VALUE INTEREST" shall mean an amount equal to the Value
Interest Amount determined as of the Value Interest Payment Date;
PROVIDED, HOWEVER, that if Value Interest, when added to all other
interest charged, paid, or payable on the Loan (including, without
limitation, interest at the Stated Rate, the Default Rate and Rental
Interest) exceeds interest calculated at the Maximum Rate, then Value
Interest shall be reduced to an amount such that the aggregate rate of
interest on the Loan shall never exceed the Maximum Rate.
"VALUE INTEREST AMOUNT" shall mean the product of
(a) sixty percent (60%) TIMES (b) the Estimated Net Proceeds.
"VALUE INTEREST PAYMENT DATE" shall mean the first to
occur of (a) payment in full of the unpaid principal balance of and accrued
unpaid interest on the Loan, whether by a Permitted Sale or a Permitted
Refinancing, and (b) the Maturity Date.
"ZONING SCHEDULE" shall mean SCHEDULE 3 attached
hereto, as it may, from time to time be modified, updated or supplemented
as provided in SECTION 7.01(H) hereof or pursuant to the Completion
Guaranty.
1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the
above-defined meanings when used in any of the other Loan
Documents or any certificate, report or other document made or
delivered pursuant to this Agreement, unless the context therein
shall otherwise require.
(b) Defined terms used in the singular shall import the
plural and vice versa.
(c) The words "hereof," "herein," "hereunder," and
similar terms when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provisions of this Agreement.
23
ARTICLE II
REIMBURSEMENT OBLIGATION
2.01. PROMISE TO PAY. Subject to the terms and conditions herein set
forth, Borrower shall pay to Lender the Loan Amount. The Loan is not
revolving and any principal payments made hereunder may not be reborrowed.
ARTICLE III
PAYMENT TERMS
3.01. EVIDENCE OF INDEBTEDNESS. The Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the Loan
and the amounts of principal and interest payable and paid from time to time
hereunder. The entries made on such account or accounts shall be conclusive
and binding for all purposes, absent manifest error.
3.02. INTEREST RATE. The Loan shall bear interest from the
date of the Advance until due and payable at the Stated Rate. Past due
principal and interest (including Rental Interest and Value Interest and
interest accruing at the Stated Rate) on the Loan shall bear interest, to the
extent permitted by applicable law, at the Default Rate.
3.03. CALCULATION OF INTEREST RATE. Interest on the
unpaid principal balance of the Loan shall be computed on the basis of
twelve 30-day months and a year consisting of 360 days.
3.04. PAYMENT OF PRINCIPAL OF AND INTEREST ON THE LOAN. Payments of
principal of and interest on the Loan shall be made as follows:
(a) Principal of and interest on the Loan, computed at
the Stated Rate, shall be due and payable in arrears as follows:
(i) in one hundred and nineteen (119) Amortized Installments,
commencing on the first day of the first calendar month
immediately following the Monthly Commencement Date, and
thereafter, on the first day of each of the one hundred and eighteen
(118) succeeding calendar months; and (ii) in one final installment
on the Maturity Date in the amount of the then-unpaid principal
balance of and accrued unpaid interest on the Loan;
(b) Value Interest shall be due and payable on the
Value Interest Payment Date; and
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(c) Rental Interest shall be due and payable on each
Rental Interest Payment Date.
3.05. MANNER AND APPLICATION OF PAYMENTS. All
payments of principal of and interest on the Loan, and of all other
amounts payable under this Agreement by Borrower to or for the account
of Lender, shall be made by Borrower to Lender before 11:00 a.m. (Dallas
time) in federal or other immediately available funds. Should any
Amortized Installment, Rental Interest or Value Interest become due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day. Funds received after
11:00 a.m. (Dallas time) shall be treated for all purposes as having been
received by Lender on the first Business Day next following receipt of
such funds. Prior to the occurrence of an Event of Default, all payments
made on the Loan shall be credited, to the extent of the amount thereof, in
the following manner: (a) first, against the amount of interest accrued and
unpaid on the Loan as of the date of such payment as provided in
SCHEDULE 1, (b) second, against all principal due and owing on the
Loan as of the date of such payment as provided in SCHEDULE 1,
(c) third, against all costs, expenses and other fees (including attorneys'
fees) arising under the terms hereof to the extent not paid when due, and
(d) fourth, to all other amounts constituting a portion of the Obligation.
Upon the occurrence and continuance of an Event of Default, all
payments made on the Loan shall be applied in the manner designated by
Lender in its sole discretion, notwithstanding any directions of Borrower
or any other Person to the contrary.
3.06. PREPAYMENTS.
(a) VOLUNTARY PREPAYMENTS. At any time
and from time to time Borrower may, upon five (5) Business
Days' written notice to Lender, prepay the principal of the Loan
then outstanding, in whole or in part; PROVIDED, HOWEVER,
that (i) each prepayment of less than the full outstanding principal
balance of the Loan shall be in an amount equal to at least US
$5,000,000 and integral multiples of US $1,000,000 thereof, and
(ii) if the Borrower shall prepay all or any part of the principal of
the Loan on any day other than the Maturity Date, then Borrower
shall pay to Lender the amount of any Consequential Loss arising
therefrom.
(b) MANDATORY PREPAYMENTS. Borrower shall pay to Lender
(i) immediately upon payment, release or assignment of same by Southland under
the Southland Lease, Special Lease Payments and any Lease Purchase Price, and
(ii) the amount of any Consequential Loss resulting from the acceleration
of the maturity of the Obligation after the occurrence of an Event of Default.
(c) MANNER AND APPLICATION OF PREPAYMENTS. All prepayments
by Borrower to Lender hereunder shall be made by Borrower to Lender before
25
11:00 a.m. (Dallas time) in federal or other immediately available funds.
Funds received after 11:00 a.m. (Dallas time) shall be treated for
all purposes as having been received by Lender on the first
Business Day next following receipt of such funds. All
prepayments made on the Loan hereunder shall be made together
with interest accrued (through the date of such prepayment) on
the principal amount prepaid, and shall be applied in the following
manner: (i) first, against all costs, expenses and other fees
(including any Consequential Loss) due hereunder as of the date
of such prepayment to the extent not paid when due; (ii) second,
against the amount of interest accrued on the principal amount
prepaid as of the date of the prepayment; and (iii) third, as a
prepayment of the outstanding principal amount of the Loan.
Prepayments of principal of the Loan shall be applied to remaining
installments of principal on the Loan in the inverse order of their
maturity.
3.07. TAXES.
(a) Any and all payments made to Lender, Lender's
successors and assigns or any Participant or any designated
lending office pursuant to SECTION 3.09 hereof (such
successors, assigns, Participants and designated lending office
pursuant to Section 3.09 shall, for purposes of this
SECTION 3.07, be referred to collectively hereinafter as
"ASSIGNEES") by the Borrower hereunder shall be made, free
and clear of, and without deduction for, any future United States
taxes, levies, imposts, deductions, charges, withholdings, and all
liabilities with respect thereto, EXCLUDING, (i) taxes imposed
on or measured by its overall net income, and franchise taxes and
tax on overall capital imposed on it, by the jurisdiction under the
laws of which Lender or Assignee (as the case may be) is
organized or any political subdivision thereof, (ii) taxes imposed
on or measured by its overall net income, and franchise taxes and
taxes on overall capital imposed on it, by the jurisdiction of such
Lender's or Assignee's lending office, seat of management or
principal office, or any political subdivision thereof, and
(iii) United States withholding tax payable with respect to
payments hereunder under laws (including, without limitation, any
statute, treaty, ruling, determination or regulation) as in effect on
the Initial Date (as hereinafter defined) for such Lender or
Assignee BUT NOT EXCLUDING any United States
withholding tax payable as a result of any change in such laws
occurring after the Initial Date (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "TAXES"). For purposes of this
section, the term "INITIAL DATE" shall mean, in the case of
Lender, December 21, 1990, and, in the case of each Assignee,
the date of the assignment of Lender's rights under this agreement
or the date that the participation agreement (discussed under
SECTION 10.10) is entered into, as the case may be.
26
(b) In addition, Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges, or similar levies which arise from any payment made by Borrower
hereunder or under the Loan Documents or from the execution, delivery, or
registration of, or otherwise with respect to, this Agreement or the other
Loan Documents excluding, HOWEVER, any tax, impost, charge or levy (i) excluded
under SECTION 3.07(a) hereof and (ii) imposed on any Assignee other than
Participants (all such taxes, imposts, charges or levies being referred to
hereinafter as "OTHER TAXES").
(c) Borrower will indemnify Lender for the full
amount of Taxes or Other Taxes.
(d) Lender agrees, and agrees to cause the Assignees,
to use good faith efforts to carry out its obligations under this
Agreement in such a way as to reduce or eliminate the amount of
Taxes or Other Taxes attributable to the Loan and other payments
hereunder, including the use of a different lending office, as long
as such actions would not materially adversely affect Lender or
such Assignee, or materially increase the cost of maintaining the
Loan. If there shall occur such a material increase in Borrower's
obligations under SECTIONS 3.07(A), 3.07(B) or 3.07(C)
hereof, Borrower shall have the right, but not the obligation, to
prepay to Lender or any Assignee such Person's share of the
outstanding amount of the Loan.
(e) In the case of any Taxes or Other Taxes not
required by law to be deducted by the Borrower from or in
respect of any sum payable hereunder to Lender or Assignee,
payment under this indemnification must be made by the
Borrower within sixty (60) days from the date on which Lender or
Assignee, as the case may be, makes written demand therefor
promptly after becoming liable to make such payment of the
Taxes or Other Taxes to the relevant taxing authority. Borrower
shall have no obligation hereunder for the payment of any interest,
penalties or other increased amounts due to the failure of Lender
or an Assignee to timely notify Borrower of its obligations under
this SECTION 3.07.
(f) On or prior to the Initial Date, and from time to
time thereafter if reasonably requested by Borrower, each Lender
and Assignee organized under the laws of a foreign jurisdiction
will provide the Borrower with an Internal Revenue Form 4224 or
Form 1001 or other certificate or document required under
United States law to establish complete exemption from
United States federal withholding tax or any other certificate or
document providing for an exemption from the imposition of
Other Taxes. Such form, certificate or document also will be
provided by Lender and each Assignee (i) as is required by law
due to a change in the factual circumstances of any such Lender
27
(but not due to a change in applicable law) and (ii) from time to
time after the Initial Date as is required by applicable law to effect
a renewal of such form, certificate or document. Borrower shall
not be required to pay any increased amounts on account of any
Taxes pursuant to SECTION 3.07(A), (B), OR (C) to Lender or
any Assignee to the extent that such Taxes and Other Taxes
would not have been payable if such Lender or Assignee had
furnished a form (properly and accurately completed in all material
respects by such Lender or Assignee) which it was otherwise
required to furnish in accordance with this Section 3.07 hereof.
3.08. INCREASED CAPITAL AND YIELD PROTECTION.
(a) If any Governmental Authority, central bank or
other comparable authority, shall at any time after December 21,
1990, impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or
for the account of, or credit extended by, Lender, or shall impose
on Lender any other condition affecting the Loan (other than
taxes), and the result of any of the foregoing is to materially
increase the cost to Lender of making or maintaining the Loan, or
to materially reduce the amount of any sum received or receivable
by Lender under this Agreement, then Borrower shall pay to
Lender such additional amount or amounts as will compensate
Lender for such actual increased cost or reduction. Lender will
deliver to Borrower, as promptly as practicable after it becomes
aware of any event of which it has knowledge which will entitle
Lender to compensation pursuant to this SECTION 3.08(A), a
certificate setting forth in reasonable detail the basis for the
determination of such amount. Each such certificate shall be
conclusive evidence of the amount due in the absence of manifest
error. Borrower shall pay the amount shown as due on any such
certificate within twenty (20) days after the receipt of the
certificate from Lender.
