____________________________________________________________________________
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, 1995
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 (expired on February 23, 1996)
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 $457,709,132 at March 8, 1996, based
upon 140,833,579 shares held by persons other than officers, directors and
5% owners.
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 8, 1996.
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 24, 1996 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, 1995
TABLE OF CONTENTS
PAGE
REFERENCE
FORM 10-K
PART I
Item 1. Business 1
Executive Officers of the Registrant 19
Item 2. Properties 23
Item 3. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security Holders 29
PART II
Item 5. Market for the Registrant's Common Equity and 29
Related Stockholder Matters
Item 6. Selected Financial Data 31
Item 7. Management's Discussion and Analysis of Financial Condition 32
and Results of Operation
Item 8. Financial Statements and Supplementary Data 42
Independent Auditors' Report of Coopers & Lybrand L.L. P. 69
on The Southland Corporationand Subsidiaries' Financial
Statements for each of the three years in the period ended
December 31, 1995
Item 9. Changesin and Disagreements with Accountants 70
on Accounting 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 71
Reports on Form 8-K
Signatures 78
___________________________
*Included in Form 10-K by incorporation by reference to the
Registrant's Proxy Statement,
dated March 21, 1996, for the April 24, 1996 Annual Meeting of
Shareholders.
PART I
ITEM 1. BUSINESS.
GENERAL
The Southland Corporation ("Southland," the "Company" or
"Registrant"), conducting business principally under the name 7ELEVEN,
is the largest convenience store chain in the world, with almost
15,400 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 1995, Southland's
operations (for financial reporting purposes) were conducted in one
business segment: the Operating and Franchising of Convenience Food Stores.
At December 31, 1995, the Company's operations included 5,361 7-
ELEVEN convenience stores in the United States and Canada, 19
High's Dairy Stores, and 44 Quik Mart and SUPER-7 high-volume
gasoline outlets with mini-convenience stores. The Company also has an
equity interest in 220 convenience stores in Mexico (almost all of which
are now using the 7ELEVEN name). Area licensees, or their
franchisees, operate additional 7ELEVEN 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 1995, the Company has an
equity interest in three of the licensees whose area licenses cover six
foreign countries and Puerto Rico.
During 1995, 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. In 1987 the Company was financially restructured
through a leveraged buyout (the "LBO") and in October 1990 filed a
voluntary bankruptcy petition under Chapter 11 of the U.S. Bankruptcy
Code. In March 1991, the Company emerged from
1
bankruptcy with a $430 million infusion of capital from its new
majority owner,IYG Holding Company, which is jointly owned by Ito-
Yokado Co., Ltd. ("ItoYokado") and Seven-Eleven Japan Co., Ltd. ("Seven-
Eleven Japan"), both Japanese corporations. Seven-Eleven Japan is the
Company's largest area licensee, operating over 6,200 7-ELEVEN stores in
Japan and, through its whollyowned subsidiary Seven-Eleven (Hawaii),
Inc., 46 7-ELEVEN stores in Hawaii.
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 Information About the Company").
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 at $1.75 per share
(until February 23, 1996) to acquire certain shares of common stock
owned by the Thompsons and certain other holders of the old
common stock (the "Warrant Shareholders"), 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 155
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 1990, Ito
Yokado had no affiliation with the Company, other than through its
majorityowned subsidiary, Seven-Eleven Japan (see below) which is the
Company's area licensee in Japan. In 1990, in addition to entering into
the Stock Purchase Agreement, Ito-Yokado provided the Company with
much-needed
2
interim liquidity through a $25 million term loan agreement. 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 and in November 1995, Ito-Yokado purchased $153 million of 4.5%
Convertible Quarterly Income Debt Securities due 2010 (see "Refinancing
of Certain Debt Securities" below) issued by the Company.
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 approximately 6,269 stores in Japan and
owns SevenEleven (Hawaii), Inc., which, as of year-end 1995,
operated an additional 46 7- ELEVEN stores in Hawaii under a
separate area license agreement covering that state. In November
1995, Seven-Eleven Japan purchased $147 million of 4.5%
Convertible Quarterly Income Debt Securities (see "Refinancing of Certain
Debt Securities" below) issued by the Company.
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. 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. The term loans and any revolver borrowings
carry a floating interest rate of either the Citibank, N.A. base rate or
a reserve-adjusted Eurodollarrate plus .975%.
REFINANCING OF CERTAIN DEBT SECURITIES. On November 22,
1995, the Company issued $300 million aggregate principal amount of
4.5% Convertible Quarterly Income Debt Securities due 2010 (the
"Convertible Debt Securities") to Ito-Yokado and Seven-Eleven Japan.
The Convertible Debt Securities are subordinated to all existing debt
and pay interest quarterly; however, the Company has the right todefer
interestpayments thereon for up to 20 consecutive quarters. The
Convertible Debt Securities are convertible into shares of the
Company's common stock at a price of $4.1602 per share, subject to
adjustment in certain cases.
In addition, on November 21, 1995, the Company successfully
concluded its "Dutch auction" tender offer for 40 percent of both its 5%
First Priority Senior Subordinated Debentures due December 15, 2003
("5% Debentures") and 4 1/2% Second Priority Senior
Subordinated Debentures (Series A) due June 15, 2004 ("4 1/2%
Debentures," together with the 5% Debentures, the "Debentures").
Under the terms of the tender offer,
approximately $180,621,000 million face amount was
purchased at the final clearing price of $840.00 per $1,000 principal
amounts for the 5% Debentures and approximately
$82,719,000 million face amount was purchased at the final
clearing price of $786.00 per $1,000 principal amount for the 4 1/2%
Debentures. All Debentures tendered below the final clearing price
were purchased at the final clearing price. Debentures tendered at the
final clearing price were prorated, and those tendered at prices above the
final clearing price were returned. The 5% Debentures acquired by the
Company through the tender offer have been used to satisfy the
Company's sinking fund obligations for several years under the terms of the
Indenture governing the 5% Debentures.
3
The Company received total proceeds from the issuance of the
Convertible Debt Securities of $300 million, of which approximately $217
million was used to purchase the tendered Debentures. Additional
open market purchases of the Debentures may be made in the future.
The remaining proceeds will be used for general corporate purposes
including, initially, the repayment of currently outstanding
commercial paper and revolving debt, if any.
OPERATING AND FRANCHISING OF CONVENIENCE FOOD STORES
7-ELEVEN STORES. On December 31, 1995, there were 5,361 7-ELEVEN
convenience stores included in the Company's operations and 625 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 1995, the Company opened 22 convenience stores (of which 11 were
rebuilds or relocations of existing stores) and closed 228 convenience
stores, due to changing market patterns, lease expirations and the
closing of selected stores that were not profitable.
The Company's convenience stores are extended-hour retail
stores, emphasizing convenience to the customer and providing fresh
take-out foods, groceries and beverages, gasoline (at about 2,000
stores), dairy products, non-food merchandise, specialty items, certain
financial services, lottery tickets, 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 to 3,100 square
feet in size and carry 2,300 to 2,600 items. The vast majority of the
stores operate 24 hours a day. The stores attract early and late
shoppers, lunch-time customers, 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 and expanding its selection of higher quality
fresh foods and is
experimenting with other merchandising innovations to encourage
existing customers to increase their shopping frequency and to enhance the
stores' appeal to new customers. The Company has also 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 only the needs of 7-ELEVEN stores,
with such products, as well as many others, now being distributed in
several markets 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 and stores
are being further encouraged to introduce items that are new
to the market, or new to convenience stores, in order to encourage
customers to shop in 7-ELEVEN stores frequently to see the
constantly updated array of new items in the stores, which are designed
to appeal to a broader mix of customers.
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 6.8% of sales, including
gasoline.
REMODELING OF STORES. During 1995, the Company continued the most
extensive remodeling in its history. By the end of 1995,
approximately 4,100 stores had been remodeled to conform to the new
store image. The Company anticipates that approximately 1,100 additional
stores will be remodeled in 1996. The remodeled stores have increased
interior and exterior lighting, wider aisles, shopper-friendly aisle
markers, lower
4
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. In addition, closed circuit TV cameras have been added at
the remodeled stores as a further security upgrade. The remodeling
process has been greatly streamlined 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 1995, the Company further intensified its
focus on better order forecasting to avoid lost sales opportunities caused
by out-of-stock conditions. 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.
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 includes a selection of core items as well as
optional items selected by the individual store operators to meet their
customers' local needs and preferences. During 1995, the Company
continued to expand its selection of 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, Easter, Mother's Day, Halloween and Christmas. In
addition, the Company developed promotions that were tied to both the
NFL football season and the NHL hockey season using novelty items in the
stores, supported by radio and print media advertising.
During 1995, as part of the Company's new merchandising focus,
between 20 and 25 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 1995 the Company continued toimplement 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.
NEW PRODUCTS. FRESH FOODS AND FOOD PRODUCTS. During 1995, the
Company continued its initiative to introduce more fresh food products
of a higher quality into the stores. Daily deliveries are being made of
sandwiches, salads, breakfast items and fresh-made pastries -- all
items marketed under 7-ELEVEN's proprietary DELI CENTRAL and WORLD
OVENS brand names. Under this initiative, 7-ELEVEN aligns itself with
local bakeries and "kitchens" or commissaries. These companies
prepare food to 7ELEVEN's specifications exclusively for the stores and
have the product delivered in the exact quantities ordered by the
stores through the combined distribution center program (see
"Distribution, Fresh Products," below).
5
By the end of 1995, there were four commissary facilities
providing fresh-made foods to the stores. One commissary, operated by
Prime Deli Corporation in Dallas, Texas, provides a wide range of
freshly prepared food to approximately 228 stores. In late 1994, with
the help of The Pillsbury Company , WORLD OVENS 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 just outside Dallas, specifically
opened and operated to serve 7-ELEVEN's needs. The commissary in
Austin, Texas, which has been operating since 1992, has begun testing
new proprietary sandwiches and breakfast sandwiches
in the Austin area.
In addition, during 1994, food production began from a newly
built commissary facility (Fresh to Go Foods) in the Philadelphia/New
Jersey market area that produces fresh food items for
approximately 400 franchised stores in that market area. The area
served by this facility will be expanded to include the Baltimore
area during 1996. Another commissary is also servicing
approximately 160 franchised stores in the Long
Island, New York market area. In addition, WORLD OVENS products are
also being supplied to stores in the Philadelphia/New Jersey market area
from a bakery facility in Baltimore. In late 1995, the Company signed a
commissary agreement for parts of Denver and surrounding areas. The
Company is also in the process of finalizing arrangements for
additional commissaries and bakeries in 1996 covering markets in
parts of California, Virginia, Baltimore, Washington, D.C.,
Chicago, Denver, Colorado Springs, Tampa and Orlando. The Company
plans to have the DELI CENTRAL and WORLD OVENS products in almost all of
its stores within a few years.
Through the use of the commissaries and other suppliers, several
new categories of fresh food products were added to the cold sandwich
food offerings in 1995 in selected areas of the country including
ethnic products, such as Mexican items, unique hot sandwich
offerings, new salads, fresh bagels and prepared fruit and vegetable
products, as well as afternoon pastry products, such as cookies and
brownies. Over 200 new fresh food items were introduced across the
country and these new products accounted for a significant portion of
the growth in the fresh food category in 1995. In addition, several
new lines of signature products are being tested in various areas,
including Teriyaki Rice Bowls and unique signature sandwiches such as
Chicken Focaccia and Chicken Caesar Pita.
Proprietary products were a big part of the Company's initiative to
offer higher quality food and beverage selections, with the Company
continuing to expand its corporate brand QUALITYCLASSIC SELECTION
spring water and soft drinks with the addition of flavored teas, new
packages like a one-liter sports bottle for the spring water and
sparkling waters in some markets. QUALITY CLASSIC
SELECTION was launched in Canada in 1995.
In the hot beverage area, as a complement to promoting its
everpopular 7-ELEVEN coffee, the Company continued to emphasize its
own proprietary regular and sugar-free CAFE SELECT line of gourmet-
flavored coffees, hot chocolates and cappuccinos, which added hot
beverages that had appeal throughout the day, in addition to the
traditional peak morning coffee hours. Approximately 95% of 7-ELEVEN
stores offer the new hot chocolate and cappuccino products.
NON-FOOD ITEMS. 7-ELEVEN also continued its emphasis onstaying
ahead of its competitors by providing a selection of non-food services,
such as the continued
6
aggressive marketing of branded prepaid telephone cards for long
distance service. The prepaid telephone cards, which were originally
introduced in November 1994, now include collectors' series and 90-
minute varieties. During 1995, the Company became the largest
retailer of prepaid long distance telephone cards in the U.S.,
using extensive advertising and promotions like its 7-ELEVEN NFL
Quarterback Collectible Phone Card. By year end, over 5,000 stores were
selling the 7-ELEVEN PHONE CARDS for prepaid long distance calling in
15-, 30-,60 and 90-minute increments. In 1995, 7-ELEVEN sold over
3 million cards. The Company expects to introduce the 180-minute card,
and two collector series cards, in 1996, and to continue to seek
expanded sales in the burgeoning phone card market.
The Company also continued to install more automatic teller
machines under its 1993 agreement with Electronic Data Systems
Corporation ("EDS") and continued its ATM program with other vendors, as
well. By year-end there were approximately 4,600 ATMs in 7-ELEVEN stores
around the U.S. as well as 350 machines in its Canadian stores. 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. During
1995, a surcharge (a fee charged by the ATM owner/operator) added to
each ATM transaction was tested in markets in California and Nevada,
as well as other areas. A portion of the surcharge is shared
with 7-ELEVEN,resulting in significant growth in income from this
category. EDS plans to continue the surcharge rollout in 1996.
The Company is one of the nation's leading retailers of money
orders and, in 1995, began upgrading the money order processing
equipment in the stores in an effort to make this product even more
appealing to customers and to make it easier for store operators to
provide a more efficient and faster transaction, satisfying the needs of
the convenience shopper.
The Company continued to focus on adding new and popular
seasonal merchandise and in May introduced a new selection of 36
styles of sunglasses with the sophisticated look of certain very
expensive brands but at extremely reasonable prices. Eighty
percent of the stores participated and ordered the new display
which holds 18 pairs of sunglasses. As a result of this new
program, sunglass sales were up 94% in 1995 over 1994.
GASOLINE. In 1995, the Company sold over 1.4 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 1995, the
Company continued its program to upgrade the gasoline pump area of the
stores, by adding canopies and new equipment. Approximately 900
stores are now equipped to accept credit cards for the purchase of
gasoline at the pump, which makes gasoline shopping at 7-ELEVEN
stores even more convenient for the credit customer. Almost all of the
Company's stores offer CITGO-branded gasoline.
During 1995, the Company discontinued the sale of gasoline at
approximately 56locations (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), and may discontinue gasoline sales at
7
about 30 additional loccations in 1996. In 1995, the Company assumed
responsibility for gasoline operations at 45 locations where the gasoline
facilities had previously been operated by third parties.
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
marketrelated 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 more than 1.3 million active "Citgo
Plus" credit card accounts.
DISTRIBUTION. FRESH PRODUCTS. To further facilitate the sale of
fresh products in the stores, the Company continued to roll-out its
combined distribution program through the strategic alliance with
companies that specialize in distribution.
These third-party distribution companies provide distribution and
cross-dock facilities where the products of multiple vendors, many of
whom formerly delivered directly to 7-ELEVEN stores themselves, are
combined to make one delivery to the store. This enables the
stores to receive daily shipments of products where freshness is
paramount and avoids the inconvenience of multiple daily deliveries to
the stores by several vendors. By the end of 1995, 825 stores in
Texas, Long Island, Philadelphia and New Jersey were receiving daily
deliveries of the freshest dairy products, produce, packaged baked
goods, bread products and even products like fresh-cut flowers, through
7-ELEVEN's combined distribution center ("CDC") program. In 1994, 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
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 through the CDCs are
those produced by Prime Deli Corporation from its commissary and
the WORLD OVENS 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. As of year-end
1995, there were CDCs operating in Dallas and Austin, Texas, in
New Jersey (serving the Philadelphia/New Jersey market area) and on
Long Island, New York. The Company plans to furtheralign
itself with additional CDC facility operators in 1996 in Tampa and
Orlando, Florida; Long Island, New York; Denver and Colorado Springs,
Colorado; the southern Maryland/northern Virginia market, including
Washington, D.C. and in San Jose, California, and is in various stages
of finalizing agreements with several operators who will provide the
distribution services covering each of these new areas.