(b) If either (i) the introduction of, or any change in,
or in the interpretation of, any law or regulation, after
December 21, 1990, or (ii) compliance with any guideline or
request from any central bank or other Governmental Authority
(whether or not having the force of law) materially affects or
would affect the amount of capital required or expected to be
maintained by Lender or any corporation controlling Lender, and
Lender reasonably determines that the amount of such capital is
materially increased by or based upon the existence of the Loan,
then, upon demand by Lender, Borrower shall pay to Lender,
from time to time as specified by Lender, additional actual
amounts sufficient to compensate Lender in the light of such
circumstances, to the extent that Lender reasonably determines
such increase in capital to be allocable to the existence of the
Loan. Lender will deliver to Borrower, as promptly as practicable
after it becomes aware of any event of which it has knowledge
which will entitle Lender to compensation pursuant to this
28
SECTION 3.08(B), a certificate setting forth in reasonable detail
the basis for the determination of such amount. Each such
certificate shall be conclusive evidence of the amount due in the
absence of manifest error. Borrower shall pay the amount shown
as due on any such certificate within twenty (20) days after the
receipt of the certificate from Lender.
(c) Lender agrees to use good faith efforts to carry
out its obligations under this Agreement as to reduce or eliminate
the amount, if any, of any increased costs contemplated by this
SECTION 3.08 attributable to the Loan, including the use of a
different office.
3.09. LENDING OFFICE. Lender may designate its principal
office or another foreign branch, agency, subsidiary or Affiliate of Lender
as its lending office for the Loan, and may change its lending offices from
time to time by notice to the Borrower.
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ARTICLE IV
SECURITY
4.01. LIENS AND SECURITY INTERESTS. To secure the
performance by Borrower of the payment of the Obligation, Borrower shall
grant or cause to be granted to Lender the following:
(a) a first priority Lien on the Property pursuant to the
terms of the Deed of Trust, subject to the Permitted Liens;
(b) an assignment of leases and rents and of all income
arising out of the ownership and/or operation of the Premises,
pursuant to the terms of the Assignment of Leases and Rents;
(c) an assignment of subleases and rents and of sublease
income arising out of the Premises, pursuant to the terms of the
Assignment of Subleases and Rents;
(d) a first priority Lien in and to all personal property
owned by Borrower and used in the operation or enjoyment of the
Property pursuant to the terms of the Security Agreement, subject to
the Permitted Liens; and
(e) an assignment of the Cash Reserve Account,
pursuant to the terms of the Assignment of Cash Reserve Account.
4.02. CASH RESERVE ACCOUNT. In order to further secure the
payment and performance of the Obligation and to effect and facilitate
Lender's right of offset, Borrower shall require that Southland wire transfer
to the Cash Reserve Account, for the account of Borrower, all monies or
sums paid or to be paid by Southland to Borrower under the Southland
Lease, including all rental, expense payments and reimbursements, Special
Lease Payments and any Lease Purchase Price. In addition, Borrower shall,
upon receipt, deposit in the Cash Reserve Account any payment and monies
which Borrower receives directly from Southland or any other Person as
payments under the Southland Lease. So long as there does not exist an
Event of Default, Borrower may direct Lender to disburse from the Cash
Reserve Account by delivering to Lender a Request for Advance (a) on a
monthly basis, the costs and expenses in the aggregate shown for such month
or unadvanced amounts on a Fiscal Year to date basis for prior months on
the applicable Annual Operating Budget, (b) immediately following any
approved amendment to the Annual Operating Budget, any additional costs
or expenses for such month reflected therein, (c) from time-to-time any
portion of the Budget Reserve for such Fiscal Year which has not been paid
to the Borrower so long as such advance is being made for a cost or expense
which meets all Conditions for Budget Approval, (d) from time-to-time for
30
Extraordinary Budget Items, and (e) from time to time all, or any portion of
the Excess Cash Reserve Amount. The Borrower hereby irrevocably
authorizes and directs Lender to charge from time to time the Cash Reserve
Account and any other accounts of the Borrower at The Sanwa Bank,
Limited, New York Branch for amounts due to Lender hereunder or under
the Loan Documents; provided, however, that Lender shall give Borrower
written notice of withdrawal one (1) Business Day prior to any such
withdrawal if the withdrawal is being made for any purpose other than a
regularly scheduled Amortized Installment unless an Event of Default shall
have occurred, in which case no such notice need be given prior to
withdrawal.
The Borrower shall use any and all amounts advanced under the
Annual Operating Budget only for the aggregate purposes shown therein,
and shall use any and all amounts advanced from the Budget Reserve or as an
Extraordinary Budget Item only for the purpose for which such amounts
were requested.
The Cash Reserve may be invested and reinvested from time to time
in Permitted Investments as Borrower shall determine, which Permitted
Investments shall be held in the name of Lender, for the benefit of Borrower.
The tax identification number used in connection with each such Permitted
Investments shall be that of Borrower. Any income or other earnings from
such Permitted Investments shall remain in or be deposited in the Cash
Reserve Account. Appropriate measures shall be taken in order to provide
Lender with a perfected first priority security interest with respect to each
Permitted Investment purchased with the Cash Reserve. If immediately
available funds on deposit in the Cash Reserve Account are not sufficient to
make any authorized distributions therefrom, Lender shall liquidate at its
discretion and as promptly as practicable Permitted Investments purchased
with the Cash Reserve as required to obtain sufficient immediately available
funds to make such distributions and such distributions shall not be made
until such liquidation has taken place. Upon the occurrence of an Event of
Default, Lender shall have the right to liquidate any Permitted Investments
and deposit the proceeds in the Cash Reserve Account, apply the amounts of
immediately available funds held in the Cash Reserve Account to the
Obligation, retain such amounts as security for the Obligation or exercise
such of the rights and remedies as may be provided herein or in the other
Loan Documents.
4.03. LENDER OFFSET. In addition to the rights granted to the
Lender under SECTION 4.02 hereof, Borrower hereby grants to the Lender
a right of offset, to secure repayment of the Obligation, upon any and all
monies, securities, or other property of Borrower and the proceeds
therefrom, now or hereafter held or received by or in transit to Lender, from
or for the account of Borrower, whether for safekeeping, custody, pledge,
transmission, collection, or otherwise, and also upon any and all deposits
(general or specified) and credits of Borrower, including, without limitation,
the Cash Reserve Account, and any and all claims of Borrower against
Lender at any time existing. Lender is hereby authorized at any time and
from time to time during the occurrence of an Event of Default, without
31
notice to Borrower, to offset, appropriate, apply, and enforce such right of
offset against any and all items hereinabove referred to against the
Obligation. For purposes of this SECTION 4.03, Borrower shall be deemed
directly indebted to Lender and the Participants in the full amount of the
Obligation, and Lender and the Participants shall be entitled to exercise the
rights of offset provided for above.
4.04. AGREEMENT TO DELIVER ADDITIONAL
COLLATERAL DOCUMENTS. Borrower shall deliver such deeds of
trust, assignments, security agreements, financing statements, estoppel
certificates (except in the case of Sublease Estoppel Letters, in which case
Borrower is only required to use its best efforts to so deliver) and other
collateral documents (all of which shall be deemed part of the Collateral
Documents), in form and substance reasonably satisfactory to the Lender, as
the Lender may reasonably request from time to time for the purpose of
maintaining or perfecting in favor of Lender, first and exclusive liens in any
Collateral, together with other assurances of the enforceability and priority
of Lender's Liens and assurances of due recording and documentation of the
Collateral Documents, as the Lender may reasonably require to avoid
material impairment of the Liens granted or purported to be granted pursuant
to this ARTICLE IV.
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ARTICLE V
CONDITIONS PRECEDENT
The terms and conditions of this Agreement and the rights and obligations of
the parties hereunder are subject to the condition precedent that, on the
Closing Date, Lender shall have received the following in form and substance
reasonably satisfactory to Lender:
5.01. COLLATERAL DOCUMENTS. The Collateral Documents
required to be delivered under ARTICLE IV hereof, duly executed by the
appropriate parties, together with evidence that (to the extent necessary) the
Collateral Documents have been duly filed, evidenced and documented, that
all recording taxes and fees have been paid, and that all other actions have
been taken in the manner necessary to establish, protect, preserve and
perfect, as a valid first lien or security interest the Liens granted to Lender
thereunder, including without limitation, the filing of financing statements in
form and substance satisfactory to Lender.
5.02. THIRD AMENDMENT TO COMPLETION GUARANTY
AGREEMENT. Duly executed Third Amendment to Completion Guaranty
Agreement, confirming and modifying the obligations of Southland under the
Completion Guaranty Agreement.
5.03. ASSIGNMENT OF TRUSTEE DEED OF TRUST. Duly
executed Assignment of Trustee Deed of Trust and related UCC-3
assignments, pursuant to which Trustee transfers and assigns its lien on the
Property which secured the repayment of Debt Securities to Bank.
5.04. CONFIRMATION OF COLLATERAL ASSIGNMENT OF
MANAGEMENT AGREEMENT. Duly executed Confirmation of
Collateral Assignment of Management Agreement, which provides Lender a
valid assignment of management agreements on the Property.
5.05. CONFIRMATION OF COLLATERAL ASSIGNMENT OF
SUBMANAGEMENT AGREEMENT. Duly executed Confirmation of
Collateral Assignment of Submanagement Agreement, which provides
Lender a valid assignment of management agreements on the Property.
5.06. CONFIRMATION OF ASSIGNMENT OF LISTING
AGREEMENT. Duly executed Confirmation of Assignment of Listing
Agreement, which provides Lender a valid assignment of the listing
agreement executed by and between Southland and Prentiss Properties
Limited, Inc.
5.07. CONFIRMATION OF AND AMENDMENT TO OTHER COLLATERAL
DOCUMENTS.
Duly executed Confirmation of and Amendment to Other Collateral Documents,
which
33
modifies and confirms the liens and security interests of the Lender in all
other Collateral Documents.
5.08. CONFIRMATION OF SUBORDINATION, ATTORNMENT AND NON-
DISTURBANCE
AGREEMENT. Duly executed Confirmation of Subordination, Attornment and
Non-Disturbance Agreement, confirming the obligations under the Subordination
and Attornment Agreement with respect to the Southland Lease.
5.09. GOVERNMENTAL APPROVALS. Appropriate written
documentation evidencing that the Property (a) does not lie within an area
which has been designated or identified by the Secretary of Housing and
Urban Development as within a flood plain pursuant to the National Flood
Insurance Act of 1968, as amended and (b) complies with the Americans
With Disabilities Act of 1990, Pub. L. No. 89-670, 104 Stat. 327 (1990), as
amended, and all regulations promulgated pursuant thereto, to the extent
compliance is required thereby.
5.10. APPRAISAL. An Appraisal of the Property dated within
ninety (90) days of the Closing Date.
5.11. INSURANCE. Evidence of Insurance Policies covering the
Property.
5.12. SURVEY. A Survey of the Land dated within ninety (90)
days of the Closing Date.
5.13. TITLE INSURANCE. A Title Insurance Commitment,
whereby the Title Insurance Company commits to issue the Title Insurance
Policy.
5.14. UCC SEARCHES. UCC Searches of Borrower and the
Property dated within thirty (30) days of the Closing Date.
5.15. RENT ROLL, LEASES, AND ESTOPPEL LETTERS. A
current rent roll summarizing the terms of the Southland Lease, all Approved
Subleases, all tenant leases, subleases or occupancy agreements for space in
the Premises, together with (a) a copy of the Southland Lease, each
Approved Sublease, each and every other tenant lease, sublease or
occupancy agreement, if any, affecting the Property, (b) a copy of the
Southland Subordination Agreement, (c) a copy of the Approved Sublease
Subordination for each Approved Sublease, each tenant lease, each sublease
or occupancy agreement, and (d) the Southland Estoppel Letter.