In addition, the Company experimented in 1995 with utilizing the
delivery capabilities of the Dallas CDC for perishable items other
than food. Fresh-cut flowers, including roses, are now being
distributed by the Dallas CDC.
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-stock conditions and to assist McLane
to be increasingly responsive to individual store's needs.
8
Most 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 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. Although the Reddy Ice
contract expired by its terms in May 1995, the Company has continued to
buy ice from Reddy Ice.
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 1995 1994 1993 1992 1991
- ------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Gasoline 24.9% 24.2% 23.5% 22.5% 21.5%
Tobacco Products 16.6 17.2 18.0 19.2 19.1
Groceries 9.8 9.6 9.2 8.5 8.1
Beer/Wine 9.0 9.4 9.5 10.0 10.7
Soft Drinks 8.7 8.8 9.7 10.0 10.3
Food Service 8.7 8.5 8.5 8.4 8.4
Non-Foods 6.1 6.2 5.8 5.8 5.8
Dairy Products 4.4 4.6 4.8 4.9 5.0
Candy 3.6 3.8 3.7 3.8 3.9
Baked Goods 3.4 3.6 3.5 3.4 3.4
Customer Services 3.1 2.4 2.1 1.9 1.8
Health/Beauty Aids 1.7 1.7 1.7 1.6 2.0
----- ----- ----- ------ ------
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 sale of certain products, most
significantly alcoholic beverages, tobacco products, possible inhalants
and lottery tickets. 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 these products
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. Such regulation is subject to
legislative and administrative change from time to time.
Since 1984, the Company has had in place an extensive program entitled
COME OF AGE, to train store personnel in the laws relating to the proper
handling and sale of age-restricted products. This training program is
provided to all sales associates in corporate stores and is made
available to all franchisees and licensees.
9
FRANCHISES. At December 31, 1995, 2,896 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 approximately
$2,832,131,000 for the year ended December 31, 1995.
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 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.
During 1995, the Company continued testing a new franchise agreement
that provided a three-tiered structure for calculating the 7-ELEVEN
Charge. This test, which is limited to Washington, Idaho and Oregon,
will continue, in those states only, during 1996. The Company has been
working on the development of a new franchise agreement with the help of a
committee of franchisees from the National Advisory Council. The Company
anticipates that there will be an ongoing process to revise the franchise
agreement, on a periodic basis, to ensure it stays in step with the
Company's business concept.
In addition, during the first part of 1996, the Company increased the
training program being offered for franchisees. The program now consists of
7 weeks of intensified instruction in the new strategies that are being
implemented by the Company.
10
The Company is also encouraging existing successful franchisees to
franchise multiple locations. This will provide growth opportunities for
current franchisees within the 7-ELEVEN system by encouraging them to
pursue additional stores which also will result in increased income for
the franchisee, partly by creating opportunities for lower per unit
operating expenses for the franchisee and the Company. To stimulate this
multiple growth, the Company has offered certain incentives during the
first quarter of 1996 to qualified franchisees (and corporate store
managers in a franchise area), by recalculating and reducing the
franchise fee in such situations.
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, in such event, the franchisee has no
continuing lease obligations. Certain franchisees have contractual
rights to sign new franchise agreements upon expiration of their existing
agreements, so long as they meet certain specified conditions.
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.
AREA LICENSES. As of December 31, 1995, the Company had granted
domestic area licenses to eight companies which were operating 625
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 46 stores in Hawaii are operated under
an area license agreement with Seven-Eleven (Hawaii), Inc. (a subsidiary
of Seven Eleven Japan). During the first quarter of 1995, Southguard
Corporation and the Company agreed to terminate Southguard's two area
licenses, covering parts of Texas and Oklahoma, in exchange for the
payment of a one-time termination fee from Southguard to the Company.
As of the end of 1995, foreign area license agreements covered the
operation of 6,269 7-ELEVEN stores in Japan, 1,158 in Taiwan, 554 in
Thailand, 328 in Hong Kong, 153 in Australia, 110 in South Korea, 93 in
Malaysia, 83 in the Philippines, 80 in Spain, 77 in Singapore, 53 in the
United Kingdom, 39 in Norway, 31 in Sweden, 22 in China, 14 in Brazil, 12
in Puerto Rico, 11 in Denmark, 10 in Guam and nine in Turkey. 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. Nine "12+12" stores in Spain, not included in the 80 stores
mentioned above, are also under license agreement.
11
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
220 convenience stores in Mexico operated by 7-Eleven Mexico, and one
store in Mexico is operating under a license agreement with 7-Eleven
Mexico. These stores, which feature merchandise and services essentially
the same as 7-ELEVEN stores, had been operating under the name SUPER
SIETE until 1991; however, 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, 1995, the Company operated 19
High's Dairy Stores located in Maryland, Pennsylvania, Virginia and West
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 GASOLINE UNITS. At December 31, 1995, 44 Quik
Mart and SUPER-7 gasoline 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 gasoline unit is a high
volume, multi-pump, self-service gasoline-dispensing operation.
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 525,000 square feet, about 39% of Cityplace Center East.
During 1995, leases covering approximately 60,000 additional square feet
were signed, both with new tenants and with current tenants. The
building is now virtually completely leased or reserved for expansion
under current leases. The Company is in the process of a further
consolidation of its offices, which would make additional space
available for subleasing.
DIVESTITURES During 1995, the Company sold its former food center in
Salt Lake City, Utah to McLane (the lessee). This property consisted of
a 21.5 acre tract on which a 77,000 square foot food processing plant
is located, including 6,930 square feet of office space.
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
12
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.
The Company's outstanding Convertible Debt Securities, which were
issued in November, 1995, to Ito-Yokado and Seven-Eleven Japan, are
subordinated to all existing debt, convertible into the Company's Common
Stock at a premium and carry certain registration rights that require the
Company to register the Convertible Debt Securities (or Common Stock
issued upon conversion) under the Securities Act of 1933. The holders
may elect to convert the Convertible Debt Securities in denominations of
$1,000 principal amount or integral multiples thereof, into shares of the
Company's Common Stock. The number of shares obtained is determined by
dividing the principal amount of the Convertible Debt Securities being
converted by $4.1602 which represents an average of Southland's share
price at the time the Convertible Debt Securities were issued, plus a
premium. The $300 million Convertible Debt Securities are convertible
into approximately 72 million shares of the Company's Common Stock.
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 were not permitted to 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.
The Shareholders Agreement, which terminated on March 5, 1996,
provided 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, provided that the parties to the agreement shall
13
cause Southland's Board of Directors to consist of, and would 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 then existed,
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). Because the Shareholders Agreement
terminated on March 5, 1996, (except for certain continuing registration
rights) the holders of shares that were subject to the Shareholders
Agreement are no longer restricted by the terms of the agreement as to
voting, transfer, or sale of such shares.
Moreover, under the Shareholders Agreement, Ito-Yokado 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
nonrecourse obligations 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.
Certain of these loans have been extended and refinanced. In addition,
under the terms of the Shareholders Agreement, IYG has the obligation to
purchase, if requested to do so, certain shares (including those pledged
as collateral) from the Thompsons and other signatories to the
Shareholders Agreement. The Shareholders Agreement was amended in
February 1996, so that the price to be paid for any shares purchased
would be determined by the average of the closing price for the Common
Stock on February 27, 1996 through March 12, 1996. Any purchase of such
shares is now scheduled to occur on April 22, 1996.
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
holders 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 entitled 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 February 23, 1996, the expiration date of
the Thompson Warrants, a total of 10,098,089 Thompson Warrants had been
exercised.
14
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 provided for an
annual base salary of $600,000 and an annual bonus equal to $360,000
under each agreement, as well as providing for vacation, holidays and
expense reimbursement in accordance with current Company policy. The
Employment Agreements terminated on March 5, 1996, according to their
terms and John and Jere Thompson are not standing for re-election to the
Company's Board of Directors.
RESEARCH AND DEVELOPMENT
The Company did not incur any significant expenses for product testing
or traditional research and development activities in 1994 or 1995.
During 1995, 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 1993, the Company began development of its own proprietary retail
automation system, which it plans to implement in phases, over a multi
year period. The system is being designed to build efficiencies into
ordering, distribution and merchandising processes and to provide timely
and accurate information on an item by item basis. The system is being
designed to provide information about every important detail of the
store's operations and to facilitate inventory tracking. The first phase
implementation which began at the end of 1993 and is expected to be
completed in early 1996, will automate basic in-store accounting
processes. The second phase will consist of an ordering and distribution
system, that will provide the foundation for the future phases that will
include retail scanning. The Pre-POS system, which provides new cash
registers in each store and builds the foundation for item-level
scanning, will begin in a pilot program in the summer of 1996 with a
complete roll-out thereafter.
TRADEMARKS
The Company's 7-ELEVEN 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, SLURPEE, BIG GULP and BIG BITE, 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 and WORLD OVENS
trademarks are being introduced in stores nationwide, along with the
QUALITY CLASSIC SELECTION trademark, covering the Company's proprietary
brand spring water, soft drinks, and other beverage products, and
CAFE SELECT, covering the Company's gourmet coffees, cappuccino and hot
15
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 1995, the Company continued its very successful "Comedians"
campaign, which first aired in December 1993 and will be continued into
1996. This campaign delivered the message of "So many changes it's not
even funny" and emphasized the store remodeling program, daily
distribution of fresh food items and the Company's everyday fair pricing
strategy. The Company also introduced several new
promotional and seasonal advertising campaigns such as the BRAIN
FREEZE television commercials in connection with SLURPEE drinks during
the summer selling season and a very successful tie-in promotion with
the MTV Beachhouse. Also featured in various advertisements in 1995
was the collectible Quarterback series of 7-ELEVEN PHONE CARDS
featuring five different members of the NFL Quarterback Club, which
enhanced the promotion of the NFL licensed coffee mugs sold at the stores
- - each featuring one of the
30 NFL teams. During the year, the Company used several promotions on
radio to highlight specific products, such as ATMs, fountain soft drinks,
gasoline pay-at-the-pump convenience, hot dogs and the 7-ELEVEN PHONE
CARD, and, beginning in early 1996, a tie-in promotion with the National
Hockey League. In addition, during the year, the Company offered free or
discounted pastries or DELI-CENTRAL items, with the frequent purchase of
coffee or soft drinks, and distributed coupons for price discounts or
free items, to encourage customers in neighborhoods close to 7-ELEVEN
stores to sample some of the new fresh food items that were introduced
during 1995.
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.
Although 7-ELEVEN is the most widely recognized name in the
convenience retailing industry, 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 1994 (the most recent
data available) for the convenience store industry were approximately
$132.2 billion (including $67.8 billion of gasoline) and that over 93,200
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
16
growth in numbers of convenience-type stores opened by oil companies over
the past few years have intensified competitive pressures for the
Company.
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 1995, the Company entered into subleases
with new tenants and expansions with existing tenants covering about
60,000 additional square feet. The building is now virtually completely
leased or reserved for expansion under current leases; however, the
Company is currently in the process of consolidating its offices to
create additional space that will be available for lease. In seeking
tenants, this project competes with other downtown, Oak Lawn, North
Dallas and North Central Expressway luxury office space developments. 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 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
established a comprehensive program to manage underground storage tanks
and associated equipment 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 cleanup
action under CERCLA. Additional requirements imposed by the Superfund
Amendments and Reauthorization Act of 1986 also have resulted in
additional reporting duties.
The Clean Air Act, as amended, and similar regulations at the state
and local levels, impose significant responsibilities on the Company
through certain requirements pertaining to vapor recovery, sales of
reformulated gasoline and related recordkeeping.
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.
17
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 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,
1995, the Company's recorded liability is $37.8 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
escribed above. The Company has recorded a receivable of $22.0 million, at
ear-end 1995, representing the former owner's portion of the accrued clean-
up costs.
As of December 31, 1995, 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 incurs ongoing costs to
comply with federal, state and local environmental laws and regulations
primarily relating to underground storage tank ("UST") systems. The
Company has established a comprehensive program to manage USTs and
associated equipment and to ensure compliance with applicable laws.
The Company anticipates that it will spend approximately $12 million in
1996 on capital improvements required to comply with environmental
regulations relating to USTs as well as above-ground vapor recovery
equipment at store locations and approximately an additional $21 million
on such capital improvements from 1997 through 1999.
Additionally, the Company accrues for the anticipated future costs of
environmental clean-up activities (consisting of environmental assessment
and remediation) relating to detected releases of regulated substances at
its existing and previously owned or operated sites at which gasoline has
been sold (including store sites and other facilities that have been sold
by the Company). At December 31, 1995, the Company has an accrued
liability of $63.7 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 consideration of such factors as the age of the
tanks, location of tank sites and experience with contractors who perform
environmental assessment and remedial work.
18
Under state reimbursement programs the Company is eligible to receive
reimbursement for a portion of future costs, as well as a portion of
costs previously paid. At December 31, 1995, the Company has recorded a
gross receivable of $73.4 million (a net receivable of $59.7 million
after an allowance of $13.7 million) for the estimated probable state
reimbursement. There is no assurance of the timing of the receipt of
state reimbursement funds; however, based on its experience, the Company
expects to receive the majority of 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 within the near future
as governmental requirements and state reimbursement programs continue to
be implemented or revised. 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 USTs at store locations.
See also "Legal Proceedings," below, at pages 26 through 29, for a
discussion of other pending legal proceedings relating to environmental
matters.
EMPLOYEES
At December 31, 1995, the Company had 30,523 employees, of whom
approximately 31 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.
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, as well as the Chairman of the Board and the
Vice Chairman of the Board, 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, 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. Mr. Ito and Mr. Suzuki became Chairman and Vice
Chairman, respectively, on March 5, 1991, after Southland emerged from
bankruptcy.
19
<TABLE>
<CAPTION>
Age at
Name 3/01/96 Current Positions and Offices with Registrant
- ---------------------- ------- ---------------------------------------------------------------
<S> <C> <C>
Masatoshi Ito 71 Chairman of the Board and Director (1)
Toshifumi Suzuki 63 Vice Chairman of the Board and Director (2)
Clark J. Matthews, II 59 President, Chief Executive Officer; Secretary and Director (3)
Stephen B. Krumholz 46 Executive Vice President and Chief Operating Officer (4)
Rodney A. Brehm 48 Senior Vice President, Distribution and Foodservice (5)
James W. Keyes 40 Senior Vice President, Finance (6)
Stephen B. LeRoy 43 Senior Vice President, International and Real Estate (7)
Bryan F. Smith, Jr. 43 Senior Vice President and General Counsel (8)
Robert E. Bailey 53 Vice President, Northwest Division (9)
Terry L. Blocher 51 Vice President, Southwest Division (10)
Paul L. Bureau 54 Vice President, Corporate Tax (11)
Kathleen Callahan-Guion 44 Vice President, Chesapeake Division (12)
Michael R. Cutter 44 Vice President, Merchandising (13)
Adrian O. Evans 59 Vice President, Construction and Maintenance (14)
James Notarnicola 44 Vice President, Communications (15)
Gary R. Rose 50 Vice President, Gasoline and Environmental Services (16)
David A. Urbel 54 Vice President, Planning and Treasurer (17)
Donald E. Thomas 37 Controller (18)
</TABLE>
________________________
(1) Chairman of the Board and Director of the Company since March 5,
1991. Director and Honorary Chairman 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 Famile Co., Ltd. since 1986.
Chairman of York Mart Co., Ltd. since 1979. Chairman of Robinson's Japan
Co., Ltd. since 1995. Chairman of Maryann Co., Ltd. since 1977.
President of Oshman's Japan Co., Ltd. since 1984. Statutory Auditor of
Steps Co., Ltd. since 1992. Chairman of York-Keibi Co., Ltd. since 1989.
President of Union Lease Co., Ltd. since 1985. 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 1981. 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 1985. President of Seven-Eleven (Hawaii), Inc. since 1989.
President of Shop America Limited since 1990. President and Director of
IYG Holding Company since 1990.
20
(3) Director since March 5, 1991, and from 1981 until December 15,
1987; President and Chief Executive Officer since March 5, 1991 and
Secretary since April 26, 1995; 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.
(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) Senior Vice President since May 1, 1995; Vice President,
International and Real Estate, May 1, 1994 to April 30, 1995; 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.
(8) Senior Vice President and General Counsel since May 1, 1995; Vice
President and General Counsel from August 1992 to April 30, 1995;
Assistant General Counsel from January 1990 to July 1992; Associate
General Counsel from January 1987 to December 1989; employee of the
Company since 1980.