5.16. RELEASE. Duly executed Release, which provides for the
release by Borrower and Southland of any and all claims which they have or
may have against Lender and Participants, arising on or before the Closing
Date.
34
5.17. FINANCIAL INFORMATION. The latest financial
statements then available for Borrower, Southland, and the Property,
complying with the provisions of SECTIONS 7.01 and 7.02 hereof, dated
within thirty (30) days of the Closing Date.
5.18. OFFICER'S CERTIFICATE. A certificate signed by a duly
authorized officer of Borrower, stating that: (a) all of the representations
and warranties contained in ARTICLE VI hereof and the other Loan Documents
are true and correct as of such date; (b) no event has occurred and is
continuing, or would result from the advance of the Loan Amount, which
constitutes an Event of Default or which, with the lapse of time or the giving
of notice or both, would constitute an Event of Default; and (c) Southland is
not in default under the Southland Lease.
5.19. INCUMBENCY CERTIFICATE OF BORROWER. A
signed certificate of the Secretary or Assistant Secretary of Borrower which
shall certify the names of the officers of Borrower authorized to sign each of
the Loan Documents and the other documents or certificates to be delivered
pursuant to the Loan Documents, together with the true signatures of each
such officers. Lender may conclusively rely on such certificate until Lender
shall receive a further certificate of the Secretary or Assistant Secretary of
Borrower cancelling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate.
5.20. INCUMBENCY CERTIFICATE OF SOUTHLAND. A
signed certificate of the Secretary or Assistant Secretary of Southland which
shall certify the names of the officers of Southland authorized to sign each of
the Loan Documents to which it is a party and the other documents or
certificates to be delivered pursuant to the Loan Documents to which it is a
party, together with the true signatures of each such officers. Lender may
conclusively rely on such certificate until Lender shall receive a further
certificate of the Secretary or Assistant Secretary of Southland cancelling or
amending the prior certificate and submitting the signatures of the officers
named in such further certificate.
5.21. RESOLUTIONS OF BORROWER. Resolutions of
Borrower approving the execution, delivery and performance of this
Agreement, the Loan, the other Loan Documents and the transactions
contemplated herein and therein, duly adopted by the Board of Directors of
Borrower and accompanied by a certificate of the Secretary or Assistant
Secretary of Borrower stating that such Resolutions are true and correct,
have not been altered or repealed and are in full force and effect.
5.22. RESOLUTIONS OF SOUTHLAND. Resolutions of
Southland approving the execution, delivery and performance of the
Southland Lease and the other Loan Documents to be executed by Southland
and the transactions contemplated therein, duly adopted by the Board of
Directors of Southland and accompanied by a certificate of the Secretary or
Assistant Secretary of Southland stating that such Resolutions are true and
correct, have not been altered or repealed and are in full force and effect.
35
5.23. CORPORATE CERTIFICATES OF BORROWER AND
SOUTHLAND. Certificates of incorporation and good standing (or other
similar instruments) for Borrower and Southland issued by the Secretary of
State of the State of Texas, each dated within ten (10) days of the Closing
Date.
5.24. ARTICLES OF INCORPORATION AND BYLAWS OF
BORROWER AND SOUTHLAND. A copy of the Articles of
Incorporation of Borrower and Southland, and all amendments thereto,
certified by the Secretary of State of Texas, and dated within ten (10) days of
the Closing Date, and a copy of the bylaws of Borrower and Southland, and
all amendments thereto, certified by the Secretary or Assistant Secretary of
Borrower and Southland, as the case may be, as being true, correct and
complete as of the date of such certification, dated within ten (10) days of
the Closing Date.
5.25. OPINION OF COUNSEL TO BORROWER. A favorable
opinion of the general counsel for Borrower, substantially in the form of
Exhibit P attached hereto.
5.26. OPINION OF COUNSEL TO SOUTHLAND. A favorable
opinion of the general counsel for Southland, substantially in the form of
Exhibit Q attached hereto.
5.27. . CERTAIN REQUIRED PAYMENTS Payment of (a) all
amounts due under the Reimbursement Agreement, if any, after the
application of the Advance thereto, (b) all amounts due under the Interest
Reimbursement Agreement, if any, and (c) the amount of interest due on the
Loan from the Closing Date to the Monthly Commencement Date.
5.28. ADDITIONAL INFORMATION. Such other information
and documents as may reasonably be required by Lender and its counsel.
36
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In consideration for the mutual promises herein contained and for other
valuable consideration, Borrower represents and warrants to Lender that:
6.01. ORGANIZATION AND GOOD STANDING OF
BORROWER. Borrower is a corporation duly organized and existing in
good standing under the laws of the State of Texas, and has the corporate
power and authority to own its properties and assets and to transact the
business in which it is engaged.
6.02. AUTHORIZATION AND POWER. Borrower has the
corporate power and requisite authority to execute, deliver, and perform
under this Agreement and the other Loan Documents to be executed by the
Borrower; Borrower is duly authorized to, and has taken all corporate action
necessary to authorize Borrower to, execute, deliver, and perform under this
Agreement and each of the other Loan Documents and is and will continue
to be duly authorized to perform under this Agreement and the other Loan
Documents.
6.03. NO CONFLICTS OR CONSENTS. Neither the execution
and delivery of this Agreement or the other Loan Documents, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and
provisions thereof, will contravene or conflict with any provision of law,
statute, or regulation to which Borrower is subject or any judgment, license,
order, or permit applicable to Borrower or any indenture, mortgage, deed of
trust, or other agreement or instrument to which Borrower is a party or by
which Borrower may be bound, or to which Borrower may be subject. No
consent, approval, authorization, or order of any court or Governmental
Authority or third party is required in connection with the execution and
delivery by Borrower of the Loan Documents or to consummate the
transactions contemplated hereby or thereby.
6.04. ENFORCEABLE OBLIGATIONS OF BORROWER. This
Agreement and the other Loan Documents executed by Borrower are the
legal, valid and binding obligations of Borrower enforceable in accordance
with their respective terms, subject to Debtor Relief Laws.
6.05. PRIORITY OF LIENS. Lender has a valid, exclusive,
enforceable, first priority lien in the Collateral, subject only to the
Permitted Liens.
6.06. FINANCIAL CONDITION. Borrower has delivered to
Lender copies of the balance sheet of Borrower as of the end of the most
recent complete Fiscal Year for which statements are available, and the
related statements of income, stockholders' equity and changes in financial
37
position for the year ended on such date, certified by an independent certified
public accountant; such financial statements are true and correct, fairly
present the financial condition of Borrower as of such date and have been
prepared in accordance with Generally Accepted Accounting Principles
applied on a basis consistent with that of prior periods; as of the date
hereof, there are no material obligations, liabilities or indebtedness
(including contingent and indirect liabilities and obligations) that are not
reflected in such financial statements; and no changes having a Material
Adverse Effect have occurred since the date of such financial statements.
6.07. FULL DISCLOSURE. There is no material fact that
Borrower has not disclosed to Lender which could have a Material Adverse
Effect. Neither the financial statements referred to in SECTION 6.06 hereof,
nor any certificate or statement delivered herewith or heretofore by Borrower
to Lender in connection with this Agreement, contains any untrue statement
of a material fact or omits to state any material fact necessary to keep the
statements contained herein or therein from being misleading.
6.08. NO DEFAULT. No event has occurred and is continuing
which constitutes an Event of Default or which, with the lapse of time or
giving of notice, or both, would constitute an Event of Default.
6.09. SOUTHLAND LEASE. The Southland Lease is the legal,
valid and binding obligation of the parties thereto enforceable in accordance
with its terms, subject to Debtor Relief Laws; and neither Borrower nor
Southland is in default under the Southland Lease.
6.10. NO LITIGATION. There are no actions, suits or legal,
equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrower threatened, against Borrower or Southland that
would, if adversely determined, have a Material Adverse Effect.
6.11. TAXES. All tax returns required to be filed by the Borrower
in any jurisdiction have been filed and all material taxes (including mortgage
recording taxes), assessments, fees, and other governmental charges upon
Borrower or upon any of its properties, income or franchises have been paid
that are required to be paid prior to the time that the non-payment of such
taxes could give rise to a Lien thereon, unless such tax, assessment, fee or
charge is being contested in good faith by Borrower through appropriate
proceedings after the establishment of appropriate reserves therefor in
accordance with Generally Accepted Accounting Principles. There is no
material proposed tax assessment against Borrower or any basis for such
assessment which is material and not being contested in good faith by
Borrower through appropriate proceedings after the establishment of
appropriate reserves therefor in accordance with Generally Accepted
Accounting Principles.
38
6.12. COMPLIANCE WITH LAW. Except as disclosed in the
Zoning Schedule or SECTION 6.21 hereof, Borrower is in compliance with
all laws, rules, regulations, orders, and decrees which are applicable to
Borrower, the Property, or its other properties and which Borrower's failure
to comply with could have a Material Adverse Effect.
6.13. PRINCIPAL OFFICE. The principal office, chief executive
office, and principal place of business of Borrower is at 2711 North Haskell
Avenue, Dallas, Texas 75204.
6.14. ERISA. Borrower has not established and does not maintain
any Plan.
6.15. GOVERNMENT REGULATION. Borrower is not subject
to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Investment Company Act of 1940, the Interstate
Commerce Act (as any of the preceding acts have been amended), or any
other law similar to the foregoing (other than Regulation X) which regulates
the incurring by Borrower of Debt.
6.16. TITLE TO THE PROPERTY. Borrower holds full legal and
equitable title to the Property, subject only to the Permitted Liens.
6.17. USE OF PROPERTY. The Property and the use which
Borrower and Southland makes and intends to make thereof comply with
Governmental Requirements, all applicable restrictive covenants, zoning
ordinances, and building codes, all applicable health and Environmental Laws
and regulations, and all other applicable laws, rules, and regulations;
Borrower and Southland have obtained all requisite zoning, utility, building,
health, and operating permits from the Governmental Authority having
jurisdiction over the Property; and all engineering specifications with respect
to the Property are within applicable environmental standards. In addition,
the sanitary water supply, storm and sanitary sewers, water lines, and other
necessary utility facilities (including gas, electric and telephone facilities)
are available to the Property and sufficient to meet the reasonable needs of
the Property, at or within the boundary lines of the Land, and design and as-
built conditions of the Property are such that no drainage or surface or other
water will drain across or rest upon either the Property or the land of others.
None of the Improvements create an encroachment over, across, or upon any of
the Property boundary lines, rights of way, or easements and no buildings or
other improvements on adjoining land create such an encroachment on the
Land except for Permitted Exceptions as defined in the Deed of Trust.
6.18. COMPLETION OF IMPROVEMENTS. The Improvements
have been completed in a good and workmanlike manner substantially in
accordance with the plans and specifications for the Improvements approved
by Lender. All bills for labor and materials furnished in connection with the
Improvements have been paid in full, and there are no unpaid bills for labor
39
or materials of any nature whatsoever outstanding in connection with the
construction of the Improvements, accrued or yet to accrue.
6.19. ACCESS ROADS. The Land has access to and from public
streets and roads adequate for its intended use; all such streets and roads
either (a) have been completed or (b) the rights-of-way therefor have either
been acquired by the appropriate Governmental Authority or have been
dedicated to the public use and accepted by the appropriate Governmental
Authority, and Lender has been informed of arrangements made to assure the
complete construction and installation thereof.
6.20. CONDITION OF PREMISES. The Improvements, personal
property and fixtures forming a part of the Premises are in good condition
and repair with no deferred maintenance. Borrower is not aware of any
latent or patent structural or other significant defect or deficiency in the
Improvements, personal property or fixtures.