(9) Vice President, Northwest Division since May 1, 1995; Division
Manager from November, 1990 to April, 1995; Regional Vice President from
May 7, 1986 to October 31, 1990; employee of the Company since 1970.
(10) Vice President, Southwest Division since May 1, 1995; Division
Manager from February, 1985 to April, 1995; employee of the Company since
1971.
(11) 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.
21
(12) Vice President, Chesapeake Division since May 1, 1995; Division
Manager from November, 1986 to April, 1995; employee of the Company since
1979.
(13) Vice President, Merchandising since April 15, 1995; National
Field Merchandising Manager from July, 1994 to April, 1995; Regional
Merchandising Manager from January, 1990 to July, 1994; Division
Merchandising Manager from July, 1986 to December, 1989; employee of the
Company since 1975.
(14) 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.
(15) Vice President, Communications since May 1, 1995; Manager,
Advertising and Promotions from July, 1992 to April, 1995; National Sales
Manager from November, 1990 to July, 1992; Regional Marketing Manager
from August, 1989 to October, 1990; employee of the Company since 1978.
(16) Vice President, Gasoline and Environmental Services since May 1,
1995; National Gasoline Manager from January, 1991 to April, 1995;
Manager, East/West Gasoline from November, 1987 to January, 1991;
employee of the Company since 1968.
(17) 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.
(18) Controller since August 1, 1995; Assistant Controller from
January, 1993 to July, 1995; employee of the Company since 1993.
Financial Manager, The Trane Company, from April 1992 to December 1992;
Senior Manager, Audit Department, Deloitte & Touche, from January 1990 to
March 1992; Audit Department, Deloitte & Touche, from June 1981 to March
1992. Deloitte & Touche was formed in 1989 from the merger of Touche
Ross & Co. and Deloitte, Haskins, and Sells.
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 1995 but who no longer serve as such are
shown below. Also shown for each such person is the period during which
he served in his office, as reflected in the footnotes to the following
chart.
NAME AGE AT 3/01/96
David M. Finley (1) 55
Vernon P. Lotman (2) 56
John H. Rodgers (3) 52
Michael Roemer (4) 47
22
(1) Vice President, Human Resources, from December 1987 to May 1995;
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 from 1977 to 1995.
(2) Vice President from April 1992, and Controller from December
1987, to July 1995; Assistant Corporate Controller from 1977 to 1982;
employee of the Company from 1973 to 1995.
(3) 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.
(4) 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.
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, 1995, there were approximately 3,581 operating stores, 168
non-operating stores and 12 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.
23
OPERATING AND FRANCHISING OF CONVENIENCE FOOD STORES
7-ELEVEN. At the end of 1995, the 7-ELEVEN stores group was using 85
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, 1995.
<TABLE>
<CAPTION>
STATE/PROVINCE OPERATING 7-ELEVEN CONVENIENCE STORES OWNED
LEASED(A) TOTAL
<S> <C> <C> <C>
U.S.
- ----
Arizona 39 57 96
California 224 949 1,173
Colorado 61 180 241
Connecticut 7 31 38
Delaware 10 17 27
District of Columbia 4 14 18
Florida 227 184 411
Idaho 6 8 14
Illinois 51 86 137
Indiana 6 10 16
Kansas 7 10 17
Maryland 86 224 310
Massachusetts 10 24 34
Michigan 51 47 98
Missouri 32 50 82
Nevada 86 101 187
New Hampshire 1 7 8
New Jersey 74 129 203
New York(b) 43 176 219
North Carolina 2 5 7
Ohio 10 5 15
Oregon 37 97 134
Pennsylvania 59 105 164
Rhode Island 0 8 8
Texas 104 182 286
Utah 37 76 113
Virginia 190 411 601
Washington 59 172 231
West Virginia 10 12 22
Canada (b)
- ------
Alberta 19 98 117
Manitoba 13 37 50
Ontario 30 81 111
British Columbia 21 115 136
Saskatchewan 14 23 37
----- ----- -----
Total 1,630 3,731 5,361
===== ===== =====
</TABLE>
________________
(a) Of the 7-ELEVEN convenience stores set forth in the foregoing
table, 769 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 1995, the Company also leased 62 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 two stores in New York (operating under a
special franchise agreement ("Genesis")), on which the Company has no
interest in the real property.
24
OTHER RETAIL. As shown in the following table, at year-end 1995, the
Company operated 44 Quik Mart and SUPER-7 stores in California, Illinois,
Indiana, Massachusetts, Missouri, New Hampshire, Texas, Virginia and
Wisconsin and 19 High's Dairy Stores located in Maryland, Virginia,
Pennsylvania and West Virginia.
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,
1995.
<TABLE>
<CAPTION>
OTHER OPERATING RETAIL LOCATIONS
STATE OWNED LEASED TOTAL
<S> <C> <C> <C>
California 3 0 3
Illinois 9 0 9
Indiana 3 1 4
Maryland 1 10 11
Massachusetts 2 0 2
Missouri 2 0 2
New Hampshire 2 1 3
Pennsylvania 0 3 3
Texas 2 0 2
Virginia 4 4 8
West Virginia 0 1 1
Wisconsin 15 0 15
-- -- --
Total 43 20 63
== == ==
</TABLE>
OTHER INFORMATION ABOUT PROPERTIES AND LEASES. At December 31, 1995,
there were eight 7-ELEVEN stores in various stages of construction, all
but one on property leased by the Company. The Company owned 21, and had
leases on 17, undeveloped convenience store sites. In addition, the
Company held 157 7-ELEVEN, High's and Quik Mart properties available for
sale consisting of 78 unimproved parcels of land, 64 closed store
locations and 15 parcels of excess property adjoining store locations.
At December 31, 1995, 35 of these properties were under contract for
sale.
On December 31, 1995, the Company held leases on 457 closed store or
other non-operating facilities, 62 of which were leased from the Savings
and Profit Sharing Plan. Of these, 344 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.
25
ACQUISITIONS. On March 7, 1996, the Company acquired from The Store
24 Companies, Inc. of Boston, Massachusetts 13 stores located in Queens,
the Bronx and Brooklyn, New York, all of which are leased. The Company
plans to add these stores to its franchised locations.
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 64,447-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 plans to dispose of a five-acre tract of land in Delanco,
New Jersey, on which a 19,000-square-foot branch distribution facility is
located. This is residual property from the Company's distribution and
food processing operations that were divested in late 1992.
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 18 through 19, 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 1996, subleases had been signed
with third parties so that (including the space leased by Southland)
the building is virtually completely 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). During 1995, the Company sold a 22-acre tract
of land ouside Dallas and now holds tracts in Dallas, Texas, not included
in Cityplace, totaling about 6.5 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 ("Old Senior Lenders") 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. During 1994, 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. There were no material
developments in this matter in 1995.
26
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 various vendors who supply goods to 7 ELEVEN
franchisees in the State of California. The named plaintiffs
purportedly represent all persons who have owned 7-ELEVEN franchises in
California at any time since August 1987. 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. In addition, on March 15, 1996, the Company was
advised that a similar suit, brought by the same attorneys representing
the plaintiffs in the 7-Eleven OFFF case, had been filed in federal court in
the northern district of California, on behalf of a purported class
consisting of all persons who owned 7-Eleven franchises during the last
six years, except those located in California. The Company has not yet
formally received service of process in this action.
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. The Company has made settlement payments and credits
(including attorneys' fees and litigation expenses awarded to class
counsel) totalling approximately $16.5 million. Class members' claims
totalling less than $50,000 remain to be resolved. The case was
dismissed with prejudice in 1995 under the terms of the settlement.
As previously reported, the Company filed a lawsuit in the U.S.
District Court for the Northern District of Texas against Occidental
Petroleum Corporation and OXY Oil & Gas USA, Inc., ("OXY") to enforce
certain contractual indemnification provisions relating to environmental
clean-up expenses incurred by the Company at locations acquired in 1983
from OXY. During the second quarter of 1995, the Company and OXY agreed
to submit the matter to binding arbitration, and, pursuant to the
agreement, the Company received $4.7 million (net of expenses) from OXY.
Arbitration concluded in January of 1996 and the Company received a
favorable ruling from the arbitrator.
As previously reported, a lawsuit entitled EMIL V. SPARANO, ET AL. V.
THE SOUTHLAND CORPORATION, ET AL. was filed against the Company in the
United States District Court for the Northern District of Illinois, in
March 1994. Plaintiffs are several franchisees of 7-ELEVEN stores in
Illinois, Pennsylvania, New Jersey and Nevada; they purport to represent a
nationwide class of all persons who have owned 7-ELEVEN franchises
anywhere in the United States at any time since 1987. In addition to the
Company, several of the Company's current or former officers and
directors (John P. Thompson, Jere W. Thompson, Joe C. Thompson, Jr.
(collectively, the "Thompsons"), Clark J. Matthews, II, Walton Grayson,
III, John H. Rodgers and Frank Gangi) collectively, the "Individual
Defendants")) and Ito-Yokado Co., Ltd., Seven-Eleven Japan Co., Ltd. and
IYG Holding Company (collectively, the "Foreign Companies") were named as
defendants in this case.
27
The third amended complaint alleges: (1) that, starting with
Southland's leveraged buyout 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, and
(2) fraudulent misrepresentations relating to the LBO. Additional claims
were asserted against the Foreign Companies and the Thompsons for alleged
tortious interference with, and conspiracy to tortiously interfere with,
the franchise agreements by completing Southland's Plan of Reorganization
in 1991; the court dismissed all of these claims in November 1995.
Additional claims were asserted against the Thompsons alleging fraudulent
misrepresentations and fraudulent conveyance relating to the LBO, against
all Individual Defendants other than the Thompsons for alleged fraudulent
conveyance tortious interference with, and conspiracy to tortiously
interfere with, the franchisees' agreements by authorizing Southland's
completion of the LBO and execution of its Credit Agreement in 1987. The
third amended complaint requests damages, interest, costs and attorneys'
fees "in excess of $1 billion."
Southland filed a motion to dismiss all claims asserted against it,
except the breach of contract claim. The Individual Defendants and the
Foreign Companies filed motions to dismiss, motions for reconsideration
or motions for summary judgment. As noted above, the court dismissed all
claims against the Foreign Companies and the Thompsons involving the
tortious interference and conspiracy to tortiously interfere claims. As a
result, there are no claims pending against the Foreign Companies. The
court has not ruled on the other motions. The court has also 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 vigorously defend all
of the claims on the merits. Southland believes that it has meritorious
defenses to each of the claims. At this time, however, the litigation is
still at an early stage of development and the ultimate outcome cannot be
predicted.
As previously reported, on June 21, 1995, a lawsuit was filed against
the Company by T&L Property Service, an affiliate of Tal-Tex, Inc. ("Tal
Tex"). Tal-Tex is a water supply company located near Round Rock, Texas.
The complaint was subsequently amended to include claims by Tal-Tex, its
principals and certain individuals who reside in or near Round Rock on
behalf of themselves and a purported class of similarly-situated
residents, alleging personal injuries and property damage as a result of
the release of petroleum from underground storage tanks at a 7-ELEVEN
store in Round Rock. In March, 1996, the individual claims of the Tal
Tex entities were severed from the class action. The Company strongly
contests and is vigorously defending against both lawsuits. At this
stage in the litigation, the Company is unable to predict the ultimate
outcome of these cases.
On or about August 31, 1995, Southland was named as a defendant in a
class action filed in the 361st District Court in Brazos County, Texas.
The case is styled ARTURO M. VASQUEZ ET AL. V. THE SOUTHLAND CORPORATION,
ET AL. and asserts certain claims on behalf of a purported class of
property owners whose properties have allegedly been damaged by petroleum
releases from underground storage tanks at approximately 150 former or
current Southland locations in Texas. Southland's motion to transfer
28
venue to Dallas County, Texas, was approved but the plaintiffs have filed a
motion for rehearing and the hearing on that motion is scheduled for
April 15, 1996. Southland strongly contests and is vigorously defending
against the claims in the lawsuit. At this early stage in the
litigation, it is impossible to predict Southland's exposure, if any, to
liability.
Information concerning other legal proceedings is incorporated herein
from "Environmental Matters," pages 17 through 19, above.
In the ordinary course of business, the Company is also involved in
various other legal proceedings which, in the Company's opinion, are not
material, either individually or in the aggregate.
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 1995.
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 8, 1996, there were 3,097 record
holders of the Common Stock. The Company's Common Stock is traded on The
Nasdaq Stock Market under the symbol "SLCM". The following information
has been provided to the Company by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
PRICE RANGE
QUARTERS HIGH LOW CLOSE
- ------------- -------------------------------------------------
<S> <C> <C> <C>
1995
FIRST $ 4 23/32 $ 3 7/16 $ 3 3/4
SECOND 4 3/8 3 7/16 3 7/16
THIRD 4 1/8 2 7/8 3
FOURTH 4 1/4 2 15/16 3 5/16
1994
FIRST $ 6 3/4 $ 3 13/16 $ 3 7/8
SECOND 6 1/4 3 7/8 6 1/4
THIRD 6 3/8 4 1/2 5 3/4
FOURTH 5 13/16 4 1/4 4 1/2
</TABLE>
(a) These quotations reflect inter-dealer prices without retail mark-
up, mark-down or commission and may not necessarily represent
transactions.
29
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.
30
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
S E L E C T E D F I N A N C I A L D A T A
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
Years Ended December 31
---------------------------------------------------
1995 1994 1993 1992 1991
--------- -------- -------- -------- ------
(Dollars in Millions, Except Per-Share Data)
<S> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . $6,745.8 $6,684.5 $6,744.3 $7,425.8 $8,009.5
Other income (a) . . . . . . . . . . 71.0 66.4 61.6 57.9 54.4
Total revenues (a) . . . . . . . . . 6,816.8 6,750.9 6,805.9 7,483.7 8,063.9
LIFO charge (credit) . . . . . . . . 2.6 3.0 (8.7) 1.5 (7.2)
Depreciation and amortization . . . 166.4 162.7 154.4 180.3 200.1
Interest expense, net (a)(b) . . . . 85.6 95.0 81.8 97.4 153.8
Earnings (loss) before income taxes,
extraordinary items and cumulative
effect of accounting changes . . . 101.5 73.5 (2.6) (119.9)(c) (66.3)
Income taxes (benefit) . . . . . . . (66.1)(d) (18.5)(e) 8.7 11.5 8.0
Earnings (loss) before extraordinary
items and cumulative effect of
accounting changes . . . . . . . . 167.6 92.0 (11.3) (131.4) (74.3)
Net earnings (loss). . . . . . . . . 270.8(f) 92.0 71.2 (g) (131.4) 82.5 (h)
Earnings (loss) per common share
(primary and fully diluted):
Before extraordinary items
and cumulative effect of
accounting changes. . . . . . 0.40 0.22 (0.03) (0.32) (0.22)
Net earnings (loss) . . . . . . 0.65 0.22 0.17 (0.32) 0.24
Total assets . . . . . . . . . . . . 2,081.1 2,000.6 1,990.0 2,039.7 2,607.7
Long-term debt, including current. . 1,850.6 2,351.2 2,419.9 2,560.4 3,037.1
portion (b)
</TABLE>
- --------------------------
(a) Prior-year amounts have been reclassified to conform to current-year
presentation.
(b) The Company's 1991 public debt issuances are accounted for in accordance
with SFAS No. 15 as explained in Note 8 to the Consolidated Financial
statements.
(c) Loss before income taxes, extraordinary items and cumulative effect of
accounting changes include a $45,000,000 loss on the sale and closing of
the Company's distribution and food processing facilities.
(d) Income taxes (benefit) includes an $84,269,000 tax benefit from
recognition of the remaining portion of the Company's net deferred tax
assets as explained in Note 14 to the Consolidated Financial Statements.
(e) 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 14 to the Consolidated Financial Statements.
(f) Net earnings include an extraordinary gain of $103,169,000 on
debt redemption as explained in Note 8 to the Consolidated Financial
Statements.
(g) 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 8
and 12 to the Consolidated Financial Statements, respectively.
(h) Net earnings include an extraordinary gain on debt restructuring
of $156,824,000.
31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF RESULTS OF OPERATIONS
The Company's net earnings for 1995 were $270.8 million, compared to
net earnings of $92.0 million in 1994 and $71.2 million in 1993.
Continued improvement in the Company's operating performance resulted in a
38% increase in 1995 earnings before income taxes.
<TABLE>
<CAPTION>
Years Ended December 31
- ------------------------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE DATA) 1995 1994 1993
--------- --------- -------
<S> <C> <C> <C>
Earnings (loss) before income taxes,
extraordinary gain and cumulative
effect of accounting change $ 101.5 $ 73.5 $ (2.6)
Income tax benefit (expense) 66.1 18.5 (8.7)
Extraordinary gain from partial redemption
of the Company's 4 1/2 and 5% debentures in
November 1995 103.2
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 $ 270.8 $ 92.0 $ 71.2
======== ======== ========
Net earnings per common share (primary
and fully diluted) $ .65 $ .22 $ .17
======== ======== ========
</TABLE>
Each years' results included the following special or unusual items,
in addition to the items noted above:
<TABLE>
<CAPTION>
Years Ended December 31
- ------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
--------- --------- ------
<S> <C> <C> <C>
Severance and related costs $ (13.4) $ (7.4) $ (7.2)
Deferred income tax benefit 84.3 30.0
Loss for store closings and dispositions
of properties (3.7) (48.2)
Disposition of Citijet, a fixed-base
operation at Dallas Love Field Airport (10.8)
</TABLE>
The Company's operating improvement in 1995 was primarily due to
savings in "Operating, Selling, General and Administrative" (OSG&A)
expenses. Although store closings (173 average) resulted in a decline in
total merchandise gross profit compared to 1994, average per store
merchandise sales and gross profits improved in each quarter in 1995 over
1994.
(EXCEPT WHERE NOTED, ALL PER-STORE NUMBERS REFER TO AN AVERAGE OF ALL
STORES RATHER THAN ONLY STORES OPEN MORE THAN ONE YEAR)
32
FINANCIAL STATEMENT CHANGES
The Company has made the following changes to its financial
statements for all years presented, and has restated such items in the
comparisons provided to maintain consistency:
i) Total Revenues - interest income was
reclassified from "Other Income" to "Interest Expense, Net".
(See Note 1 of "Notes to Consolidated Financial
Statements")
ii) Cost of Goods Sold (COGS) - Buying and occupancy expenses were
reclassified to OSG&A expenses. Although these changes were made
for financial statement purposes during the fourth quarter of
1995, prior Management's Discussion and Analysis had been excluding
buying and occupancy expenses, as well as certain merchandise and
gasoline inventory-related expenses, from per store gross profit and
margin results.
iii) Profit Sharing Contribution - this expense is now included in
OSG&A expenses.
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: an upgraded store base; a customer-driven approach to
product selection; an everyday-fair-pricing policy on all items; daily
delivery of fresh perishable items; introduction of high-quality,
ready-to-eat fresh foods; and the implementation of a retail automation
system.
The Company plans to upgrade its store base by remodeling
existing stores, closing underperforming stores and developing new
sites. Over the last few years, the Company has devoted the majority of
its capital resources toward the most extensive remodeling of its store
base ever undertaken. In conjunction with the remodeling program,
the Company has been pruning its store base by closing or disposing of
those stores that are not expected to achieve an acceptable level
of profitability in the future. As a result, the Company closed 228
stores in 1995, 184 in 1994 and 401 in 1993. The Company expects to
complete its remodeling program by the end of this year; however, it
will continue to refurbish its store base as necessary. The planning
process for new store sites is well under way. The Company's capital
investment focus will shift to store development (see Liquidity and
Capital Resources - Capital Expenditures). Initial plans are to strengthen
its position by expanding the store base in existing markets, with store
openings in 1996 expected to offset store closings/dispositions. However,
by 1997 the Company expects new store openings to significantly outpace
closures each year.
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 emphasizing 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 a continual effort to satisfy the everchanging
preferences of our customers.
33
The Company's everyday-fair-pricing strategy, which was
introduced in 1992, has provided consistent prices on all items by
reducing its reliance on discounting. As a result, some product prices were
increased, while others were lowered to achieve more consistent pricing
on all products. Going forward, the Company plans to migrate toward lower
retail prices as lower product costs are achieved through contract
negotiations or strategic alliances with 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 ("CDC"), 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 provide
lower product costs, in part from vendors' savings, through this
approach. The Company expects the improved freshness and lower cost of
the products from these operations to improve sales and gross profits. At
the end of 1995, over 800 stores were serviced by the CDC's and
carried fresh food products manufactured by the
commissaries. Further expansion of these programs is anticipated in 1996
in the following markets: Denver/Colorado Springs, Baltimore,
Richmond/Norfolk, San Jose, Orlando/Tampa,and Chicago. When
operational, CDC's in these markets will make daily-delivered fresh food
available to nearly one-half of the Company's stores.
The development of a retail automation system began in 1994. The
initial phase, which will be completed in early 1996, involves
installing in-store processors ("ISP") in each store that will
automate accounting and other store-level tasks. The second phase
involves installing cash registers which, among other things, will feed
data directly to the ISP. After future phases are complete, the system
will provide each store and its suppliers and distributors with on-line
information to make better decisions in anticipating customer needs.
SALES
The Company recorded net sales of $6.75 billion for the year
ended December 31, 1995, compared to sales of $6.68 billion in 1994 and
$6.74 billion in 1993. To strengthen its store base (see
Management Strategies), the Company has closed more than 800
underachieving stores over the last three years. Same store
merchandise sales increases since 1993 have minimized the lost sales from
store closings, resulting in total sales remaining flat during this time
period. In addition, 1994 and 1993 merchandise sales results were
adversely impacted by the deflationary effect of cigarette price reductions
(on certain premium brands) associated with manufacturers' cost reductions
starting in August, 1993. The total sales increase in 1995 was primarily
due to higher gasoline gallons and retail sales price per gallon.
34
U.S. same-store merchandise sales increases or (decreases) as
compared to the prior year and inflation information is presented
below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
INCREASE/(DECREASE) FROM PRIOR YEAR 1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Same-store sales 2.0% 2.1% (2.7)%
Same-store real growth; excluding inflation - 2.8% (4.7)%
7-Eleven inflation (deflation) 2.1% (.7)% 2.2%
</TABLE>
Overall, domestic same-store merchandise sales growth continued its
positive trend in 1995, however, results varied by geographic region.
The largest increases occurred in those areas with the highest percentage
of completed remodels (Florida 4.8%, Texas/Colorado 4.1%). Conversely, the
Southern California area, which includes 18% of the Company's domestic
stores, experienced a decline of almost 1.5% due to a sluggish economy. In
addition, this is the area where the lowest percentage of remodels has
been completed.
Gasoline sales dollars per store increased 4.0%, 8.7% and 9.1% in
1995, 1994 and 1993, respectively. This improvement is primarily due to
per store gallonage improvement of 1.0% in 1995, 7.8% in 1994 and 11.1%
in 1993, reflecting the impact of several successful business strategies.
Gallon volumes in 1995 did not sustain the high growth levels
experienced in 1993 and 1994 as a result of market factors which affect
the way the Company manages its gasoline business.
OTHER INCOME
Other income of $71.0 million for 1995 was $4.6 million higher than
1994 and $9.4 million higher than 1993. The improvement is primarily
the result of increased royalty income from licensed operations.
GROSS PROFITS
<TABLE>
<CAPTION>
MERCHANDISE GROSS PROFIT DATA YEARS ENDED DECEMBER 31
------------------------------
1995 1994 1993
--------- --------- -------<S>
<C> <C> <C>
Merchandise gross profit - DOLLARS IN MILLIONS $ 1,790.2 $ 1,791.1 $ 1,847.9
INCREASE/(DECREASE) FROM PRIOR YEAR
Average per store gross profit dollar change 3.1% 1.7% 2.4%
Margin percentage point change (.01) (.50) 1.21
Average per store merchandise sales 3.1% 3.2% (1.1)%
</TABLE>
Even though total merchandise gross profits have declined
primarily from fewer stores, merchandise gross profit per store has
consistently improved over prior year results for each of the last
twelve quarters.
Merchandise gross profit margins in 1993 increased as a result of the
Company's implementation of its everyday-fair-pricing strategy, which
reduced discounting and promotional activities (see Management
Strategies). Margins have also been favorably affected by lower
35
cigarette costs (beginning in August 1993) and lower product costs
under the Company's supply agreement with McLane. 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-pricing strategy. These lower prices, combined with
increased costs for disposal of slow moving merchandise, was primarily
responsible for the decrease in 1994 merchandise margins.
During 1995, merchandise margin declined slightly compared to
1994. While some higher margin categories, such as services, showed good
growth throughout the year, overall merchandise margin declined in the
fourth quarter almost .5 percent compared to the same period last year.
This decline was the result of several factors including rising costs that
were not entirely passed on to the consumer, initial introductory costs
associated with new fresh-food products and increased focus on
deleting slower-moving items. Management is actively working to
maintain a merchandise margin level consistent with last year.
<TABLE>
<CAPTION>
GASOLINE GROSS PROFIT DATA YEARS ENDED DECEMBER 31
------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Gasoline gross profit - DOLLARS IN MILLIONS $ 192.9 $ 199.6 $ 195.6
INCREASE/(DECREASE) FROM PRIOR YEAR
Average per store gross profit dollar change (3.3)% 8.2% 33.4%
Margin point change (in cents per gallon) (.60) .06 2.37
Average per store gas gallonage 1.0% 7.8% 11.1%
</TABLE>
In 1995, gasoline gross profits declined $6.7 million from the levels
achieved in 1994 due to lower margins (in cents per gallon), which were
affected by market conditions that kept wholesale costs high for much of
the year while competitive pressures kept retail prices soft. Gasoline
gross profit dollars and margin were unusually high in the fourth quarter
of 1994 as a result of favorable market conditions created by the
federally mandated fuel reformulation program. Contributing factors to the
strong results in 1993, 1994 and the first three quarters of 1995,
were the Company's business strategies which closed low-volume locations,
enhanced the appeal and convenience of its gas facilities and placed
increased emphasis on bystore management of gasoline merchandising.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Total operating, selling, general and
administrative expenses $ 1,867.0 $ 1,888.6 $ 2,030.4
Ratio of reported OSG&A to sales 27.7% 28.3% 30.1%
Decrease in reported OSG&A
compared to prior year $ (21.6) $ (141.8) $ (93.7)
Decrease in adjusted OSG&A compared to
prior year * $ (23.9) $ (86.7) $ (98.1)
</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).
The majority of the decrease in OSG&A expenses, as adjusted,
resulted from cost savings realized from reductions in force that
36
began late in 1992 and continued through 1995, combined with the
effect of having fewer stores (see Management Strategies).
The Company continues to review the functions necessary to enable its
stores to respond faster and more cost efficiently to rapidly changing
customer needs and preferences. In conjunction with this review, the
Company continues to realign and reduce personnel and office facilities,
in order to eliminate non-essential costs.
In December 1995, the Company's plans resulted in a $13.4 million
accrual, of which $5.0 million was for severance benefits and $8.4
million for reduction of office space. Reductions of more than 400
employees throughout the Company will result in annualized savings of
approximately $20 million. The office closings and consolidations
involve field operating and staff locations, as well as the Company's
headquarters facilities ("Cityplace"). While the execution of the
office plans will take most of the year, future years' annualized
savings from these initiatives will be approximately $5 million,
including potential income from additional Cityplace leases.
In December 1994, the Company accrued $7.4 million for severance
costs and office reductions. The employee terminations were completed in
1995, while the office realignments will be completed in 1996 along with
those previously discussed. Changes from the estimates for 1994's original
$7.4 million accrual did not have a material impact on 1995 earnings.
INTEREST EXPENSE, NET
The Company's net interest expense in 1995 decreased $9.4 million
compared to 1994. Most of the savings related to non-cash interest
which declined due to the refinancing of the term loans under the
senior bank debt credit agreement ("Credit Agreement") in December 1994
and the extension of the repayment of the debt relating to its
headquarters facilities (Cityplace) at a lower interest rate in
February 1995 (see Liquidity and Capital Resources - Financing
Activities). The adverse impact of the 1.1% rise in the weighted
average interest rate on the Company's floating rate debt during 1995
increased interest expense approximately $8 million. However, the 1.5%
reduction in the margin that the Company negotiated with its bank
lenders in the refinancing in late 1994 offset a portion ($5 million) of
this increase.
In November 1995, the Company consummated a $216.7 million tender
offer to purchase a portion ($263.3 million face value) of its public ebt
securities (see Liquidity and Capital Resources - Financing
Activities). The purchase was financed by the issuance of $300 million of
4.5% Convertible Quarterly Income Debt Securities due 2010
("Convertible Debt"). The annual interest expense of $13.7 million from
issuing the Convertible Debt will not be offset by a
corresponding reduction in interest expense for the retired
debentures, since the retired debentures are subject to Statement of
Financial Accounting Standards No. 15 ("SFAS No. 15") treatment.
Despite the incremental interest expense from the Convertible Debt, the
Company expects total interest expense to remain flat in 1996, due to the
expectation of lower floating rates and debt balances coupled with lower
short-term borrowings from use of the convertible debt proceeds not used
in the tender offer.
Net interest expense in 1994 increased $13.2 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 8 of "Notes to Consolidated
Financial Statements"). Net interest expense in 1993 was $15.6 million
37
lower than in 1992 primarily due to lower interest rates on floating rate
debt, combined with greater use of commercial paper, which has lower
interest rates than other debt instruments. Partially offsetting the
decline in interest expense was lower interest income resulting from the
receipt in 1992 of $5.8 million in interest on tax refunds.
Approximately 35% of the Company's debt contains floating rates,
which had a weighted average interest rate of 6.62% for 1995 versus
5.51% and 4.52% for 1994 and 1993, respectively. In the first quarter of
1996, the Company reduced its exposure to short-term fluctuations in
rates on a substantial portion of its floating rate bank debt by
selecting one year LIBOR maturities at current favorable rates rather than
the shorter terms it has selected in the past.
INCOME TAXES
The Company recorded tax benefits in 1995 and 1994 of $66.1
million and $18.5 million respectively, compared to a tax expense of $8.7
million in 1993. During the fourth quarter of 1994, as a result of the
Company's anticipated 1995 taxable earnings, the valuation
allowance for deferred taxes was reduced $30 million. During the
fourth quarter of 1995, due to the Company's demonstrated ability to
produce higher levels of taxable income, the remaining portion of the
valuation allowance was reversed producing an $84.3 million benefit.
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
under its revolving credit facility. The Company believes that operating
activities coupled with available short-term working capital facilities
will provide sufficient liquidity to fund current operating and capital
expenditure programs, as well as to service debt requirements.
FINANCING ACTIVITIES
On November 22, 1995, the Company completed a tender offer for 40%
of the face value of both its 5% First Priority Senior
Subordinated Debentures due December 15, 2003 ($180.6 million) and 4 1/2%
Second Priority Senior Subordinated Debentures-Series A ($82.7 million)
due June 15, 2004 (collectively, the "Debentures"). Under the terms of the
offer the final clearing prices were $840.00 and $786.00 for the 5% and
4 1/2% Debentures, respectively, per $1,000 face amount, resulting in a
cash outlay by the Company of $216.7 million.
To finance the purchase of the Debentures, the Company issued $300
million in Convertible Debt to Ito-Yokado Co., Ltd., and Seven-
Eleven Japan Co., Ltd., the joint owners of IYG Holding Company, which is
the Company's majority shareholder. The remaining proceeds of $83.3 million
were made available for general corporate purposes. The Convertible Debt
is subordinated to all existing debt, has a 15 year term with no
amortization and is convertible into the Company's common shares at $4.16
per share.
The Company recognized a $103.2 million after tax extraordinary gain
on the purchase of the Debentures in the fourth quarter of 1995.
38
The gain results from purchasing the Debentures below their face value and
from retiring the future undiscounted interest payments on that portion
of the Debentures being purchased. As a result of the Company's
financial restructuring in 1991, SFAS No. 15 required the Company to
include its future undiscounted interest payments on the Debentures in
the carrying value of the debt on the balance sheet.
The Company's Credit Agreement contains a $300 million term loan and
a revolving credit facility. The term loan has scheduled quarterly
repayments of $18.75 million commencing March 31, 1996, through
December 31, 1999. The revolving credit facility contains both a
revolving loan ("Revolver") and letter of credit subfacility, each
having a maximum limit of $150 million and expiring on 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.
The Credit Agreement contains certain financial and operating
covenants requiring, among other things, the maintenance of certain
financial ratios, including interest coverage, fixed charge coverage and
senior indebtedness to earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The covenant levels
established by the Credit Agreement generally require continuing
improvement in the Company's financial condition.