6.21. HAZARDOUS SUBSTANCES. Neither Borrower nor
Southland (a) has received any notice or otherwise learned of any material
Environmental Liability arising in connection with (i) any non-compliance
with or violation of the requirements of any Environmental Law on or from
the Property, or (ii) the release or threatened release of any Hazardous
Material into the environment on or from the Property, (b) has any
threatened or actual liability in connection with the release or threatened
release of any Hazardous Material into the environment on or from the
Property which would individually or in the aggregate have a Material
Adverse Effect, (c) has received notice or otherwise learned of any
investigation by any Governmental Authority or other Person evaluating
whether any remedial action is needed to respond to a release or threatened
release of any Hazardous Material into the environment on or from the
Property for which Borrower or Southland is or may be liable, or (d) has any
actual knowledge that either Borrower, Southland or any previous owner,
tenant, occupant or user of the Property has used, generated, released,
discharged, stored or disposed of any Hazardous Material on, under, in or
about the Property, or transported any Hazardous Material to or from the
Property, except in compliance with Environmental Laws or as disclosed in
the Environmental Assessment on Cityplace Center (140 acres, 64
Buildings), dated November 8, 1990, prepared by Maxim Engineers, Inc., or
any other environmental reports provided to Lender in connection herewith.
Except as disclosed on SCHEDULE 4 or as previously approved by Lender,
no underground storage tanks, whether or not containing any Hazardous
Materials, petroleum product, or any other substance, are located on or
under the Property.
6.22. FISCAL YEAR. The fiscal year of Borrower is the calendar
year.
6.23. EASEMENT AND USE AGREEMENT. Borrower and
Southland have fully performed their respective obligations under numerical
paragraphs 3, 4, 5 and 6 of the Easement and Use Agreement, and neither
40
Oak Creek, nor its successors or assigns has any further rights with respect
to Borrower, Southland or the Mortgaged Property under such enumerated
paragraphs. No default, breach or failure of performance has occurred under
the Easement and Use Agreement, and to Borrower's best knowledge, no
Person has alleged that any default, breach or failure of performance has
occurred thereunder.
6.24. ZONING OBLIGATIONS. The Scheduled Zoning
Ordinances constitute all of the Government Development Documents other
than general zoning ordinances of the City of Dallas. No breach, default or
failure of performance has occurred under any Scheduled Zoning Ordinance.
Neither Borrower nor Southland has received any notice, demand, citation,
petition, claim or other communication alleging a violation of any
Government Development Document.
6.25. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. All representations and warranties by Borrower herein
shall survive the issuance and delivery of the Loan Documents, the making of
the Loan, and any investigation at any time made by or on behalf of the
Lender shall not diminish Lender's right to rely thereon until the payment and
performance in full of the Loan.
41
ARTICLE VII
AFFIRMATIVE COVENANTS
Until payment in full of the Loan and the performance of all other obligations
of Borrower under this Agreement and the other Loan Documents,
Borrower agrees that (unless the Lender shall otherwise consent in writing):
7.01. FINANCIAL STATEMENTS, REPORTS AND
DOCUMENTS OF BORROWER. Borrower will deliver to the Lender
each of the following:
(a) QUARTERLY FINANCIAL STATEMENTS. As
soon as practicable, and in any event within sixty (60) days after the
end of each quarterly fiscal period (except the last) of each Fiscal
Year of Borrower, copies of the balance sheet of Borrower as of the
end of such quarterly fiscal period, and statements of operations and
retained earnings or accumulated deficits and cash flow of Borrower
for that quarterly fiscal period and for the portion of the Fiscal Year
ending with such period, in each case setting forth in comparative
form the figures for the corresponding period of the preceding Fiscal
Year, all in reasonable detail, and certified by a responsible and
authorized officer of the Borrower as being presented fairly in
accordance with Generally Accepted Accounting Principles, subject
to normal year end adjustments.
(b) ANNUAL FINANCIAL STATEMENTS. As soon
as practicable and in any event within ninety (90) days after the close
of each Fiscal Year of Borrower, copies of the balance sheet of
Borrower as of the close of such Fiscal Year and statements of
operations and retained earnings or accumulated deficits and cash
flow of Borrower for such Fiscal Year, in each case setting forth in
comparative form the figures for the preceding Fiscal Year, all in
reasonable detail and accompanied by an opinion thereon, which shall
be unqualified as to scope of audit, of independent public accountants
of recognized national standing selected by Borrower, to the effect
that such financial statements have been prepared in accordance with
Generally Accepted Accounting Principles, and that the examination
of such accounts in connection with such financial statements has
been made in accordance with generally accepted auditing standards;
(c) COMPLIANCE CERTIFICATE. Concurrently with
the delivery of the financial statements required by
SECTIONS 7.01(a) and (b) hereof, a certificate executed by a
responsible and authorized officer of Borrower stating that a review
of the activities of Borrower during such fiscal quarter has been made
under his supervision and that to the best of his knowledge and belief
after reasonable and due investigation (i) Borrower has observed,
performed and fulfilled each and every material obligation and
covenant contained herein and in each of the Loan Documents and in
42
the Southland Lease or, if there is any exception to the foregoing,
specifying the nature and status thereof, (ii) Southland has observed,
performed and fulfilled each and every material obligation and
covenant contained in the Southland Lease and the Completion
Guaranty or, if there is any exception to the foregoing, specifying the
nature and status thereof, (iii) the representations and warranties
contained in ARTICLE VI hereof are true and correct in all respects
on the date of such certificate (except that the date of reference in
such certificate with respect to the financial statements referred to
in SECTION 6.06 hereof shall instead be the date of the most recent
financial statement delivered by Borrower under SECTION 7.01
hereof), with the same force and effect as though made on and as of
the date of such certificate or, if there is any exception to the
foregoing, specifying the nature and status thereof, and (iv) there
exists no Event of Default or event which, with the giving of notice
or lapse of time, or both, would constitute an Event of Default as of
the date of such certificate or, if any Event of Default shall have
occurred, specifying the nature and status thereof;
(d) NOTICES BY GOVERNMENTAL
AUTHORITIES. Promptly upon receipt of the same, true and
complete copies of any official notice or claim, or Environmental
Complaint by any Governmental Authority pertaining to the
Property;
(e) ENVIRONMENTAL REPORTS. Promptly upon it
becoming available, a copy of each report sent by Borrower to any
Governmental Authority pursuant to any Environmental Law;
(f) LEASE AND SUBLEASE INFORMATION.
Promptly upon it becoming available, true and complete copies of
any information, correspondence, reports or other documentation
given or received with respect to the Southland Lease and all
Approved Subleases;
(g) ANNUAL OPERATING BUDGET. As soon as
available and in any event on or before December 15 of each Fiscal
Year, an Annual Operating Budget of Borrower for the Property for
the following Fiscal Year, in such detail and form as Lender may
reasonably request;
(h) ZONING REPORTS AND INFORMATION.
Promptly upon its becoming (i) aware of the occurrence of any of the
following events, a notification executed by a responsible and
authorized officer of Borrower reporting (A) any change, supplement,
addition to or modification of any Government Development Document,
or (B) any default under, breach of or failure of compliance with
respect to any Government Development Document, or any claim of any
default under, breach of or failure of compliance with respect to any
Government Development Document; and (ii) available, true and complete
43
copies of any information, correspondence, reports, studies or other
documentation submitted by Borrower or Southland with respect to the
Government Development Documents;
(i) OTHER AGREEMENTS. Promptly upon its
becoming aware of the occurrence of any of the following events, a
notification executed by a responsible and authorized officer of
Borrower reporting (i) any change, supplement, addition to, or the
modification of the Easement and Use Agreement or the License
Agreement and (ii) any default under, breach of or failure of
compliance with respect to, or any claim of any default under, breach
of or failure of compliance with respect to the Easement and Use
Agreement or the License Agreement; and
(j) OTHER INFORMATION. Such other information
concerning the business, properties, or financial condition of
Borrower and Southland (to the extent Borrower has access to such
information), as the Lender shall reasonably request.
7.02. FINANCIAL STATEMENTS, REPORTS AND
DOCUMENTS OF SOUTHLAND. Borrower will deliver to the Lender
each of the following concerning Southland, such information having been
required of Southland and delivered to Borrower under the terms of the
Southland Lease:
(a) MONTHLY FINANCIAL STATEMENTS. As
soon as practicable, and in any event within thirty-five (35) days
after the end of each month, other than each December, beginning with
the Monthly Commencement Date, and within forty (40) days after the
end of each December, the internal unaudited consolidated balance
sheet of Southland as of the end of such month and the related
consolidated statements of operations and cash flows for such month
and for the elapsed portion of the Fiscal Year ended with the last
date of such month, as included in Southland's Internal Report of
Operations;
(b) QUARTERLY FINANCIAL STATEMENTS. As
soon as practicable, and in any event within fifty (50) days after the
close of each quarterly accounting period in each Fiscal Year of
Southland other than the last such quarter of any Fiscal Year, copies
of the consolidated balance sheet of Southland as at the end of such
quarterly period and the related consolidated statements of
operations and cash flows for such quarterly period and for the
elapsed portion of the Fiscal Year ended with the last day of such
quarterly period, in each case setting forth comparative figures for
the related periods in the prior Fiscal Year, all of which shall be
certified by the Chief Financial Officer, Senior Vice
President-Finance, Treasurer or Controller of Southland as being
presented fairly in accordance with Generally Accepted Accounting
Principles, subject to normal year end adjustments;
44
(c) ANNUAL FINANCIAL STATEMENTS. As soon
as practicable, and in any event, within ninety-five (95) days after
the close of each Fiscal Year of Southland, copies of the consolidated
balance sheet of Southland as at the end of such Fiscal Year and the
related consolidated statements of operations, shareholders' equity
and cash flows for such Fiscal Year, in each case setting forth
comparative figures for the preceding Fiscal Year, all in reasonable
detail and accompanied by an opinion thereon, which shall be
unqualified as to scope of audit, of Coopers & Lybrand or such other
independent public accountants of recognized national standing
selected by Southland, to the effect that such financial statements
have been prepared in accordance with Generally Accepted
Accounting Principles, and that the examination of such accounts in
connection with such financial statements has been made in
accordance with generally accepted auditing standards;
(d) LEASING ACTIVITY SUMMARY.
Simultaneously with Southland's receipt of same, copies of monthly
Leasing Activity Summary; provided, however, that notwithstanding
the provisions of SECTION 9.01(c) hereof, it shall be an Event of
Default if Lender fails to receive, on or before the fifth (5th) day of
each calendar month, a monthly Leasing Activity Summary for three
(3) or more consecutive months or for four (4) or more months
within any consecutive twelve (12) month period;
(e) REPORTS OF SUBLEASE INCOME. As soon as
available, and in any event within fifteen (15) Business Days after the
end of each calendar month, if applicable, an accounting of all
accrued but unpaid Net Sublease Income for the immediately
preceding calendar month, in a form reasonably satisfactory to
Lender and containing such information as Lender may reasonably
request; and
(f) OTHER REPORTS AND FILINGS. Promptly,
copies of all financial information, proxy materials and other
information and reports concerning material developments in the
business, operations, property, assets or condition (financial or
otherwise) of Southland, if any, which Southland or any of its
subsidiaries (i) has filed with the Securities and Exchange
Commission or any governmental agencies substituted therefor or
any comparable agency outside of the United States or (ii) has
delivered to holders of, or to any agent or trustee with respect to,
indebtedness of Southland or any subsidiary in their capacity as such
a holder, agent or trustee.
7.03. PAYMENT OF TAXES. Borrower will pay and discharge all
material taxes, assessments, and governmental charges or levies imposed
upon it, or upon its income or profits, or upon the Property or upon any
other property belonging to it before delinquent; PROVIDED, HOWEVER,
that Borrower shall not be required to pay any such tax, assessment, charge,
or levy if and so long as the amount, applicability, or validity thereof shall
45
currently be contested in good faith by appropriate proceedings and
appropriate reserves therefor have been established.
7.04. MAINTENANCE OF EXISTENCE AND RIGHTS.
Borrower will preserve and maintain its existence. Borrower shall further
preserve and maintain all of its rights, privileges, and franchises necessary
in the normal conduct of its business and in accordance with all valid
regulations and orders of any Governmental Authority.
7.05. NOTICE OF DEFAULT. Borrower will furnish to Lender,
immediately upon becoming aware of the existence of any condition or event
which constitutes an Event of Default or which, with the passage of time or
giving of notice, or both, would become an Event of Default, a written notice
specifying the nature and period of existence thereof and the action which
Borrower is taking or proposes to take with respect thereto.
7.06. OTHER NOTICES. Borrower will promptly notify Lender of
(a) any material adverse change in the financial condition of Borrower or
Southland, (b) any default under any material agreement (including the
Southland Lease or any Approved Sublease), contract, or other instrument to
which Borrower or Southland is a party or by which any of its properties are
bound, or any acceleration of the maturity of any material indebtedness
owing by Borrower or Southland, (c) any material adverse claim against or
affecting Borrower or Southland or any of their properties, including the
Property, (d) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any Governmental
Authority affecting Borrower or Southland, (e) any fire or other casualty or
any notice of taking or eminent domain action or proceeding affecting the
Property, (f) any Hazardous Discharge affecting the Property, if Borrower
would have a duty to report such Hazardous Discharge to any Governmental
Authority under Environmental Laws, (g) any claim, demand, action, event,
condition, or report of investigation indicating any potential or actual
liability arising in connection with (i) the non-compliance with or violation
of the requirements of any Environmental Law with respect to the Property which
individually or in the aggregate might have a Material Adverse Effect, (ii) the
release or threatened release on or from the Property of any Hazardous
Material into the environment which individually or in the aggregate might
have a Material Adverse Effect or which release Borrower or Southland
would have a duty to report to a Governmental Authority under an
Environmental Law, or (iii) the existence of any Environmental Lien on any
properties or assets of Borrower, and (h) any communications given or
received by the Borrower or Southland under the Easement and Use
Agreement or the License Agreement immediately upon the giving or receipt
of same.
7.07. COMPLIANCE WITH LAW. Borrower will comply with all
applicable laws, rules, regulations, and all orders of Governmental
Authorities applicable to it or any of its property (including the Property),
business operations or transactions. In this regard, Borrower agrees to
46
promptly comply with any requirement or order of any Governmental
Authority requiring the removal, treatment, or disposal of any Hazardous
Material and provide Lender with satisfactory evidence of such compliance
unless Borrower elects, with Lender's prior written consent (which consent
shall not unreasonably withheld), to contest such requirement or order.
7.08. COMPLIANCE WITH LOAN DOCUMENTS. Borrower
will promptly comply with any and all covenants and provisions of this
Agreement, and all other of the Loan Documents executed by Borrower.
7.09. OPERATIONS AND PROPERTIES. Borrower will act
prudently and in accordance with customary industry standards in managing
or operating its assets, properties (including the Property), business, and
investments; Borrower will keep in good working order and condition,
ordinary wear and tear excepted, the Property and all of its assets and
properties which are reasonably necessary to the conduct of its business.
7.10. BOOKS AND RECORDS; ACCESS. Borrower will give any
representative of the Lender access during all business hours to, and permit
such representative to examine, copy, or make excerpts from, any and all
books, records, and documents in the possession of Borrower and relating to
its affairs and to the Property; and such inspection shall be at the expense of
Borrower, payable upon ten (10) days' prior written notice.
7.11. INSPECTION OF PROPERTY. From time to time, as
considered necessary or desirable by the Lender, permit the Lender or any
Participant and their respective agents and representatives, any Governmental
Authority and their respective agents and representatives, to enter upon the
Property for the purpose of inspection thereof.
7.12. INSURANCE. Borrower will keep, maintain, or cause to be
maintained, in full force and effect, the Insurance Policies, and shall deliver
or cause to be delivered to Lender, (a) the Insurance Policies or certificates
evidencing the Insurance Policies and (b) all renewal Insurance Policies, or
certificates thereof, at least fourteen (14) days before the expiration date of
each expiring Insurance Policy.
7.13. AUTHORIZATIONS AND APPROVALS. Borrower will
promptly obtain, from time to time at its own expense, all such governmental
licenses, authorizations, consents, permits and approvals as may be required
to enable Borrower to comply with their obligations hereunder and under the
other Loan Documents.
7.14. MAINTENANCE OF LIENS. Borrower will perform all
such acts and execute all such documents as the Lender may reasonably
request in order to enable Lender to report, file, and record every instrument
that the Lender may deem necessary in order to perfect and maintain Lender's
Liens in the Property and in any personal property of the Borrower, and
47
otherwise to preserve and protect the rights of Lender therein.
7.15. CORRECTION OF DEFECTS. Upon demand of the Lender,
which shall be based upon the reasonable recommendation of the Inspecting
Architects/Engineers, Borrower will correct or cause to be corrected (a) any
defect in the Improvements, (b) any material departure in the construction of
the Improvements, or (c) any encroachment by any part of the Improvements
or any other structure located on the Property on any building line, easement,
property line or other restricted area.
7.16. ENVIRONMENTAL RISK ASSESSMENT. At any time,
and from time to time, that Lender shall have reasonable belief that any
Hazardous Material shall have been disposed of on or released to the
Property which will require remediation under any Environmental Law,
Borrower will (a) order within ten (10) days of a written request by Lender
to Borrower setting forth the basis of such request, an environmental audit
report prepared by an engineering firm acceptable to Lender in Lender's
reasonable judgment, at Borrower's cost and expense, detailing the results of
an environmental investigation of the Property, including without limitation,
the interpretation of and results of a chemical analysis of soil and
groundwater samples, if appropriate, (b) cause such audit report to be
completed as quickly as reasonably possible, and (c) deliver such audit report
to Lender immediately upon its receipt thereof.
7.17. MANAGEMENT OF PROPERTY. Borrower shall cause the
Property to be managed by an Approved Manager pursuant to an Approved
Management Agreement. If at any time all Conditions to Southland
Management Agreement are not satisfied, the Borrower shall terminate the
Southland Management Agreement and enter into an Approved Management
Agreement. Additionally, if at any time Lender notifies Borrower that
Lender in good faith believes that the Property is not being managed as a
first-class office facility in the Dallas, Texas, central business district,
and the Approved Manager fails to upgrade the management and operation of the
Property in a manner reasonably acceptable to Lender within thirty (30) days
following the date of such notice, then, at Lender's option after consultation
with Borrower, Borrower shall, in accordance with Lender's instructions in
such notice, terminate or cause the termination of the Approved
Management Agreement with such Approved Manager and cause a new
Approved Manager to manage the Property pursuant to a new Approved
Management Agreement. From time to time prior to the satisfaction of the
Obligation, Lender shall have the option to require the Borrower to change
the Property manager in accordance with the terms set forth in this
SECTION 7.17 so long as such determination is made by Lender in good
faith, acting reasonably, and after consultation with Borrower.
7.18. SOUTHLAND LEASE. Borrower will perform all of the covenants,
agreements, terms and conditions of the Southland Lease to be observed or
performed by the Borrower as landlord thereunder, subject to applicable grace
48
periods expressly granted therein.
7.19. LEASING COMMISSION AND TENANT FINISHOUT. In
the event Southland for any reason fails or neglects to prosecute or cause the
prosecution with diligence and continuity the completion of the Tenant
Finishout or to pay Leasing Commissions as required by Southland Lease or
the Completion Guaranty, Borrower will, at its sole cost and expense, (a)
complete or cause the completion of the Tenant Finishout as and when
required by the Southland Lease or any Approved Sublease and in
conformance with all Governmental Requirements Applicable to the Property
and the Government Development Documents, including without limitation
the Scheduled Zoning Ordinances, free and clear of any and all liens and
encumbrances (except for Permitted Liens) and (b) pay or cause to be paid all
Leasing Commissions as and when they become due and owing, unless
contested in good faith by appropriate proceedings with appropriate records
being maintained in accordance with Generally Accepted Accounting
Principles. Borrower shall indemnify and hold Lender harmless from any and
all losses, costs, liabilities or expenses incurred in connection with
Southland's failure to so complete the Tenant Finishout or pay such Leasing
Commissions. It is understood and agreed that in the event Tenant Finishout
and Leasing Commissions are not paid and performed by Southland or a
tenant under an Approved Sublease as required by the Southland Lease or
the Completion Guaranty, Lender shall have no obligation to notify or
otherwise require that Southland pay and perform such obligations prior to
Lender making demand on Borrower to pay and perform such obligations
hereunder. Notwithstanding the foregoing, Borrower and Lender
acknowledge and confirm that Southland's failure shall, at Lender's option,
constitute an Event of Default herein, notwithstanding the Borrower's
performance under this SECTION 7.19.
7.20. COMPLIANCE WITH GOVERNMENT DEVELOPMENT
DOCUMENTS. Borrower unconditionally covenants and agrees with
Lender to (a) comply with, pay and perform or (b) cause to be carried out,
complied with, paid and performed, or waived, invalidated or nullified, all
terms, conditions, requirements, liabilities, obligations, indemnities and
other conditions set forth in the Government Development Documents. Borrower
will and will cause Southland to pay and perform their respective obligations
and duties under the Easement and Use Agreement and the License
Agreement as and when required thereby, and will notify Lender immediately
if Oak Creek or its successors or assigns gives notice of or otherwise alleges
or states that Borrower or Southland has failed to perform any of its material
obligations or duties thereunder or that any other default or event of default
has occurred thereunder. Furthermore, Borrower will and will cause
Southland to (i) cause Oak Creek or its successors or assigns to pay and
perform its obligations under the Easement and Use Agreement as and when
required thereby, and (ii) promptly enforce all rights and remedies available
upon the occurrence of an event of default or default by Oak Creek or its
49
successors or assigns thereunder, unless Lender consents in writing to such
failure of performance.
7.21. COSTS AND EXPENSES. In addition to the payment of the
expenses provided for in Section 10.02 hereof, Borrower will pay when due
all costs and expenses required by this Agreement, including without
limitation (a) all taxes and assessments applicable to the Property (subject,
however, to certain rights Borrower may have under this Agreement or the
other Loan Documents to contest same), (b) all fees for filing or recording
the Collateral Documents, (c) all fees and commissions lawfully due to
brokers, salesmen, and agents in connection with the Property, (d) all
reasonable fees and expenses of legal counsel to Lender, (e) all reasonable
fees and expenses of the Appraisal, (f) all title insurance and title
examination charges, including premiums for the Title Insurance Policy, (g) all
survey costs and expenses, including the cost of the Survey, (h) all premiums
for the Insurance Policies, (i) all reasonable fees charged by the Inspecting
Architects/Engineers, (j) all reasonable fees charged by the real estate and
financial advisors to Lender, (k) all reasonable fees and expenses incurred by
Lender in any determination of "Market" with respect to any such
calculations in the Loan Documents or the Southland Lease, and (l) all
reasonable fees and expenses incurred by Lender in addressing Borrower's or
Southland's compliance with the Governmental Requirements Applicable to
the Property, the Government Development Documents, the Easement and
Use Agreement or the License Agreement.