For the period ended December 31, 1995, the Company was in
compliance with all of the covenants required under the Credit
Agreement, including compliance with the principal financial and
operating covenants (calculated over the latest 12-month period) as
follows:
<TABLE>
<CAPTION>
COVENANTS REQUIREMENTS:
- --------- ---------------------------------------
ACTUALS MINIMUM MAXIMUM
----------- ----------- ----------
<S> <C> <C> <C>
Interest coverage * 2.82 to 1.0 2.70 to 1.0
Fixed charge coverage 1.10 to 1.0 1.00 to 1.0
Senior indebtedness to EBITDA 3.56 to 1.0 4.10 to 1.0
</TABLE>
* INCLUDES EFFECTS OF THE SFAS NO. 15 INTEREST PAYMENTS.
The issuance of the Convertible Debt and the tender offer for the
Debentures did not require the approval of the Company's lenders under the
Credit Agreement. However, during the fourth quarter, the Company obtained
an amendment to the Credit Agreement that allows greater flexibility on
uses of the proceeds from the issuance of the Convertible Debt and
how the refinancing is treated under certain financial covenants. The
amendment allows the Company, among other things, to make subsequent
purchases of subordinated debt with any remaining proceeds and to exclude
payments for such purchases from the Company's fixed charge coverage ratio.
In 1995, the Company repaid $289.4 million of debt, of which $216.7
million related to the tender offer for the Debentures. Other principal
reductions during the year were $72.7 million of which $34.6 million
was for SFAS No. 15 interest and $23.9 million was for principal
payments on the Company's Yen denominated loan (secured by the royalty
income stream from its area licensee in Japan). Outstanding
balances at December 31, 1995, for the commercial paper, the Term Loan
and the Revolver were $350.2 million, $300.0 million and zero,
respectively. As of December 31, 1995, outstanding letters of credit
issued pursuant to the Credit Agreement totaled $80.4 million.
39
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 $236.2 million for
1995, compared to $271.6 million in 1994 and $232.1 million in 1993 (see
"Results of Operations" section). In 1995, other items affecting operating
cash flows included a $13.4 million payment related to an IRS examination
of the Company's filings for 1990 and 1991. Such payment had no material
effect on 1995 earnings.
CAPITAL EXPENDITURES
During 1995, net cash used in investing activities consisted
primarily of payments of $192.2 million for property and equipment, the
majority of which was used for remodeling stores, upgrading retail gasoline
facilities, replacing equipment and complying with environmental
regulations. Through December 31, 1995, approximately 4,100 stores have
been remodeled. The remodels are focusing 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.
The Company expects 1996 capital expenditures to be approximately
$210 million (excluding lease commitments), primarily to complete
remodels started in 1995 and to remodel about 1,100 additional stores. The
remaining capital will be used for development of new store sites, to
replace equipment, to upgrade gasoline facilities and to comply with
environmental regulations. While the Company will look at the economics
of each new site, it anticipates that it will finance new store
construction primarily through leases containing initial terms of 15-20
years with typical option renewal periods.
CAPITAL EXPENDITURES - GASOLINE EQUIPMENT
The Company incurs ongoing costs to comply with federal, state and
local environmental laws and regulations primarily relating to
underground storage tank ("UST") systems. The Company anticipates it will
spend approximately $12 million in 1996 on capital improvements required
to comply with environmental regulations relating to USTs, as well as
above-ground vapor recovery equipment at store locations and approximately
an additional $21 million on such capital improvements from 1997 through
1999.
ENVIRONMENTAL COMPLIANCE - STORES
The Company accrues for the anticipated future costs of
environmental clean-up activities (consisting of environmental
assessment and remediation) relating to detected releases of regulated
40
substances at its existing and previously owned or operated sites at
which gasoline has been sold (including store sites and other
facilities that have been sold by the Company). At December 31, 1995, the
Company has an accrued liability of $63.7 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 consideration
of such factors as the age of the tanks, location of tank sites and
experience with contractors who perform environmental assessment and
remedial work.
Under state reimbursement programs the Company is eligible to
receive reimbursement for a portion of future costs, as well as costs
previously paid. At December 31, 1995, the Company has recorded a
gross receivable of $73.4 million (a net receivable of $59.7 million
after an allowance of $13.7 million) for the estimated probable state
reimbursement. There is no assurance of the timing of the receipt of
state reimbursement funds; however, based on its experience, the
Company expects to receive the majority of 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 within the near
future as governmental requirements and state reimbursement programs
continue to be implemented or revised.
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 $37.8 million at
December 31, 1995. Of this amount, $31.7 million was included in deferred
credits and other liabilities and the remainder in accrued expenses and
other liabilities. 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 described above. The Company has
recorded a receivable of $22.0 million at December 31, 1995, representing
the former owner's portion of the clean-up costs.
None of the amounts related to environmental liabilities have been
discounted.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements for the Years Ended December 31, 1995,
1994 and 1993
42
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands, Except Per-Share Data)
<CAPTION>
ASSETS
1995 1994
------------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 43,047 $ 59,288
Accounts and notes receivable. . . . . . . . . . . . . . . 107,224 102,230
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 102,020 101,468
Other current assets . . . . . . . . . . . . . . . . . . . 103,816 40,411
------------- ----------
Total current assets . . . . . . . . . . . . . . . . 356,107 303,397
PROPERTY AND EQUIPMENT. . . . . . . . . . . . . . . . . . . . . 1,335,783 1,314,499
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . 389,227 382,698
------------- ----------
$ 2,081,117 $2,000,594
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable . . . . . . . . . . . . . . . . . . $ 195,154 $203,315
Accrued expenses and other liabilities . . . . . . . . . . 329,429 316,183
Commercial paper . . . . . . . . . . . . . . . . . . . . . 50,198 41,322
Long-term debt due within one year . . . . . . . . . . . . 145,346 123,989
------------- ----------
Total current liabilities . . . . . . . . . . . . . 720,127 684,809
DEFERRED CREDITS AND OTHER LIABILITIES. . . . . . . . . . . . . 236,545 245,807
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . . 1,705,237 2,227,209
CONVERTIBLE QUARTERLY INCOME DEBT SECURITIES. . . . . . . . . . 300,000 -
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. . . . . . . . . . . . . . . . . . . . (1,506,407) 1,782,846)
------------- ----------
Total shareholders' equity (deficit). . . . . . . . . (880,792) (1,157,231)
------------- ----------
$ 2,081,117 $2,000,594
============= ===========
See notes to consolidated financial statements.
43
</TABLE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands, Except Per-Share Data)
<CAPTION>
1995 1994 1993
------------- ------------- -----------
<S> <C> <C> <C>
REVENUES:
Net sales (including $991,788, $992,970 and $962,955
in excise taxes). . . . . . . . . . . . . . . . . . . $ 6,745,820 $ 6,684,495 $ 6,744,333
Other income . . . . . . . . . . . . . . . . . . . . . . . 70,969 66,407 61,592
------------- ------------- -----------
6,816,789 6,750,902 6,805,925
COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 4,762,707 4,693,826 4,696,309
Operating, selling, general and administrative expenses. . 1,866,971 1,888,610 2,030,382
Interest expense, net. . . . . . . . . . . . . . . . . . . 85,582 94,970 81,814
------------- ------------- -----------
6,715,260 6,677,406 6,808,505
------------- ------------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY GAIN AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE. . . . . . . . . . . . . . . . 101,529 73,496 (2,580)
INCOME TAXES (BENEFIT). . . . . . . . . . . . . . . . . . . . . (66,065) (18,500) 8,700
------------- ------------- -----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY
GAIN AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . . . . . 167,594 91,996 (11,280)
EXTRAORDINARY GAIN ON DEBT REDEMPTION (net
of tax effect of $8,603 in 1995 and $0 in 1993). . . . . . 103,169 - 98,968
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR POSTEMPLOYMENT BENEFITS. . . . . . . . . . . . . . . . - - (16,537)
------------- ------------- ------------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,763 $ 91,996 $ 71,151
============= ============= =============
EARNINGS (LOSS) PER COMMON SHARE
(Primary and fully diluted):
Before extraordinary gain and cumulative
effect of accounting change $ .40 $ .22 $(.03)
Extraordinary gain .25 - .24
Cumulative effect of accounting change - - (.04)
------ ------ ------
Net earnings $ .65 $ .22 $ .17
====== ====== ======
See notes to consolidated financial statements.
44
</TABLE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(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, 1993 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)
Net earnings. . . . . . . . . . - - - 270,763 270,763
Foreign currency translation
adjustments. . . . . . . . - - - (2,470) (2,470)
Other . . . . . . . . . . . . . - - - 8,146 8,146
------------ ---- ---------- ------------- -------------
BALANCE, DECEMBER 31, 1995 409,922,935 $ 41 $ 625,574 $ (1,506,407) $ (880,792)
============ ==== ========== ============= =============
See notes to consolidated financial statements.
45
</TABLE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<CAPTION>
1995 1994 1993
------------- ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,763 $ 91,996 $ 71,151
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Extraordinary gain on debt redemption . . . . . . . . . . . . . . . . (103,169) - (98,968)
Cumulative effect of accounting change for postemployment benefits. . - - 16,537
Depreciation and amortization of property and equipment . . . . . . . 147,423 143,670 134,920
Other amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 19,026 19,026 19,430
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . (84,269) (30,000) -
Noncash interest expense. . . . . . . . . . . . . . . . . . . . . . . 1,974 11,384 8,497
Other noncash (income) expense. . . . . . . . . . . . . . . . . . . . (409) 614 3,393
Net loss on property and equipment. . . . . . . . . . . . . . . . . . 7,274 7,504 36,226
(Increase) decrease in accounts and notes receivable. . . . . . . . . (2,708) (3,066) 24,937
(Increase) decrease in inventories. . . . . . . . . . . . . . . . . . (552) 7,895 16,347
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . (1,053) 24,273 3,344
Decrease in trade accounts payable and other liabilities. . . . . . . (18,083) (1,729) (3,737)
------------- ------------- -----------
Net cash provided by operating activities. . . . . . . . . . . . 236,217 271,567 232,077
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment. . . . . . . . . . . . . . (192,221) (171,636) (195,146)
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . 15,720 15,867 22,809
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,770 2,371 4,982
Net currency exchange principal transactions . . . . . . . . . . . . . . . - (5,133) (8,894)
Cash utilized by distribution and food center assets . . . . . . . . . . . - (2,790) (17,739)
Proceeds from sale of distribution and food center assets. . . . . . . . . - 6,305 44,889
------------- ------------- -----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . (173,731) (155,016) (149,099)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit facilities . . . . . . 4,171,927 4,451,774 4,111,500
Payments under commercial paper and revolving credit facilities. . . . . . (4,256,918) (4,418,693) (3,927,234)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . - 300,000 150,000
Principal payments under long-term debt agreements . . . . . . . . . . . . (289,372) (400,580) (403,125)
Proceeds from issuance of convertible quarterly income debt securities . . 300,000 - -
Debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,364) (3,250) (2,437)
------------- ------------- ------------
Net cash used in financing activities. . . . . . . . . . . . . . (78,727) (70,749) (71,296)
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . (16,241) 45,802 11,682
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR. . . . . . . . . . . . . . . . . 59,288 13,486 1,804
------------- ------------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR. . . . . . . . . . . . . . . . . . . . $ 43,047 $ 59,288 $ 13,486
============= ============= =============
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS No.15 Interest . . . . . . . . . . . . . . . $ (97,945) $ (98,157) $ (87,631)
============= ============= =============
Net income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (34,674) $ (7,810) $ (7,969)
============= ============= =============
See notes to consolidated financial statements.
46
</TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993
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. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Prior-year and quarterly amounts
have been reclassified to conform to the current-year
presentation. Buying and occupancy expense of $492,499,000 and
$513,393,000 for the years ended December 31, 1994 and 1993,
respectively, was reclassified from cost of goods sold to operating,
selling, general and administrative expenses ("OSG&A").
The Company operates more than 5,400 7-Eleven and other convenience
stores in the United States and Canada. Area licensees, or their
franchisees, and affiliates operate approximately 10,000 additional 7Eleven
convenience stores in certain areas of the United States, in 18 foreign
countries and in the U. S. territories of Guam and Puerto Rico. The
Company's net sales are comprised of sales of groceries, take-out foods
and beverages, gasoline (at certain locations), dairy products, non-food
merchandise, specialty items and services. Net sales and cost of goods
sold of stores operated by franchisees are consolidated with the
results of Companyoperated stores. Net sales of stores operated by
franchisees are $2,832,131,000, $2,820,685,000
and $2,810,270,000 from 2,896, 2,962 and 2,998 stores for
the years ended December 31, 1995, 1994 and 1993,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 7Eleven
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, contractualindemnification, business
counseling services and preparation of financial statements.
The gross profit earned by the Company's franchisees of $515,610,000,
$517,955,000 and $530,436,000 for the
47
years ended December 31, 1995, 1994 and 1993, respectively, is included
in the Consolidated Statements of Earnings as OSG&A.
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 area license royalties and
franchise fee income. The area license royalties include amounts from
area license agreements with SEJ of approximately $44,000,000, $42,000,000
and $39,000,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Buying and
occupancy expenses are included in OSG&A.
INTEREST EXPENSE - Interest expense is net of interest income of
$16,975,000, $13,618,000 and $12,745,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include
temporary cash investments of $8,787,000 and $3,028,000 at December 31,
1995 and 1994, 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, leasehold improvements are
written down to their net realizable value and a provision is made on a
current basis if anticipated expenses are in excess of expected sublease
rental income.
BUSINESS SEGMENT - The Company operates in a single business segment
- - the operating, franchising and licensing of convenience food stores,
primarily under the 7-Eleven name.
48
2. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
---------- --------
(Dollars in Thousands)
<S> <C> <C>
Notes receivable (net of long-term
portion of $14,606 and $15,309) $ 2,273 $ 5,773
Trade accounts receivable 48,599 42,856
Franchisee accounts receivable 43,556 47,682
Environmental cost reimbursements
(net of long-term portion of
$64,034 and $67,546) - see
Note 13 17,654 12,709
---------- ---------
112,082 109,020
Allowance for doubtful accounts (4,858) (6,790)
---------- ----------
$ 107,224 $ 102,230
========== ==========
</TABLE>
3. INVENTORIES
Inventories stated on the LIFO basis that are included in
inventories in the accompanying Consolidated Balance Sheets were
$62,705,000 and $63,340,000 at December 31, 1995 and 1994,
respectively, which is less than replacement cost by $30,907,000 and
$28,286,000, respectively. At December 31, 1993, inventories were
reduced resulting in a liquidation of LIFO inventory layers recorded
at costs that were lower than the costs of current purchases.
The effect of this reduction was to decrease cost of goods sold by
approximately $3,900,000 in 1993.
4. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Prepaid expenses $ 17,775 $ 18,474
Deferred tax assets (net of allowance
of $77,218 in 1994) 78,665 13,861
Other 7,376 8,076
---------- ---------
$ 103,816 $ 40,411
========== ==========
</TABLE>
49
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
------------- -----------
(Dollars in Thousands)
<S> <C> <C>
Cost:
Land $ 461,585 $ 475,611
Buildings and leaseholds 1,274,651 1,223,128
Equipment 697,673 623,755
Construction in process 32,725 35,634
------------- -----------
2,466,634 2,358,128
Accumulated depreciation and
amortization (1,130,851) (1,043,629)
------------- ------------
$ 1,335,783 $ 1,314,499
============= =============
</TABLE>
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets." The statement establishes
accounting standards for the impairment of long-lived assets to be held
and used and for long-lived assets to be disposed of, and must be adopted
no later than 1996. The impact on the Company's earnings is not expected to
be material when the Company adopts the statement in 1996.
6. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
------------- -----------
(Dollars in Thousands)
<S> <C> <C>
Japanese license royalty intangible
(net of accumulated amortization of
$132,988 and $116,972) $ 185,513 $ 201,528
Other license royalty intangibles (net
of accumulated amortization of
$23,750 and $20,914) 32,854 35,690
Environmental cost reimbursements
(net of allowance of $13,705 and
$18,890) - see Note 13 64,034 67,546
Deferred tax assets (net of allowance
of $97,371 in 1994) 30,396 16,139
Other (net of accumulated amortization
of $5,023 and $7,281) 76,430 61,795
------------ -----------
$ 389,227 $ 382,698
============ ============
</TABLE>
50
7. ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
---------- ---------
(Dollars in Thousands)
<S> <C> <C>
Accrued insurance $ 83,068 $ 95,372
Accrued payroll 43,025 51,024
Accrued taxes, other than income 40,710 40,372
Accrued environmental costs (see Note 13) 40,659 35,574
Other 121,967 93,841
---------- ---------
$ 329,429 $ 316,183
========== ==========
</TABLE>
Other includes accounts payable to The Southland Corporation
Employees' Savings and Profit Sharing Plan (see Note 12) for
contributions and contingent rent payables of $13,635,000 and
$13,186,000 as of December 31, 1995 and 1994, respectively.
The Company continues to review the functions necessary to enable its
stores to respond faster, more creatively and more cost
efficiently to rapidly changing customer needs and preferences. To
accomplish this goal, the Company continues to realign and reduce
personnel and office facilities.
In December 1995, the Company accrued $13,415,000 for severance
benefits for employees to be terminated and for reduction in office
space. The cost of the reorganization plan was recorded in OSG&A and
is comprised of $4,979,000 for severance benefits and $8,436,000
for reductions in office facilities.
In December 1994, the Company accrued $7,405,000 for severance
benefits for employees terminated and for changes in office
facilities. The employee terminations were substantially completed in
1995, and the office realignments are scheduled for completion in
1996. Changes in estimates from the original $7,405,000 accrual did
not have a material impact on 1995 earnings.
51
8. DEBT
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994
------------ ----------
(Dollars in Thousands)
<S> <C> <C>
Bank Debt Term Loans $ 300,000 $ 300,000
Bank Debt revolving credit facility - 50,000
Commercial paper 300,000 350,000
5% First Priority Senior Subordinated
Debentures due 2003 377,558 615,539
4-1/2% Second Priority Senior Subordinated
Debentures (Series A) due 2004 170,952 294,597
4% Second Priority Senior Subordinated
Debentures (Series B) due 2004 25,146 25,897
12% Second Priority Senior Subordinated
Debentures (Series C) due 2009 57,082 59,696
6-1/4% Yen Loan 229,243 253,114
7-1/2% Cityplace Term Loan due 2005 286,949 289,698
Canadian revolving credit facility 11,179 5,678
Capital lease obligations 90,852 105,159
Other 1,622 1,820
------------ ----------
1,850,583 2,351,198
Less long-term debt due within one year 145,346 123,989
------------ -----------
$ 1,705,237 $ 2,227,209
============ ============
</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 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. 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 16 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
52
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, 1995, outstanding letters of credit related to the Credit
Agreement totaled $80,409,000.
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 outstanding at December 31, 1995 and 1994 was 6.9% and 7.1%,
respectively. The weighted-average interest rate on revolving credit
facility borrowings outstanding at December 31, 1994, was 8.5%. 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 includes unissued letters of credit, is
payable quarterly.
COMMERCIAL PAPER - The Company has a facility that provides for the
issuance of up to $400 million in commercial paper. At December 31,
1995, $300 million of the $350,198,000 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, 1995 and 1994, respectively, was 5.8% and 6.0%.
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, had an
outstanding principal amount of $269,993,000 at December 31, 1995, and
are redeemable at any time at the Company's option at 100% of the
principal amount.
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 the principal amount and are described as follows:
- 4-1/2% Series A Debentures, due June 15, 2004, with an outstanding
principal amount of $123,654,000 at December 31, 1995.
53
- 4% Series B Debentures, due June 15, 2004, with an outstanding
principal amount of $18,766,000 at December 31, 1995.
- 12% Series C Debentures, due June 15, 2009, with an outstanding
principal amount of $21,787,000 at December 31, 1995.
In November 1995, the Company purchased $180,621,000 of the
principal amount of its First Priority Senior Subordinated
Debentures due 2003 ("5% Debentures") and $82,719,000 of the
principal amount of its 4-1/2% Second Priority Senior Subordinated
Debentures (Series A) due 2004 ("4-1/2% Debentures") (collectively,
"Refinanced Debentures") with a portion of the proceeds from the
issuance of $300 million principal amount of Convertible Quarterly Income
Debt Securities (see Note 9). The purchase of the Refinanced
Debentures resulted in an extraordinary gain of $103,169,000 (net of
current tax effect of $8,603,000) as a result of the discounted purchase
price and the inclusion of SFAS No. 15 Interest in the carrying amount of
the debt.
Prior to the refinancing, the 5% Debentures were subject to annual sinking
fund requirements of $27,037,000 due each December 15, commencing 1996
through 2002. The Company used its purchase of the 5% Debentures to
satisfy such sinking fund requirements in direct order of maturity until
December 15, 2002, at which time a sinking fund payment of $8,638,000 will
be due. 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 were
redeemed in 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, its area licensee in Japan, through a loan that is
nonrecourse to the Company as to principal and interest. The original
amount of the yen-denominated debt was 41 billion yen (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.
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.
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
54
that date. 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. The current interest rate of 6-
1/4% will be reset after March 1998.
CITYPLACE DEBT - Cityplace Center East Corporation ("CCEC"), a
subsidiary of the Company, issued $290 million of notes in 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 - In November 1995, Southland Canada, Inc., entered
into a revolving credit facility with a Canadian chartered bank, which
replaces a similar facility established in 1988. The facility provides
bank financing of up to Canadian $15 million (approximately U.S.
$10,994,000 at December 31, 1995) until December 31, 1999, when the
facility will expire, and all amounts outstanding will be due and payable
in full. At December 31, 1995, the Company was fully drawn under this
facility. Interest on such facility is generally payable monthly and
is based upon the Canadian Prime rate (7.5% at December 31, 1995) plus
.25% per year or a bankers' acceptance rate plus 1.25% per year. The
weighted average interest rate on revolving credit facility borrowings
outstanding at December 31, 1995 and 1994, respectively, was 7.5% and
7.3%.
The previous revolving credit facility with the same Canadian
chartered bank provided financing in which the maximum amount
available declined each year until the facility was scheduled to expire
on June 30, 1998. At such time, all amounts outstanding were then due
and payable in full. Interest payment terms on this facility were similar
to those of the new facility, but interest rates were slightly less
favorable.
55
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):
1996 $ 145,346
1997 144,164
1998 147,855
1999 158,238
2000 81,654
Thereafter 1,173,326
------------
$ 1,850,583
============
9. CONVERTIBLE QUARTERLY INCOME DEBT SECURITIES DUE 2010
In November 1995, the Company issued $300 million principal amount of
Convertible Quarterly Income Debt Securities due 2010
("Convertible Debt") to IY and SEJ. The Company used $216,739,000 of the
proceeds to purchase the Refinanced Debentures (see Note 8), and the
remaining proceeds were designated for general corporate purposes. The
Convertible Debt has an interest rate of 4-1/2% and gives the Company the
right to defer interest payments thereon for up to 20 consecutive
quarters. The holder of the Convertible Debt can convert it into a maximum
of 72,112,000 shares of the Company's common shares. The conversion rate
represents a premium to the market value of Southland's common stock at
the time of issuance of the Convertible Debt. As of December 31, 1995, no
shares had been issued as a result of debt conversion. The Convertible
Debt is subordinate to all existing debt.
In addition to the principal amount of the Convertible Debt, the 1995
financial statements include interest payable of $638,000 and interest
expense of $1,313,000 related to the Convertible Debt.
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.
56
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The disclosure of the estimated fair value of financial instruments has
been determined by the Company using available market information
and appropriate valuation methodologies as indicated below.
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 other financial
instruments at December 31, 1995, are listed in the following table:
ESTIMATED CARRYING FAIR
AMOUNT VALUE
---------- --------
(Dollars in Thousands)
Bank Debt $ 300,000 $ 300,000
Commercial Paper 350,198 350,198
Debentures 630,738 358,267
Yen Loan 229,243 294,565
Cityplace Term Loan 286,949 304,504
Convertible Debt 300,000 301,530
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 40 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, 1995,
bid prices obtained from investment banking firms where traders regularly
make a market for these financial instruments. The carrying amount of
the Debentures includes $196,538,000 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.
- - The fair value of the Cityplace Term Loan is estimated by calculating the
present value of the future cash flows at current interest rates.
- - The fair value of the Convertible Debt at December 31, 1995, is estimated
by an investment banking firm and includes both an interest rate and an
equity component.
57
12. 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, a 401(k) defined contribution
plan, are made by both the participants and Southland. Southland
contributes the greater of approximately 10% of its net earnings or an
amount determined by Southland's president. Net earnings as amended
during 1995 is calculated without regard to the contribution to the
Savings and Profit Sharing Plan, federal income taxes, gains from debt
repurchases and refinancings and, at the discretion of Southland's
president, income from accounting changes. 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, 1995, 1994 and 1993 were $11,318,000, $10,513,000
and $11,956,000 (including amounts allocated to the distribution and
food centers in 1994 and 1993), respectively, and are included in OSG&A.
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 1995, 1994 and 1993
include the following components:
1995 1994 1993
-------- -------- ------
(Dollars in Thousands)
Service cost $ 585 $ 752 $ 824
Interest cost 1,678 1,732 2,048
Amortization of unrecognized gain (583) (61) -
-------- -------- -------
$ 1,680 $ 2,423 $ 2,872
======== ======== ========
58
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7% and 8% at
December 31, 1995 and 1994, respectively. Components of the accrual
recorded in the Company's consolidated balance sheets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
------------ ----------
(Dollars in Thousands)
<S> <C> <C>
Accumulated Postretirement
Benefit Obligation:
Retirees $ 11,960 $ 11,197
Active employees eligible to retire 5,234 4,716
Other active employees 6,328 5,354
--------- ---------
23,522 21,267
Unrecognized gains 5,198 7,953
--------- ---------
$ 28,720 $ 29,220
========= =========
</TABLE>
POSTEMPLOYMENT BENEFITS - The Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," in 1993 and
recorded an accumulated postemployment benefit obligation of
$16,537,000. The obligation primarily represents future medical costs
relating to short-term and long-term disability. The
accumulated postemployment benefit obligation, which had no tax effect,
was recorded as the cumulative effect of an accounting change. As of
December 31, 1995 and 1994, the amount of the obligation was
$19,390,000 and $18,460,000, respectively.
EQUITY PARTICIPATION PLAN - In 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. 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 or debentures 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,
which is described in a following paragraph.
Options were granted in 1988 at the fair market value on the date of
grant, which is the same as the conversion price provided in the
debentures. All options and convertible debentures that were vested became
exercisable as of December 31, 1994, pursuant to the terms of the
Participation Plan. At December 31, 1995, there were vested options
outstanding to acquire 948,499 shares, of which 909,999 were at $7.50
per share and 38,500 were at $7.70 per share, and vested debentures
outstanding that were convertible at $7.50 per share into 5,000 shares.
During 1995, options to acquire 812,304 shares and debentures
convertible into 12,833 shares expired for those participants who are no
longer with the Company. All options expire, and the debentures mature, no
later than December 31, 1997.
GRANT STOCK PLAN - In 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. Shares issued under the Stock Plan decrease the number of
59
shares that can be issued pursuant to the Participation Plan. The stock
is fully vested upon the date of issuance. As of December 31, 1995,
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.
STOCK INCENTIVE PLAN - The Company adopted The
Southland Corporation 1995 Stock Incentive Plan (the "Stock Incentive
Plan") in October 1995, subject to shareholder approval, which is being
sought at the annual meeting of shareholders to be held in April 1996.
The Stock Incentive Plan provides for the granting of stock options, stock
appreciation rights, performance shares, restricted stock, restricted stock
units, bonus stock and other forms of stock based awards and authorizes the
issuance of up to 41 million shares over a ten-year period. In October
1995, 3,863,600 options were granted, which remain outstanding at December
31, 1995, at the fair market value of $3.1875 per share on the date of
grant to certain key employees and officers of the Company. The options
granted in 1995 are exercisable in five equal installments beginning one
year after grant date with possible acceleration thereafter based upon
certain improvements in the stock price of a share of Southland's common
stock.
During 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The statement must be
adopted no later than 1996. The Company intends to adopt the disclosure-
only requirements of SFAS No. 123 and will therefore continue to apply
the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."
13. LEASES, COMMITMENTS AND CONTINGENCIES
LEASES - Certain property 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 and
equipment in the consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
------------ -----------
(Dollars in Thousands)
<S> <C> <C>
Buildings $ 116,412 $ 125,600
Equipment 225 225
----------- -----------
116,637 125,825
Accumulated amortization (77,428) (78,103)
------------- -----------
$ 39,209 $ 47,722
============ ===========
</TABLE>
60
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.
Future minimum lease payments for years ending December 31 are as
follows:
CAPITAL OPERATING
LEASES LEASES
--------- ----------
(Dollars in Thousands)
1996 $ 21,965 $ 116,621
1997 20,424 105,284
1998 18,793 85,471
1999 17,449 64,869
2000 15,485 48,704
Thereafter 60,405 185,645
---------- ----------
Future minimum lease payments 154,521 $ 606,594
===========
Estimated executory costs (399)
Amount representing imputed interest (63,270)
----------
Present value of future minimum
lease payments $ 90,852
==========
Minimum noncancelable sublease rental income to be received in the future,
which is not included above as an offset to future payments, totals
$23,126,000 for capital leases and $21,695,000 for operating leases.
Rent expense on operating leases for the years ended December 31, 1995,
1994 and 1993, totaled $125,456,000, $120,850,000 and $124,402,000,
respectively, including contingent rent expense of $8,508,000, $8,576,000
and $8,214,000, but reduced by sublease rent income of $7,296,000,
$7,858,000 and $8,545,000. Contingent rent expense on capital leases for
the years ended December 31, 1995, 1994 and 1993, was $2,399,000,
$2,822,000 and $3,084,000, respectively. Contingent rent expense is
generally based on sales levels or changes in the Consumer Price Index.
61
LEASES WITH THE SAVINGS AND PROFIT SHARING PLAN - At December 31, 1995,
the Savings and Profit Sharing Plan owned 197 stores leased to the
Company under capital leases and 634 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, 67, 43
and 62 properties were sold by the Savings and Profit Sharing Plan to
third parties in 1995, 1994 and 1993, 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
-----------------------
1995 1994
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
Buildings (net of accumulated amortization
of $8,853 and $9,619) $ 2,041 $ 3,191
========= =========
Capital lease obligations (net of current
portion of $1,664 and $1,945) $ 2,310 $ 4,109
========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Rent expense under operating leases and
amortization of capital lease assets $ 26,850 $ 28,195 $ 30,028
========= ========= =========
Imputed interest expense on capital
lease obligations $ 483 $ 696 $ 948
========= ========== =========
Capital lease principal payments included
in principal payments under long-term
debt agreements $ 1,818 $ 2,075 $ 2,200
========= ========== =========
</TABLE>
COMMITMENTS
MCLANE COMPANY, INC. - In connection with the 1992 sale of
distribution and food center 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
cost of goods sold 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 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.
62
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, 1995 and 1994, respectively, the Company's
estimated liability for sites where releases have been detected was
$63,669,000 and $63,424,000, of
which $29,174,000 and $32,924,000 are included in deferred credits and
other liabilities and the remainder in accrued expenses and other
liabilities. The Company has recorded receivables of $59,652,000 and
$57,246,000 (net of allowances of $13,705,000 and $18,890,000) for the
estimated probable state reimbursements, of which $45,653,000 and
$47,746,000 are 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 within the near future as
governmental requirements and state reimbursement programs continue to
be implemented or revised.
The Company anticipates that substantially all of the future
remediation costs for sites with detected releases of regulated
substances at December 31, 1995, 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 the majority of 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
$37,824,000 and $39,254,000 at December 31, 1995 and 1994,
respectively. Of this amount, $31,660,000 and $34,180,000 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
has recorded receivables of $22,035,000 and $23,009,000 at December
31, 1995 and 1994, respectively, representing the former owner's
portion of the clean-up costs. Of this amount, $18,381,000 and
$19,800,000 are included in other assets and the remainder in accounts
and notes receivable for 1995 and 1994, respectively.