7.22. FURTHER ASSURANCES. Borrower will make, execute or
endorse, and acknowledge and deliver or file or cause the same to be done,
all such vouchers, invoices, notices, certifications, additional agreements,
undertakings, conveyances, deeds of trust, mortgages, transfers, assignments,
financing statements or other assurances, and take all such other action, as
the Lender may, from time to time, deem reasonably necessary or proper in
connection with this Agreement or any of the other Loan Documents, the
obligations of Borrower hereunder or thereunder, or for better assuring and
confirming unto Lender all or any part of the security for any of the
Obligations, or for granting to Lender any additional security for the
Obligation which Lender may request from time to time.
7.23. INDEMNITY BY BORROWER. Borrower will indemnify,
save, defend, and hold harmless Lender and its directors, officers, agents,
attorneys, and employees (collectively, the "indemnitee") from and against:
(a) any and all claims, demands, actions, or causes of action that are asserted
against any indemnitee by any Person if the claim, demand, action, or cause
of action relates to a claim, demand, action, or cause of action that the
Person asserts or may assert against Borrower or Southland, any Affiliate of
Borrower or Southland or the Property, (b) any and all claims, demands,
actions or causes of action that are asserted against any indemnitee if the
claim, demand, action or cause of action directly or indirectly relates to the
failure of Borrower to perform or comply with any of the terms, covenants or
provisions of this Agreement or of any of the other Loan Documents,
50
PROVIDED HOWEVER, in no event shall Borrower be liable to Lender for
the diminution in value of the Property unless such diminution in value is
caused by Borrower's failure to perform or comply with any of the terms,
covenants or provisions of this Agreement or of any of the other Loan
Documents, (c) any and all claims, demands, actions or causes of action,
asserted against or incurred by an indemnitee at any time and from time to
time under any applicable Environmental Law, by reason of any and all
matters arising out of any act, omission, event, condition, or circumstance
occurring on or in relation to the Property or the operation of the Property
(including without limitation, the presence on the Property, or the release
from or to the Property, of any Hazardous Material requiring remediation
under any Environmental Law) regardless of whether the act, omission,
event, or circumstance constituted a violation of any applicable
Environmental Law at the time of the existence or occurrence, (d) any and all
claims, demands, actions or causes of action that are asserted against any
indemnitee if the claim, demand, action or cause of action directly or
indirectly relates to any failure of condition or any other breach or default
under any Governmental Requirements Applicable to the Property, or any
Government Development Document or Easement and Use Agreement,
(e) any administrative or investigative proceeding by any Governmental
Authority directly or indirectly related to a claim, demand, action or cause of
action described in clauses (a), (b) or (c) or (d) above, and (f) any and all
liabilities, losses, costs, or expenses (including reasonable attorneys' fees
and disbursements) that any indemnitee suffers or incurs as a result of any of
the foregoing; PROVIDED, HOWEVER, that Borrower shall have no
obligation under this SECTION 7.23 to Lender with respect to any of the
foregoing arising out of the gross negligence or willful misconduct of Lender.
If any claim, demand, action or cause of action is asserted against any
indemnitee, such indemnitee shall promptly notify Borrower, but the failure
to do so shall not affect Borrower's obligations under this SECTION 7.23
unless such failure materially prejudices Borrower's right to participate in
the contest of such claim, demand, action or cause of action, as hereinafter
provided. If requested by Borrower in writing and so long as no Event of
Default shall have occurred and be continuing, such indemnitee shall in good
faith contest the validity, applicability and the amount of such claim, demand,
action or cause of action and shall permit Borrower to participate in such
contest. Any indemnitee that proposes to settle or compromise any claim or
proceeding for which Borrower may be liable for payment of indemnity
hereunder shall give Borrower written notice of the terms of such proposed
settlement or compromise reasonably in advance of settling or compromising
such claim or proceeding and shall obtain Borrower's concurrence thereto.
Each indemnitee is authorized to employ counsel in enforcing its rights
hereunder and in defending against any claim, demand, action, or cause of
action covered by this SECTION 7.23; PROVIDED, HOWEVER, that each
indemnitee shall endeavor, but shall not be obligated, in connection with any
matter covered by this SECTION 7.23 which also involves other
indemnitees, to use reasonable efforts to avoid unnecessary duplication of
effort by counsel for all indemnitees. Any obligation or liability of Borrower
to any indemnitee under this SECTION 7.23 shall survive for a period of five
51
(5) years after the later of (i) the expiration or termination of this
Agreement, (ii) the satisfaction of the Obligation, and (iii) the release or
foreclosure of the Deed of Trust and/or other Collateral Documents.
7.24. LICENSE AGREEMENT. Borrower will notify Lender if
Oak Creek or its successors or assigns notifies Borrower or Southland or
alleges or otherwise states that a default or violation has occurred by
Southland or Borrower under the License Agreement.
52
ARTICLE VIII
NEGATIVE COVENANTS
Until payment in full of the Loan and the performance of all other obligations
of Borrower under this Agreement and the other Loan Documents,
Borrower agrees that (unless the Lender shall otherwise consent in writing):
8.01. CASH FLOW COVERAGE RATIO. Unless or until the
Annual Rate is modified, Borrower will not permit its Cash Flow Coverage
Ratio calculated as of June 30 and December 31 of each year during the term
hereof, for the twelve (12) months ending on each said date, to be less than
1.05 to 1.0.
8.02. DEBT. Borrower will not create or suffer to exist, any Debt,
other than Permitted Debt.
8.03. LIENS. Borrower will not create or suffer to exist any Lien,
or any other type of preferential arrangement (other than Permitted Liens)
upon or with respect to the Property or any right to receive income
therefrom.
8.04. DISTRIBUTIONS AND DEBT REPAYMENT. Borrower
will not make any distribution or dividend of cash, stock or otherwise or
repay the principal or pay the interest on any Intercompany Debt unless
Borrower maintains a Cash Reserve of at least $15,000,000.00 after giving
effect to such distribution, dividend or repayment.
8.05. SOUTHLAND LEASE. Borrower will not (a) amend,
modify, restate or supplement or agree to any such amendment modification,
restatement or supplement of, the Southland Lease which would result in any
change in any economic term of the Southland Lease or in any material
change in any other term of the Southland Lease, (b) grant any adjustment,
indulgence, forbearance or compromise to Southland with respect to any of
Southland's economic obligations under the Southland Lease or (c) grant any
adjustment, indulgence, forbearance or compromise to Southland which
would materially affect any of Southland's other obligations under the
Southland Lease, or (d) exercise any approval or rejection rights under with
respect to Lease Parameters, Approved Subleases including, without
limitation, the form of Approved Sublease Subordination, the Approved
Leasing Agent or the Approved Leasing Agreement, or any other transfer,
sublease or assignment by Southland thereunder.
8.06. SUBLEASES. Without the prior written consent of Lender,
Borrower will not, and will not permit Southland, to enter into any sublease
except an Approved Sublease, and will not, and will not permit Southland to,
reject any proposal to sublease a portion of the Improvements in accordance
with the Approved Lease Parameters. In addition, Borrower will not
approve or reject any Lease Parameters, Approved Sublease, rejection of
53
sublease, form of sublease, form of Approved Sublease Subordination,
Approved Leasing Agent or Approved Leasing Agreement or any other
transfer, assignment or sublease by Southland under the Southland Lease, for
which Borrower has approval rights or other discretionary review pursuant
to the Southland Lease.
8.07. SALES, ETC. OF ASSETS. Borrower will not sell, lease,
transfer or otherwise dispose of any of its assets which (a) are subject to a
Lien in favor of Lender UNLESS such assets (i) are not necessary or
instrumental to the operation of the Property, or (ii) are immediately replaced
with an asset subject to a first and prior Lien in favor of Lender, or (b) are
not subject to any Lien in favor of Lender, provided any such assets (i) do
not have an aggregate book value in excess of $750,000 per calendar year,
and (ii) are being sold, leased, transferred or otherwise disposed of in the
ordinary course of the Company's business.
8.08. NAME, FISCAL YEAR AND ACCOUNTING METHOD.
Borrower will not change its name, fiscal year or method of accounting
except as required by Generally Accepted Accounting Principles (other than
immaterial changes permitted by Generally Accepted Accounting Principles
in which its auditors concur); PROVIDED, HOWEVER, that Borrower may
change its name if it has given Lender sixty (60) days prior written notice of
such name change and taken such action as Lender deems necessary to
continue the first and senior most priority and perfection of the Liens
securing payment of the Obligation.
8.09. CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE. Except for a Permitted Transfer, Borrower will
not consolidate with or merge into any other Person or convey, transfer or
lease its properties and assets substantially as an entirety to any Person.
8.10. ERISA COMPLIANCE. Borrower will not establish or
maintain any Plan.
8.11. TRANSACTIONS WITH AFFILIATES. Borrower will not
enter into any transaction with, or pay any management fees to, any Affiliate
except pursuant to the Southland Management Agreement; provided,
however, that Borrower may enter into transactions with Affiliates upon
terms not less favorable to Borrower than would be obtainable at the time in
comparable transactions of Borrower in arms-length dealings with Persons
other than Affiliates.
8.12. ENVIRONMENTAL MATTERS. Except in compliance with
relevant Environmental Laws, Borrower will not (a) cause or permit the
presence, use, generation, release, discharge or disposal of any Hazardous
Material on, under, in or about, or the transportation of any Hazardous
Material to or from, the Property, or (b) permit the Property to be used as a
dumpsite or storage site (whether permanent or temporary) for any
Hazardous Material. Borrower will not construct or install, or permit to be
54
constructed or installed, under the Property any underground storage tank
except (a) in conformity with all requirements of 40 C.F.R. Part 280 and 31
Tex. Adm. Code 334, and (b) with the prior written consent of the Lender.
8.13. LINES OF BUSINESS. Borrower will not, directly or
indirectly, engage in any businesses other than those in which it is presently
engaged, or discontinue any of its existing lines of business or substantially
alter its method of doing business.
8.14. LICENSE AGREEMENT. Neither Borrower nor Southland
will modify, release or terminate the License Agreement or any rights or
interest of Borrower or Southland with respect to the Cityplace Marks (as
described therein), without Lender's prior written consent, which consent will
not be unreasonably withheld or delayed, or use the Cityplace Marks in
violation of the License Agreement.
8.15. CHANGES IN ZONING REQUIREMENTS. Borrower will
not and will not permit Southland to request or obtain any change to, or
consent to any request for or change in, any Governmental Requirements
Applicable to the Property or any Government Development Document or
any other law, ordinance, rule or regulation affecting the zoning,
development or use of the Property, or any variance or special exception
therefrom, without the prior written consent of Lender, which consent will
not be unreasonably withheld or delayed. Furthermore, without the prior
written consent of Lender, which consent will not be unreasonably withheld
or delayed, Borrower will not and will not permit Southland to amend,
release or terminate or consent to or allow the amendment, release or
termination of the Easement and Use Agreement or any term or provision
thereof.