63
14. 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. 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
-------------------------------
1995 1994 1993
---------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Domestic $ 98,775 $ 70,615 $ 3,795
Foreign 2,754 2,881 (6,375)
---------- ---------- --------
$ 101,529 $ 73,496 $ (2,580)
========== ========== ========
</TABLE>
64
The provision for income taxes in the accompanying Consolidated
Statements of Earnings consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1995 1994 1993
---------- ---------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Current:
Federal $ 8,251 $ 6,799 $ 2,759
Foreign 8,968 8,515 5,941
State 985 350 -
Tax benefit of operating loss
carryforward - (4,164) -
---------- ---------- --------
Subtotal 18,204 11,500 8,700
Deferred:
Provision 60,709 - -
Beginning of year valuation
allowance adjustment (144,978) (30,000) -
---------- ---------- --------
Subtotal (84,269) (30,000) -
---------- ---------- --------
Income taxes before extraordinary
gain and cumulative effect of
accounting change $ (66,065) $ (18,500) $ 8,700
========== ========== ==========
</TABLE>
Included in Shareholders' Equity at December 31, 1995, is
$5,208,000 of income taxes provided in 1995 on an unrealized gain on
marketable securities.
Reconciliations of income taxes before extraordinary gain and
cumulative effect of accounting change at the federal statutory
rate to the Company's actual income taxes provided are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1995 1994 1993
---------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Taxes (benefit) at federal statutory
rate $ 35,535 $ 25,724 $ (903)
State income taxes, net of federal
income tax benefit 640 228 -
Foreign tax rate difference 886 1,212 2,232
Net change in valuation allowance
excluding the tax effect of
extraordinary items and the
cumulative effect of accounting
changes (108,632) (47,943) 4,112
Other 5,506 2,279 3,259
---------- ---------- ---------
$ (66,065) $ (18,500) $ 8,700
========== ========== ==========
</TABLE>
65
The valuation allowance for deferred tax assets decreased in 1995 by
$174,589,000. The decrease consisted of a $90,320,000 decrease
resulting from changes in the Company's gross deferred tax assets and
liabilities and an $84,269,000 decrease resulting from a change in
estimate regarding the realizability of the Company's deferred tax
assets. Based on the Company's trend of positive earnings during
the past three years and future expectations, the Company determined
that it is more likely than not that its deferred tax assets will
be fully realized. In 1994, the valuation allowance decreased by
$42,078,000 due to changes in the Company's gross deferred tax
assets and liabilities and the realization of $30,000,000 of the
Company's net deferred tax asset.
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------
1995 1994
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
SFAS No. 15 interest $ 81,038 $ 125,694
Accrued insurance 55,497 58,514
Accrued liabilities 39,665 43,890
Compensation and benefits 32,365 34,029
Tax credit carryforwards 14,833 48,765
Debt issuance costs 6,820 15,445
Other 5,561 6,172
---------- ---------
Subtotal 235,779 332,509
Deferred tax liabilities:
Area license agreements (85,164) (92,515)
Property and equipment (32,853) (29,192)
Other (8,701) (6,213)
---------- ----------
Subtotal (126,718) (127,920)
Valuation allowance - (174,589)
---------- ----------
Net deferred taxes $ 109,061 $ 30,000
========== ==========
</TABLE>
The Company's net deferred tax asset is recorded in other current
assets and other assets (see Notes 4 and 6).
At December 31, 1995, the Company had approximately $2,849,000 of
general business credit carryforwards and $11,984,000 of
alternative minimum tax ("AMT") credit carryforwards. The AMT
credits have no expiration date. The general business credits
expire during the period from 2007 to 2010.
66
15. EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share is computed by dividing net
earnings, plus Convertible Debt interest (see Note 9) net of tax
benefits, by the weighted average number of common shares and common
share equivalents outstanding during each year. The
exercise of outstanding stock options would not result in a
dilution of earnings per share.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 as adjusted for
reclassifications to conform to the current-year presentation (see Note
1) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- -------
(Dollars in Millions, Except Per-Share Data)
<S> <C> <C> <C> <C> <C>
Net sales $ 1,545 $ 1,750 $ 1,826 $ 1,625 $ 6,746
Gross profit 449 512 554 468 1,983
Income taxes (benefit) 2 9 12 (89) (66)
Earnings (loss) before
extraordinary gain (1) 37 50 82 168
Net earnings (loss) (1) 37 50 185 271
Primary and fully diluted
earnings (loss) per
common share before
extraordinary gain - .09 .12 .19 .40
</TABLE>
The second quarter includes a $4,679,000 environmental
reimbursement related to outstanding litigation. The fourth
quarter includes a $103,169,000 extraordinary gain on redemption of
debt related to the refinancing of certain debt securities (see
Note 8), $84,269,000 from realization of a deferred tax asset (see
Note 14) and $13,415,000 of expenses accrued for severance and
related costs (see Note 7).
67
<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 442 513 544 492 1,991
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 1992insurance
claim. The fourth quarter includes $30 million from realization of a
deferred tax asset (see Note 14), $7,405,000 of expenses accrued for
severance and related costs (see Note 7), $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 13).
68
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, 1995 and 1994,
and the related consolidated statements of earnings, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995. 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, 1995 and
1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles. As discussed
in Notes 12 and 14 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 14, 1996
69
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 24, 1996 Annual Meeting of Shareholders.
See also "Executive Officers of the Registrant" beginning on page 19,
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 24, 1996 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 24, 1996 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 24, 1996 Annual Meeting of Shareholders.
70
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, 1995 are included herein:
PAGE
Consolidated Balance Sheets - December 31,1995 and 1994 43
Consolidated Statements of Earnings - Years Ended December 44
31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity (Deficit) 45
- - Years Ended December 31, 1995,
1994 and 1993
Consolidated Statements of Cash Flows - Years Ended 46
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements 47
Independent Auditors' Report of Coopers & Lybrand L.L.P. 69
2. The Southland Corporation and Subsidiaries' Financial Statement
Schedule, included herein.
PAGE
Independent Auditors' Report of Coopers & Lybrand L.L.P. 76
on Financial Statement Schedule
II - Valuation and Qualifying Accounts 77
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.
3. ARTICLES OF INCORPORATION AND BYLAWS.
3.(1) Second Restated Articles of Incorporation of
71
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 S8, 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, dated December 30, 1992, to
Shareholders Agreement, dated as of March 5,
1991, incorporated by reference to File Nos. 0676 and 0-16626,
Annual Report on Form 10-K for year ended December 31, 1992,
Exhibit 4.(i)(5), Tab 1.
4.(i)(6) Second Amendment, dated February 28, 1996, to Tab 1
Shareholders Agreement, dated as of March 5, 1991.*
4.(i)(7) 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)(8) Specimen Warrant Certificates to Purchase
72
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 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).
4.(ii)(5) Form of 4 1/2% Convertible Quarterly Income Debt
Securities due 2010, incorporated by reference to File
Nos. 0-676 and 0-16626, Form 8-K, dated November 21, 1995,
Exhibit 4(v)-1.
9. VOTING TRUST AGREEMENT. NONE. (EXCEPT SEE
EXHIBITS 4.(I)(2) AND 4.(I)(4), 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 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,
incorporated by reference to File Nos. 0-676 and 0-
16626, Annual Report on Form 10-K for the year ended
December 31, 1994, Exhibit 10(i)(2).
10.(i)(3) Second Amendment, dated as of November 28,
1995, to Third Amended and Restated Credit Agreement,
dated as of July 31, 1987,
as
subsequently amended and restated (See Exhibit
73
10(i)(2) above), incorporated by reference to File Nos.
0-676 and 0-16626, Form 8-K, dated November 21, 1995,
Exhibit 10(i)-1.
10.(i)(4) 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)(5) Third Amendment to Credit and Reimbursement
Agreement, dated as of February 10, 1995, by and
between The Sanwa Bank, Limited, Dallas Agency and
Cityplace Center East Corporation, incorporated by
reference to File Nos. 0-676 and 0-16626, Annual Report
on Form 10-K for the year ended December 31, 1994, Exhibit
10(i)(4).
10.(i)(6) 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)(7) 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.(i)(8) Issuing and Paying Agency Agreement, dated as Tab 2
of August 17, 1992, relating to commercial
paper facility, Form of Note, Indemnity and
Reimbursement Agreement and amendment thereto and
Guarantee.*
10.(ii)(B)(1) Standard Form of 7-Eleven Store Franchise Tab 3
Agreement.*
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).
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. 0676, 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
74
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) 1995 Performance Plan, as amended July 1995.* Tab 4
10.(iii)(A)(9) 1995 Stock Incentive Plan, incorporated by
reference to Registration No. 33-63617, Exhibit
4.10.
10.(iii)(A)(10) Form of Award Agreement granting options to Tab 5
purchase Common Stock, dated October 23, 1995,
under the 1995 Stock Incentive Plan.* 10.(iii)(A)(11)
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 6
CALCULATION OF EARNINGS PER SHARE.*
21. SUBSIDIARIES OF THE REGISTRANT AS OF MARCH Tab 7
1996.*
23. CONSENTS OF EXPERTS AND COUNSEL. Tab 8
CONSENT OF COOPERS & LYBRAND L.L.P.,
INDEPENDENT AUDITORS.*
27. FINANCIAL DATA SCHEDULE.
FILED ELECTRONICALLY ONLY, NOT ATTACHED TO
PRINTED REPORTS.
________________________
*Filed or furnished herewith
(b) Reports on Form 8-K.
During the fourth quarter of 1995, the Company filed one report on Form
8-K reporting the issuance of $300 million of 4 1/2% Convertible
Quarterly Income Debt Securities to Ito-Yokado Co., Ltd.
($153 million) and Seven-Eleven Japan Co., Ltd. ($147 million) and the
successful completion of the Company's tender offer to purchase 40% of both
its outstanding 5% First Priority Senior Subordinated Debentures due 2003
and its outstanding 4 1/2% Second Priority Senior Subordinated Debentures
(Series A) due 2004.
(c) The exhibits required by Item 601 of Regulation S-K are attached hereto or
incorporated by reference herein.
(d)(3) The financial statement schedule for The Southland Corporation
and Subsidiaries is included herein, as follows:
Schedule II - The Southland Corporation and Subsidiaries Valuation
and Qualifying Accounts
(for the Years Ended December 31, 1995; 1994 and 1993).
75
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 69 of this Form 10K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 71 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 14, 1996
76
<TABLE>
<CAPTION>
SCHEDULE II
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1994 and 1993 (Dollars
in Thousands)
Additions
----------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
period expenses accounts Deductions of period
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995.................... $ 6,790 $ 931 $ - $ (2,863) (1) $ 4,858
Year ended December 31, 1994.................... 7,822 307 153 (2) (1,492) (1) 6,790
Year ended December 31, 1993.................... 11,925 6,021 1,209 (2) (11,333) (1) 7,822
Allowance for environmental cost reimbursements:
Year ended December 31, 1995.................... 18,890 - - (5,185) (3) 13,705
Year ended December 31, 1994.................... 12,529 6,361 - - 18,890
Year ended December 31, 1993.................... - - 12,529 (4) - 12,529
</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.
(3) Includes an adjustment due to the reassessment of the estimated
reimbursement collectibility.
(4) Prior to year ended December 31, 1993, the allowance and related
receivables were netted with the environmental liability.
77
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 27, 1996 /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>
TITLE DATE
<S> <C> <C>
/s/ Masatoshi Ito Chairman of the Board and Director March 27,
1996
- -------------------------
Masatoshi Ito
/s/ Toshifumi Suzuki Vice Chairman of the Board and Director March 27,
1996
- -------------------------
Toshifumi Suzuki
/s/ Clark J. Matthews, II President and Chief Executive Officer and March 27,
1996
- ------------------------- Director (Principal Executive Officer)
Clark J. Matthews, II
/s/ James W. Keyes Senior Vice President, Finance March 27,
1996
- ------------------------- (Principal Financial Officer)
James W. Keyes
/s/ Donald E. Thomas Controller March 27,
1996
- ------------------------- (Principal Accounting Officer)
Donald E. Thomas
/s/ Yoshitami Arai Director March 27,
1996
- -------------------------
Yoshitami Arai
/s/ Timothy N. Ashida Director March 27,
1996
- -------------------------
Timothy N. Ashida
/s/ Jay W. Chai Director March 27,
1996
- -------------------------
Jay W. Chai
/s/ Gary J. Fernandes Director March 27,
1996
- -------------------------
Gary J. Fernandes
/s/ Masaaki Kamata Director March 27,
1996
- -------------------------
Masaaki Kamata
/s/ Kazuo Otsuka Director March 27,
1996
- -------------------------
Kazuo Otsuka
/s/ Asher O. Pacholder Director March 27,
1996
- -------------------------
Asher O. Pacholder
/s/ Nobutake Sato Director March 27,
1996
- -------------------------
Nobutake Sato
/s/ Tatsuhiro Sekine Director March 27,
1996
- -------------------------
Tatsuhiro Sekine
/s/ John P. Thompson Director March 27,
1996
- -------------------------
John P. Thompson
/s/ Jere W. Thompson Director March 27,
1996
- -------------------------
Jere W. Thompson
</TABLE>
78
Exhibit 4.(i)(6)
SECOND AMENDMENT TO SHAREHOLDERS AGREEMENT
SECOND AMENDMENT (the "Second Amendment") dated as of February
28, 1996, to the Shareholders Agreement dated as of March 5, 1991, by
and among The Southland Corporation, a Texas corporation (the
"Company"), ItoYokado Co., Ltd., a Japanese corporation, IYG Holding
Company, a Delaware corporation, and the following shareholders of the
Company: Thompson Brothers, L.P., a Texas limited partnership,
Thompson Capital Partners, L.P., a Delaware limited partnership,
The Hayden Company, a Texas corporation, The Williamsburg
Corporation, a Texas corporation, Four J Investment, L.P., a Texas
limited partnership, The Philp Co., a Texas corporation,
participants in the Company's Grant Stock Plan who are signatories
thereto, and the Limited Partners of Thompson Capital who are
signatories thereto (the "Shareholders Agreement").
1. DEFINITIONS. Terms defined in the Shareholders Agreement and not
otherwise defined herein are used herein with the meaning so defined.
2. EFFECTIVE DATE OF AMENDMENT TO THE SHAREHOLDERS AGREEMENT. Upon
receipt by the Company of counterparts hereof executed by the
Company, the Purchaser, Philp, Hayden, Williamsburg and Thompson
Brothers, the Shareholders Agreement is hereby amended, effective as of
the date first written above (the "Effective Date"):
3. AMENDMENT TO SECTION 2.5(c).
3.1 Section 2.5(c) of the Shareholders Agreement is hereby
amended by adding the following words at the end of the first
paragraph of Section 2.5(c):
"provided, however, that if the Common Stock is
publicly traded on a nationally recognized securities
market or exchange, then the Fair Market Value shall be
determined by taking the average of the closing price of
the Common Stock on such market or exchange on March 5,
1996 and the five trading days preceding, and the five
trading days following, March 5, 1996, with the resulting
amount being the Fair Market Value for purposes of this
Section 2.5, and, in such event, it shall not be necessary to
use the services of a Referee."
3.2 Section 2.5(c) of the Shareholders Agreement shall now
read, in its entirety, as follows: "(c) FAIR MARKET VALUE.
For purposes of this Section 2.5, the Fair Market Value of
shares of Common Stock shall mean the fair market value
of shares as of the fifth anniversary of the date hereof
as determined by a Referee selected by Put Holders owning a
majority of the shares of Common Stock which are entitled to
be put to Ito-Yokado pursuant to this Section 2.5 from a
list of 3 proposed Referees prepared by Ito-Yokado at least
60 days prior to the fifth anniversary of the date hereof.
The Company shall bear 50% of all of the costs and expenses
of the Referee, and the Put Holders who exercise the Put
Option
1
shall bear 50% of all the costs and expenses of the
Referee on a pro rata basis based on the number of shares of
Common Stock sold by each such Put Holder pursuant to the
Put Option. Such Referee will determine the fair
market value of such property within 30 days following its
selection as such. The Referee shall use one or more
valuation methods that it, in its best professional
judgment, determines to be most appropriate to value the
Company as an entirety, without giving effect to any
discount for the lack of liquidity of the Common Stock or the
fact that the shares being sold represent a minority
interest; provided, however, that if the Common Stock is
publicly traded on a nationally recognized securities
market or exchange, then the Fair Market Value shall be
determined by taking the average of the closing price of the
Common Stock on such market or exchange on March 5, 1996
and the five trading days preceding, and the five trading
days following, March 5, 1996, with the resulting amount
being the Fair Market Value for purposes of this Section
2.5, and, in such event, it shall not be necessary to use the
services of a Referee.
The Company shall provide to such Referee such information and
data relevant to the valuation as the Referee shall
reasonably request."