55
ARTICLE IX
EVENTS OF DEFAULT
9.01. EVENTS OF DEFAULT. An "EVENT OF DEFAULT"
shall exist if any one or more of the following events (herein collectively
called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) any failure to pay when due any principal of, or
interest on, the Loan or any failure to pay when due any fee, expense,
or other payment required hereunder or under any other Loan
Document, and any such failure shall continue for three (3) Business
Days following such due date;
(b) any representation or warranty made by Borrower
and/or Southland under this Agreement, or any of the other Loan
Documents executed by any of them, or in any certificate or
statement furnished or made to Lender by Borrower and/or
Southland pursuant hereto or in connection herewith or with the
Loan, shall prove to be untrue or inaccurate as of the date on which
such representation or warranty is made;
(c) default shall occur in the performance of any of the
covenants or agreements contained herein (except as provided in
SECTION 9.01(e) hereof), and such default shall continue uncured
to the satisfaction of the Lender for a period of thirty (30) days after
the earlier of (i) notice of default to Borrower from Lender, or
(ii) Lender is notified of such default to Borrower or should have
been so notified pursuant to SECTION 7.05 hereof;
(d) default shall occur in the performance of the
covenants and agreements contained in SECTION 7.12 hereof and
such default shall continue uncured until the first to occur of (i) the
termination or expiration of any of the
Insurance Policies required hereby, and (ii) ten (10) days after the
earlier of (A) notice of default to Borrower from Lender, or
(B) Lender is notified of such default to Borrower or should have
been so notified pursuant to SECTION 7.05 hereof;
(e) default shall occur in the performance of any of the
covenants or agreements of Borrower contained in ARTICLE VIII
or SECTIONS 4.02, 7.01(h), 7.02(d), 7.05, 7.06, 7.10, 7.11, 7.16,
7.17, 7.18 or 7.19 hereof;
(f) any of the Loan Documents executed by Borrower and/or
Southland, shall cease, in whole or in part, to be legal, valid,
binding agreements of Borrower and/or Southland enforceable against
Borrower and/or Southland, as the case may be, in accordance with the
terms thereof or shall in any way be terminated or become or be declared
56
ineffective or inoperative or shall in any way whatsoever cease to give
or provide the respective liens, security interest, rights, titles,
interest, remedies, powers, or privileges intended to be created
thereby;
(g) default shall occur on the payment of any material
Debt of Borrower or default shall occur in respect of any note, loan
agreement or credit agreement relating to any such Debt and such
default shall continue for more than the period of grace, if any,
specified therein; or any such Debt shall become due before its stated
maturity by acceleration of the maturity thereof or shall become due
by its terms and shall not be promptly paid or extended;
(h) Borrower or Southland shall (i) apply for or consent
to the appointment of a receiver, trustee, custodian, intervenor, or
liquidator of itself or of all or a substantial part of its assets,
(ii) file a voluntary petition in bankruptcy or admit in writing that
it is unable to pay its debts as they become due, (iii) make a general
assignment for the benefit of creditors, (iv) file a petition or answer
seeking reorganization or an arrangement with creditors or to take
advantage of any Debtor Relief Laws, (v) file an answer admitting the
material allegations of, or consent to, or default in answering, a
petition filed against it in any bankruptcy, reorganization or
insolvency proceeding, or (vi) institute or voluntarily be or become a
party to any other judicial proceedings intended to effect a discharge
of the debts of Borrower, in whole or in part, or a postponement of the
maturity or the collection thereof, or a suspension of any of the rights
or powers of Lender granted in this Agreement or any other Loan
Document, or (vii) take corporate action for the purpose of effecting
any of the foregoing;
(i) an order, order for relief, judgment or decree shall be
entered by any court of competent jurisdiction or other competent
authority approving a petition seeking reorganization of Borrower or
Southland, appointing a receiver, custodian, trustee, intervenor, or
liquidator of Borrower or Southland, or of all or substantially all of
either's assets, and such order, judgment or decree shall continue
unstayed and in effect for a period of sixty (60) days;
(j) any final judgment(s) for the payment of money in
excess of the sum of US $1,000,000 in the aggregate shall be
rendered against Borrower and such judgment or judgments shall not
be satisfied or discharged at least ten (10) days prior to the date on
which any of Borrower's assets could be lawfully sold to satisfy such
a judgment;
(k) the occurrence of any default, breach or failure of
performance by Southland of any of its obligations or duties under
the Southland Lease (subject, however, to any cure period expressly
granted to Borrower or Southland in the Southland Lease) OR the
57
termination of the Southland Lease, for any reason whatsoever;
(l) the occurrence of any default, breach or failure of
performance by Borrower under any of the other Loan Documents
(subject, however, to any cure period expressly granted to Borrower
therein);
(m) there shall occur any event which has a Material
Adverse Effect;
(n) the ownership of the Property, or any part thereof, or
any legal, beneficial or equitable interest therein (including, without
limitation, any sale, pledge, exchange, encumbrance, transfer,
assignment or other disposition), including the right to receive
distributions or profits therefrom, becomes vested in a Person other
than Borrower or Lender, except with respect to sales permitted by
SECTION 8.07 hereof and a Permitted Transfer pursuant to
SECTION 8.09 hereof;
(o) Southland shall cease to own, legally and beneficially,
all of the issued and outstanding Capital Stock of Borrower; or
(p) a Change in Control of Southland shall occur.
9.02. REMEDIES UPON EVENT OF DEFAULT. If an Event of
Default shall have occurred and be continuing, then the Lender may declare
the principal of, and all interest then accrued on, the Loan and any other
liabilities hereunder to be forthwith due and payable, whereupon the same
shall forthwith become due and payable without presentment, demand,
protest, notice of default, notice of acceleration, or of intention to
accelerate or other notice of any kind all of which Borrower hereby expressly
waives, anything contained herein to the contrary notwithstanding, and without
notice of default or demand, pursue and enforce any of the Lender's rights
and remedies under the Loan Documents, or otherwise provided under or
pursuant to any applicable law or agreement; PROVIDED, HOWEVER,
that if any Event of Default specified in SECTIONS 9.01(h) or (i) shall
occur, the principal of, and all interest on, the Loan and other liabilities
hereunder shall thereupon become due and payable concurrently therewith,
without any further action by Lender and without presentment, demand,
protest, notice of default, notice of acceleration of or intention to
accelerate or other notice of any kind, all of which Borrower hereby expressly
waives.
9.03. PERFORMANCE BY LENDER. Should Borrower fail to perform any
covenant, duty, or agreement contained herein or in any of the Loan Documents,
the Lender may perform or attempt to perform such covenant, duty, or agreement
on behalf of Borrower. In such event, Borrower shall, at the request of Lender
promptly pay any amount expended by the Lender in such performance or attempted
performance to the Lender at its principal office in Dallas, Texas, together
58
with interest thereon at the Default Rate from the date of such expenditure
until paid. Notwithstanding the foregoing, it is expressly understood that
Lender assumes no liability or responsibility for the performance of any duties
of Borrower hereunder or under any of the Loan Documents or other control over
the management and affairs of Borrower, nor by any such action shall the Lender
be deemed to create a partnership arrangement with the Borrower.
59
ARTICLE X
MISCELLANEOUS
10.01. WAIVER. No failure to exercise, and no delay in exercising,
on the part of the Lender, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right. The rights of the
Lender hereunder and under the Loan Documents shall be in addition to all
other rights provided by law. No modification or waiver of any provision of
this Agreement or any Loan Documents, nor consent to departure therefrom,
shall be effective unless in writing and no such consent or waiver shall extend
beyond the particular case and purpose involved. No notice or demand given
in any case shall constitute a waiver of the right to take other action in the
same, similar or other instances without such notice or demand. The Lender
and Borrower may from time to time enter into agreements amending or
changing any provision of this Agreement or the rights of Lender or
Borrower hereunder, or may grant waivers or consents to a departure from
the due performance of the obligations of Borrower hereunder.
10.02. PAYMENT OF EXPENSES. Borrower agrees to pay all
out-of-pocket costs and expenses of Lender and Participants (including,
without limitation, the reasonable attorneys' fees of Lender's and
Participants' legal counsel) incurred by them in connection with the
enforcement of Lender's rights under this Agreement and/or the other Loan
Documents, and all out-of-pocket costs and expenses of Lender (including
without limitation the reasonable fees and expenses of Lender's counsel) in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Loan Documents and any and all amendments,
modifications and supplements thereof or thereto.
10.03. NOTICE. Any notice, demand, request or other
communication which any party hereto may be required or may desire to give
hereunder shall be in writing (except where telephonic instructions or notices
are expressly authorized herein to be given) and shall be deemed to be
effective (a) if by hand delivery, telex, telecopy or other facsimile
transmission, on the day and at the time on which delivered to such party at
the address, telex or telecopier numbers specified below; (b) if by mail, on
the day which it is received after being deposited, postage prepaid, in the
United States registered or certified mail, return receipt requested, addressed
to such party at the address specified below; or (c) if by FedEx or other
reputable express mail service, on the next Business Day following the delivery
to such express mail service, addressed to such party at the address set forth
below; or (d) if by telephone on the day and at the time communication with one
of the individuals named below occurs during a call to the telephone number or
numbers indicated for such party below:
60
If to Lender: The Sanwa Bank, Limited, Dallas Agency
2830 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
Telephone: (214) 744-5555
Telecopier: (214) 741-6535
Telex: 735282 (Answerback: SANWA BK
DAL)
Attention: Mr. Matthew G. Patrick
With Copy to: Haynes and Boone
3100 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
Telephone: (214) 651-5000
Telecopier: (214) 651-5940
Telex: 730187 (Answerback: HB LAW
DAL)
Attention: Timothy E. Powers, Esq.
If to Borrower: Cityplace Center East Corporation
P.O. Box 711
2711 North Haskell Avenue, Suite 2900
Dallas, Texas 75204
Telephone: (214) 828-7255
Telecopier: (214) 828-7119
Telex: 730895 (Answerback:
SOUTHLAND DAL)
Attention: Legal Department
Any telephonic or any other notice received by the Lender after 11:00 a.m.
(Dallas time) shall be deemed for the purposes of such Section to have been
given by Borrower on the next succeeding Business Day. Any party may
change its address for purposes of this Agreement by giving notice of such
change to the other parties pursuant to this SECTION 10.03.
10.04. GOVERNING LAW. This Agreement has been prepared, is
being executed and delivered, and is intended to be performed in the State of
Texas, and the substantive laws of such state and the applicable federal laws
of the United States of America shall govern the validity, construction,
enforcement and interpretation of this Agreement and (except for the
Assignment of Cash Reserve Account) all of the other Loan Documents.
10.05. CHOICE OF FORUM; CONSENT TO SERVICE OF
PROCESS AND JURISDICTION. Any suit, action or proceeding with
respect to this Agreement or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States courts located in the State of Texas and the Borrower
61
hereby submits to the non-exclusive jurisdiction of such courts for the
purpose of any such suit, action or proceeding. Borrower hereby irrevocably
waives any objections which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this
Agreement or any other Loan Documents brought in the courts located in the
State of Texas, County of Dallas, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum.
10.06. INVALID PROVISIONS. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such provision shall
be fully severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement, unless such
continued effectiveness of this Agreement, as modified, would be contrary to
the basic understandings and intentions of the parties as expressed herein.
10.07. INTEREST RATE. Regardless of any provisions contained
in this Agreement, the Loan or in any of the other Loan Documents, Lender
shall never be deemed to have contracted for or be entitled to receive, collect
or apply as interest on the Loan, any amount in excess of the maximum rate
of interest permitted to be charged by applicable law, and, in the event that
Lender ever receives, collects or applies as interest any such excess, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of the Loan, and, if the principal balance of the
Loan is paid in full, any remaining excess shall forthwith be paid to Borrower.
In determining whether or not the interest paid or payable under any specific
contingency exceeds the highest lawful rate, Borrower and Lender shall, to
the maximum extent permitted under applicable law, (a) characterize any
non-principal payment (other than payments which are expressly designated
as interest payments hereunder) as an expense, fee, or premium, rather than
as interest, (b) exclude voluntary prepayments and the effect thereof, and
(c) spread the total amount of interest throughout the entire contemplated
term of the Loan so that the interest rate is uniform throughout such term.
10.08. ENTIRETY AND AMENDMENTS.
(a) The Loan Documents embody the entire agreement
between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and
thereof, and this Agreement and the other Loan Documents may be
amended only by an instrument in writing executed by the authorized
officer of Borrower and Lender.
62
(b) The following Notice is given by Lender, with
respect to this Agreement pursuant to Section 26.02 of the Texas
Business and Commerce Code. Borrower, and each other obligor
and party in interest to this Agreement represent and warrant to
Lender that this Notice of Final Agreement was given:
NOTICE OF FINAL AGREEMENT
(i) THIS WRITTEN LOAN AGREEMENT (HEREIN
REFERRED TO AS AGREEMENT) REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
(ii) THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
10.09. PARTIES BOUND; ASSIGNMENT. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may
not assign or otherwise transfer any of its rights under this Agreement
without the prior written consent of Lender. The commitment of Lender to
Borrower hereunder is a non-assignable contract to lend money within the
meaning of sections 365(c)(2) and 365(e)(2)(B) of the U.S. Bankruptcy
Code.
10.10. PARTICIPATIONS. In addition to its rights to assign duties
and rights hereunder pursuant to SECTION 10.09 hereof, Lender shall have
the right to enter into a participation agreement with any bank or other
financial institution (each a "PARTICIPANT ") with respect to the Loan and
the Loan Documents, but such participation shall not affect the rights and
duties of Lender hereunder VIS-A-VIS Borrower. Borrower agrees that
each Participant shall be entitled to the benefits of SECTIONS 3.06, 3.07,
3.08 and 4.03 with respect to its participation interest as if it were a direct
lender hereunder; provided, however, that, with respect to the
indemnifications set forth in SECTION 3.08 hereof, (a) Borrower shall never
be obligated to any Participant for any cost or expense in excess of amounts
which would be due by Borrower to Lender thereunder if Lender had never
granted any such participation hereunder, and (b) each Participant shall
comply with the requirements set forth in SECTION 3.08 prior to any right
to reimbursement arising thereunder. Borrower may make all payments due
hereunder to Lender and may rely upon any consent or approval given by
Lender and shall not be required to seek any consent or approval from any
Participant.
10.11. HEADINGS. Section headings are for convenience of
reference only and shall in no way affect the interpretation of this Agreement.
63
10.12. TIME OF THE ESSENCE. Time is of the essence with respect to
the provisions of this Agreement.
10.13. CONFIDENTIALITY. Lender and each Participant shall
maintain, at all times, the confidentiality of all data and information which
constitutes Confidential Information and shall not use, at any time, any data
and information which constitutes Confidential Information except to
exercise any right or remedy hereunder or for other purposes specifically
contemplated by this Agreement and the other Loan Documents. Anything
herein to the contrary notwithstanding, the provisions of this
SECTION 10.13 shall not preclude or restrict Lender or a Participant from
disclosing any Confidential Information: (a) with the prior written consent of
Borrower, (b) upon the order of or pursuant to the rules and regulations of
any Governmental Authority having jurisdiction over Lender or Participants,
(c) in connection with any audit by an independent public accountant of
Lender or a Participant; provided, such auditor prior thereto agrees in writing
to be bound by the provisions of this SECTION 10.13, or in connection with
any audit, discussion or conference between Lender or a Participant, or any
Affiliates thereof and their respective counsels, (d) to examiners or auditors
of any applicable Governmental Authority which examines Lender's or a
Participant's books and records while conducting such examination or audit,
or (e) as otherwise specifically required by law.
10.14. SURVIVAL OF CERTAIN PROVISIONS.
Notwithstanding anything to the contrary set forth herein, the covenants,
agreements and indemnities of Borrower contained in SECTIONS 7.20,
7.23(d) and 8.15 of this Agreement shall survive until (a) if the Obligation is
satisfied without foreclosure or deed in lieu of foreclosure of the Deed of
Trust, the date the Obligation is paid in full or (b) if the remaining
Obligation is satisfied and a foreclosure or a deed in lieu of foreclosure has
occurred under the Deed of Trust as of such date, so long as Lender, the
Participants or their Affiliates own the Property or have any liability or
obligations with respect to Government Development Documents which exist as of
the date of such foreclosure or deed in lieu of foreclosure.
d-0049073.05
64
Tab 2
<TABLE>
EXHIBIT 11
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
<CAPTION>
Year Ended December 31
-----------------------------------
1994 1993 1992
--------- ---------- -----------
<S> <C> <C> <C>
Earnings (loss) before extraordinary gain and cumulative
effect of accounting change applicable to common shares ............... $ 91,996 $ (11,280) $ (131,449)
Extraordinary gain ...................................................... - 98,968 -
Cumulative effect of accounting change for postemployment
benefits .............................................................. - (16,537) -
--------- ---------- -----------
Net earnings (loss) for earnings (loss) per-share
calculation ........................................................... $ 91,996 $ 71,151 $ (131,449)
========= ========= ===========
Average number of common shares outstanding ............................. 409,923 409,938 410,022
========= ========= ===========
Earnings (loss) per common share (Primary and Fully Diluted):
Before extraordinary gain and cumulative effect of
accounting change .................................................. $.22 $(.03) $(.32)
Extraordinary gain ................................................... - .24 -
Cumulative effect of accounting change ............................... - (.04) -
---- ------ ------
Net earnings (loss) .................................................. $.22 $ .17 $(.32)
==== ====== ======
Tab 3
</TABLE>
EXHIBIT 21
THE SOUTHLAND CORPORATION
LIST OF SUBSIDIARIES
(Wholly owned unless otherwise indicated)
NAME JURISDICTION OF
INCORPORATION
ACTIVE:
Brazos Comercial E Empreendimentos Ltda. (a) Brazil
Cityplace Center East Corporation Texas
Cityplace Management Corporation* Texas
HDS Sales Corporation (b) Texas
Melin Enterprises, Inc. (c) Missouri
Naroppet AB Sweden
Phil-Seven Properties Corporation (d) Philippines
Puerto-Rico - 7, Inc. (e) Puerto Rico
Sao Paulo-Seven Comercial, S.A. (f) Brazil
7-Eleven Beverage Company, Inc. Texas
7-Eleven Comercial Ltda. (g) Brazil
7-Eleven of Idaho, Inc. (b) Idaho
7-Eleven of Massachusetts, Inc. (b) Massachusetts
7-Eleven Mexico, S.A. de C.V. (h) Mexico
7-Eleven of Nevada, Inc. Delaware
7-Eleven of Virginia, Inc. Virginia
7-Eleven Sales Corporation (b) Texas
SLC Financial Services, Inc. Texas
Small Shops Holding A/S (i) Norway
Subsidiaries (all active) of Small Shops
Holding, A/S:
- Small Shops Denmark A/S (j) Denmark
- Small Shops Norge A/S (j) Norway
- Small Shops Sverige A/B (j) Sweden
Southland Canada, Inc. (k) Canada
Southland International, Inc. Nevada
Southland International Investment
Corporation N.V. (k) Netherlands Antilles
Southland Sales Corporation Texas
TSC Lending Group, Inc. Texas
Tylerland Properties Corp.* Texas
Valso, S.A. (l) Mexico
Subsidiary of Valso, S.A.: Mexico
- 7-Eleven Mexico, S.A. de C.V. (h)
*This company was merged into Southland or another subsidiary during 1994.
**This company was dissolved during 1994.
NAME JURISDICTION OF
INCORPORATION
INACTIVE:
Bawco Corporation Ohio
Citijet Corporation** Texas
Lavicio's, Inc. California
MTA CAL, Inc. California
7-Eleven Limited (m) United Kingdom
The Seven Eleven Limited (n) Hong Kong
7-Eleven of Florida, Inc.* Texas
7-Eleven, Inc. Texas
7-Eleven Pty., Ltd. (o) Australia
7-Eleven Stores (NZ) Limited (p) New Zealand
Southland of Florida, Inc.* Texas
Superior 7-11 Stores, Inc. Wisconsin
PERMIT HOLDING COMPANY:
7-Eleven Beverage Company, Inc. (Texas beer license) Texas
TITLE HOLDING COMPANY:
The Southland Corporation Employees' Savings and
Profit Sharing Plan Title Holding Corporation (q) Texas
*This company was merged into Southland or another subsidiary during 1994.
**This company was dissolved during 1994.
FOOTNOTES:
(a) 2,248,800 quotas (almost 100%) owned by Southland International
Investment Corporation N.V. (a wholly owned subsidiary of Southland
International, Inc., a wholly owned subsidiary of The Southland
Corporation), and remaining 10 quotas owned by The Southland Corporation
(b) 100% owned by Southland Sales Corporation (a wholly owned subsidiary of
The Southland Corporation)
(c) 100% owned by Bawco Corporation (an inactive, wholly owned subsidiary of
The Southland Corporation)
(d) 5.38% owned by The Southland Corporation, and remaining 94.62% owned by
various investors
(e) 59.07% owned by The Southland Corporation, and remaining 40.93% owned
by group of Puerto Rican investors
(f) 10% owned by The Southland Corporation, 89.4% owned by Super Trade,
Ltd., and remaining .6% owned by other investors. (Southland has options
to purchase up to 49% of this affiliate until January 1997.)
(g) 99.99% owned by The Southland Corporation, and remaining .01% owned by
7-Eleven of Nevada, Inc. (a wholly owned subsidiary of The Southland
Corporation)
(h) 99.97% of Class A shares owned by Valso, S.A., and remaining .03% owned
by other parties. 100% of Class B shares owned by Valso, S.A.
(i) 8.11% owned by The Southland Corporation, and remaining 91.89% owned by
various investors (based on Class "A" common shares only)
(j) 100% owned by Small Shops Holding A/S
(k) 100% owned by Southland International, Inc. (a wholly owned subsidiary
of The Southland Corporation)
(l) 49% owned by The Southland Corporation, 51% owned by Valores
Corporativos, S.A. de C.V., and remaining 3 shares owned by other
parties
(m) 50% owned by The Southland Corporation, and remaining 50% owned jointly
by The Southland Corporation and John H. Rodgers
(n) 99.9% owned by The Southland Corporation, and remaining .1% owned by
Wilgrist Nominees Limited, Southland's agent in Hong Kong
(o) 50% owned by David Anthony Walsh, and remaining 50% owned by Anthony
Peter John Kelly, for the benefit of Southland
(p) 99% owned by The Southland Corporation, and remaining 1% owned jointly
by Southland's local counsel, Bruce N. Davidson and Bruce E. Tunnicliffe
(q) established by The Southland Corporation Employees' Savings and Profit
Sharing Plan to hold title to properties under tax code Section
501(c)(25)
Tab 4
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statements
listed below of our reports, which include an explanatory paragraph describing
the changes in methods of accounting for postemployment benefits and income
taxes in 1993, dated February 23, 1995, on our audits of the consolidated
financial statements and financial statement schedule of The Southland
Corporation and Subsidiaries as of December 31, 1994 and 1993, and for each of
the three years in the period ended December 31, 1994, which reports are
included in this Annual Report on Form 10-K.
Registration
On Form S-8 for:
Post-Effective Amendment No. 3 to The Southland
Corporation Equity Participation Plan 33-23312
Post-Effective Amendment No. 1 to The Southland
Corporation Grant Stock Plan 33-25327
Coopers & Lybrand L.L.P.
Dallas, Texas
March 28, 1995
Tab 5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> DEC-31-1994
<CASH> 59,288
<SECURITIES> 0
<RECEIVABLES> 109,020
<ALLOWANCES> 6,790
<INVENTORY> 101,468
<CURRENT-ASSETS> 303,397
<PP&E> 2,358,129
<DEPRECIATION> 1,043,630
<TOTAL-ASSETS> 2,000,594
<CURRENT-LIABILITIES> 684,809
<BONDS> 2,227,209
<COMMON> 41
0
0
<OTHER-SE> (1,157,272)
<TOTAL-LIABILITY-AND-EQUITY> 2,000,594
<SALES> 6,684,495
<TOTAL-REVENUES> 6,759,807
<CGS> 5,144,916
<TOTAL-COSTS> 5,144,916
<OTHER-EXPENSES> 1,432,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108,588
<INCOME-PRETAX> 73,496
<INCOME-TAX> (18,500)
<INCOME-CONTINUING> 91,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,996
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