4. MISCELLANEOUS. The headings herein are for the convenience
of reference only and shall not alter or otherwise affect the
meaning hereof. Except to the extent specifically amended or
modified hereby, the provisions of the Shareholders Agreement shall
not be amended, modified, impaired or otherwise affected hereby, and
the Shareholders Agreement is hereby confirmed in full force and
effect.
5. COUNTERPARTS. This Second Amendment may be executed in any
number of counterparts which together shall constitute one instrument.
6. GOVERNING LAW. THE LAWS OF THE STATE OF TEXAS SHALL GOVERN
THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THE
SECOND AMENDMENT, REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, the parties hereto have executed this
Second Amendment as of the Effective Date first above written.
THE SOUTHLAND CORPORATION
By: /s/ Clark J. Matthews, II
--------------------------
Clark J. Matthews, II
President and Chief Executive Officer
IYG HOLDING COMPANY
By: /s/ T. Suzuki
---------------------------
Toshifumi Suzuki President
2
THOMPSON BROTHERS, L.P.
/s/ John P. Thompson
- ---------------------
John P. Thompson
General Partner of the John P. Thompson Family Partnership
THE HAYDEN COMPANY
/s/ John P. Thompson
- ---------------------
John P. Thompson
President
THE WILLIAMSBURG CORPORATION
/s/ John P. Thompson
- ---------------------
John P. Thompson
Vice President
THE PHILP CO.
/s/ John P. Thompson
- --------------------
John P. Thompson President
3
Tab 1
Exhibit 10.(i)(8) - 1
ISSUING AND PAYING AGENCY AGREEMENT
Dated as of August 17, 1992
Sakura Trust Company
350 Park Avenue
New York, New York 10022
Re: Issuance of Commercial Paper for
THE SOUTHLAND CORPORATION (THE "COMPANY")
Gentlemen:
You are hereby requested to act as issuing and paying agent on
behalf of the Company in connection with the sale from time to time of
unsecured short-term promissory notes known as commercial paper (the
"Commercial Paper Notes") of the Company and to act as issuing and paying
agent on behalf of ItoYokado Co., Ltd. (the "Guarantor") in connection with
the issuance of one or more guarantees (the "guarantees") to be affixed to
the Commercial Paper Notes. The Commercial Paper Notes may be issued in
either book-entry or certificated form. As such issuing and paying agent,
you shall be governed by the terms and conditions of this Issuing and
Paying Agency Agreement (this "Agreement").
The Company proposes to incur indebtedness by issuing Commercial
Paper Notes to be offered in the commercial paper market. The Company has
requested you to act as its agent for the issuance and delivery of the
Commercial Paper Notes. The Guarantor has requested you to act as its
agent for the issuance and delivery of the Guarantees. Promptly after each
issuance by you of a Commercial Paper Note with a Guarantee affixed
thereto, you shall notify the Company and the Guarantor of the Principal
amount, the amount of discount from the principal amount, the issue date
and the maturity date of the Commercial Paper Note to which it relates.
Upon presentment of such Commercial Paper Note to you on or after the
maturity date of the Commercial Paper Note, you shall make payment to the
holder of such Commercial Paper Note of the principal amount thereof as
provided herein.
During the period that this Agreement is in effect, the Company
will from time to time, deliver to you Commercial Paper Notes in
certificated form ("Certificated Notes") or a master note registered in the
name of Cede & Co. as nominee for The Depository Trust Company ("DTC"), or
a successor or nominee thereof (the "Master Note") which will represent
Commercial Paper Notes issued in book-entry from (the "Book-Entry Notes")
(said Cerificated Notes, Master Note and Book-Entry Notes individually
referred to as a "Note" and collectively referred to as the "Notes"). Each
Note and each Guarantee will be executed by manual or facsimile signature
of a duly authorized officer of the Company or the Guarantor, as the case
may be. Each Certificated Note (together with the related Guarantee) will
be in substantially the form attached hereto as Exhibit A and will be in
bearer form, but with the principal amount , issue date and maturity date
left blank. Each Note and Guarantee will bear the signature of an
Authorized Company Signatory (as hereinafter defined) or an Authorized
Guarantor Signatory ( as hereinafter defined), as the case may be. Any Note
or Guarantee bearing the signature of any person authorized to execute the
same on the date such signature is affixed thereto shall bind the Company
or the Guarantor, as the case may be, after the completion and
authentication thereof by you notwithstanding that any such person shall
have died or shall have otherwise ceased to hold his office on the date
such Note or Guarantee is countersigned or delivered by you. You agree to
make available, upon request of any holder of a Book-Entry Note, a copy
1
of the Master Note ( and any attachments thereto) representing such Book-Entry
Note.
You will be furnished with an Incumbency Certificate on the date
hereof with respect to each officer of the Company whose signature appears on
the Notes, together with specimen signatures of such officers (each such
officer being herein referred to as an "Authorized Company Signatory"). You
will also be furnished with an Incumbency Certificate on the date hereof with
respect to each office of the Guarantor whose signature appears on the
Guarantees, together with specimen signatures of such officers (each such
officer being herein referred to as an "Authorized Guarantor Signatory").
Until you receive a subsequent Incumbency Certificate, you shall be entitled to
rely on the last Incumbency Certificate delivered to you. The Notes will be
numbered consecutively and may bear such other identification as the Company
may deem appropriate.
When any Notes together with the related Guarantees are delivered to
you, you will acknowledge receipt by returning a receipt to the Company and the
Guarantor. All Notes and Guarantees delivered to you shall be held by you for
the account of the Company and the Guarantor, in safekeeping in accordance with
your customary practice. You will immediately advise the Company and the
Guarantor of the loss, disappearance or theft of any blank Notes and Guarantees
held by you in safekeeping.
By an appropriate certificate of designation, you shall advise the
Company and the Guarantor, form time to time, of the names of your officers and
employees and the officers and employees of your agents ("Designated Persons")
who are authorized to receive instructions in respect of the Notes and the
Guarantees and to receipt for, complete, authenticated and deliver the Notes
and the Guarantees.
You are hereby authorized to act with respect to the Certificated
Notes upon written instructions received by you from any one of the Company's
authorized representatives ("Authorized Company Officers") (whose names shall
be specified by delivery to you of appropriate certificates of designation and
incumbency certificates) or from any employee of the Company designated to give
such instructions by writing executed by one of the Authorized Company Officers
("Designated Company Individuals"). Provided that you have received
instructions given pursuant to this paragraph prior to 1:00 p.m., New York City
time, a Designated Person will withdraw the necessary number of Certificated
Notes from safekeeping and, in accordance with such instructions, a Designated
Person shall:
(a) Complete each Certificated Note as to the principal amount,
issue and maturity date, which in no event shall be later than 270 days form
the issue date;
(b) If so directed, insert the name of the payee and strike-out the
word "BEARER" on the Certificated Note;
(c) Authenticate each Certificated Note by countersigning the same;
(d) Deliver each Certificated Note, at an address in the Borough of
Manhattan in The City of New York, to the Company's dealer(the "dealer") of
such Certicated Note or to the consignee thereof, as designated in such
instructions, by 2:30 p.m., New York City time, against payment of the Purchase
Price (as defined below) therefor as herein provided; and
2
(e) Send a copy of each Certificated Note to the Company.
Instructions from the Company for the countersignature and
delivery by you of the Certificated Notes shall include the following
information: with respect to each Certicated Note, its issued date,
maturity date, principal amount (which will be in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof), and amount of
discount form the principal amount, the party to whom delivery of such
Certificated Notes (the "Purchase Price") in collected funds, and if the
Certicated Note is not to be issued in bearer form, the name of the payee
and instructions to strike-out the word "BEARER" on the Certificated Note.
Each delivery of Certificated Notes shall be subject to the rules
of the New York Clearing House in effect at the time of delivery.
You are hereby authorized to act with respect to the Guarantees
upon written instructions received by you from any one of the Guarantor's
authorized representatives ("authorized Guarantor Officers")(whose names
shall be specified by delivery to you of appropriate certificates of
designation and incumbency certificates) or from any employee of the
Guarantor designated to give such instructions by writing executed by one
of the Authorized Guarantor Officers (Designated Guarantor Individuals").
The maximum aggregate principal amount of Notes which are
authenticated (and not canceled) by you at any one time pursuant to this
Agreement shall in no event exceed U.S. $400,000,000. In no even shall
Guarantees be affixed to Notes (or shall Notes be authenticated) if greater
than U.S. $400,000,.000 aggregate principal amount (or such lesser
aggregate principal amount as is notified by the Guarantor to you) of
authenticated Notes (which are not canceled) would be outstanding at anyone
time or if the Guarantor instructs you to no longer affix Guarantees to
Notes. Notwithstanding any contrary instructions received from the Company
or an Authorized Company Officer or Designated Company Individual, you
shall not complete, authenticate, issue or deliver any Notes, if the
issuance of such Notes would cause the aggregate principal amount of
outstanding Notes at any one time to exceed the authorized maximum
aggregate principal amount of U.S. $400,000,000 (or such lesser maximum
aggregate principal amount as is notified by the Guarantor to you) or if
the Guarantor instructs you to cease affixing Guarantees to Notes. All
notices and instructions from the Guarantor to you shall be in writing
(which may be by telex or facsimile transmission) and will be signed by an
Authorized Guarantor Officer or Designated Guarantor Individual.
In connection with the issuance of Book-Entry Notes, (I) you have
previously entered into a commercial paper certificate agreement (the
"Certificate Agreement") with DTC and (ii) you and the Company have jointly
executed a letter of representations (the "Representations Letter") with
DTC. The Company understands and acknowledges that a the execution of the
Certificate Agreement by you is a necessary prerequisite to the provision
of book-entry services under this Agreement and as such, the Company
agrees, (x) to be bound by the provisions of the Certificate Agreement and
(y) that the Certificate Agreement shall supplement the provisions of this
Agreement and (y) that the Certicate Agreement shall supplement the
provisions of this Agreement. A copy of the Certificate Agreement and the
Representations Letter are attached hereto as Exhibit B and Exhibit C,
respectively.
On each date that the Company desires to issue a Book Entry Note,
an Authorized Company Officer or Designated Company Individual shall
provide you with issuance instructions (the "Issuance Instructions")
specifying the issue date, maturity date, the principal amount, the amount
of discount form the principal amount, and the payee and the payee's
settlement bank which is a participant in the DTC book-entry commercial
paper program. Each
3
Book-Entry Note shall have a principal amount of not less than $100,000 and
will mature no later than 270 days from the original issue date thereof.
If you receive the Issuance Instructions prior to 2:00 p.m., New York City
time, you will process, and if you receive the Issuance Instructions after
2:00 p.m., New York City time, you will use your best efforts to process,
such Issuance Instructions on the date of receipt of such Issuance
Instructions in accordance with and subject to (I) this Agreement, (ii) the
procedures set forth in the DTC Commercial Paper Issuing/Paying Agent
Manual (the "Manual"), (iii)the Rules of The Depository Trust Company,
including, without limitation, the DTC Same-Day Funds Settlement System
Rules (collectively, the "rules") and (iv) the terms and conditions of the
Certificate Agreement. Unless otherwise instructed by an Authorized
Company Officer or Designated Company Individual, each Book-Entry Note
delivery under this Agreement shall be made against payment as more fully
set forth in this Agreement. In the event of a conflict between the terms
of this Agreements and the terms of the Manual, the Certificate Agreement
or the Rules, the provisions of the Manual, the Certificate Agreement or
the Rules shall control.
No Note shall be delivered by you except against payment of the
Purchase Price therefor as provided in this paragraph. A Certificated Note
shall be deemed delivered against payment of the Purchase Price therefor
if, at the time you deliver such Certicated Note to the Dealer or to the
consignee thereof, you receive the receipt of the Dealer or the same day,
you will actually receive the Purchase Price of such Certificated Note from
the Purchase Price therefor upon credit to your account at DTC in
accordance with the provisions of the Manual and the Rules.
Should the delivery of Notes and the actual receipt by you of the
Purchase Price therefor not be completed simultaneously, you shall incur no
liability for the nonpayment of the Notes. In the event that you shall not
receive payment of the Purchase Price of any Note at the times and in the
manner specified above, you shall notify the Company and the Guarantor
promptly of such nonpayment and cancel such Note and the Guarantee affixed
thereto.
All proceeds of the sale of Notes issued by you as issuing and
paying agent hereunder shall be transferred by you promptly in immediately
available U.S. Dollar funds to an account of the Company maintained at a
bank in the continental United States of America or may be applied by you
to satisfy the payment of Notes at maturity, in either case as shall be
directed by an Authorized Company Officer or Designated Company Individual
form time to time by written notice.
You agree to provide the Company the means by which to
electronically access daily settlement information including the maturity
date of each Note and the aggregate principal amount of all Notes maturing
on any date on which Notes mature. Information transmitted by you to the
Company and by the Company to you by or through computer terminals or
similar devices shall be considered to be in writing for all purposes of
this Agreement. The Company will cause to be transferred to you by wire,
prior to 1:00 p.m. on such maturity date, an amount of immediately
available U.S. Dollar funds equal to the aggregate principal amount of all
Notes outstanding under which there may be made a demand for payment on
such maturity date in accordance with the terms thereof.
In the event that the Company fails to make such payment to you
at such time, you shall promptly demand such payment from each of the
Company and the Guarantor, specifying the issue date, maturity date and
principal amount of each such Note. The Guarantor will cause to be
transferred to you by wire, on demand,
4
an amount in immediately available U.S. Dollar funds equal to the lesser of
the amount demanded by you and the amount then available form payment under
the terms of the Guarantees.
In the event that you shall receive payment under the Guarantees
form the Guarantor, all amount received from the Guarantor shall be
deposited into a non-interest bearing trust account (the "Trust Account")
maintained by you for the benefit of the holders of the Notes. Moneys on
deposit in the Trust Account shall be paid to the holders of the Notes in
accordance with the terms of this Agreement. Neither the Company nor the
Guarantor shall have any right to withdraw any moneys from the Trust
Account' provided, however, that if all Notes shall have been paid in full,
any amounts then remaining in the Trust Account shall be available for
withdrawal by the Guarantor.
You shall make payments of amounts received in accordance with
the terms of the Agreement from the Company or the Guarantor to the holders
of the Notes. You shall not have any obligation to make any payment on any
Note unless you shall have received and collected payment in immediately
available U.S. Dollar funds form or on behalf of the Company or the
Guarantor in an amount which is sufficient to make such payment in full.
Each Cerificated Note properly presented to you for payment on or
after the maturity date thereof shall be deemed a request by the holder of
such Certicated Note that you pay such funds to such holder. You shall pay
the principal amount of the Certificated Note, provided that you shall have
received from or on behalf of the Company, or the Guarantor immediately
available U.S. Dollar funds in an amount which is sufficient to make such
payment in full to the holder of such Certificated Note. Upon such
payment, you will mark such Certificated Note "paid" and cancel such
Certificated Note and the Guarantee affixed thereto. Within ten Business
Days after such payment, you will send by mail to the Company each such
canceled Certificated Note with such Canceled Guarantee.
The Company hereby warrants and represents to you, which shall be
a continuing warranty and representation, that (i) the Company's entering
into this Agreement, and your appointment as issuing and paying agent by
the Company, have been duly authorized by all necessary corporate action on
the part of the Company, (ii) all Notes delivered to you pursuant to this
Agreement, the Manual or the Rules are duly authorized, executed and
delivered by it to you, and (iii) the foregoing will not violate, breach or
contravene any law, rule, regulation, order, material contract or agreement
binding upon the Company.
The Guarantor hereby warrants and represents to you, which shall
be a continuing warranty and representation, that (i) the Guarantor's
entering into this Agreement has been duly authorized by all necessary
corporate action on the part of the Guarantor, (ii) the Guarantees have
been duly authorized, executed and delivered by the Guarantor, and (iii)
the foregoing will not violate, breach or contravene any lows, rule,
regulation, order, material contract or agreement binding upon the
Guarantor.
The Company agrees that you shall not be responsible for (i) the
validity, sufficiency or genuineness of any Note, (ii) the truth or
accuracy of any statement contained in any Note, whether or not the same is
in fact subsequently proven to be in any respect invalid, insufficient
fraudulent or forged or any statement contained therein shall prove in fact
to be untrue or inaccurate or (iii) the payment of the Purchase Price of
any Note. You shall notincur any liability to the Company or to any person
as a consequence of the inaccuracy of any information obtained by the
Company from you, electronically or otherwise, unless the furnishing of
such inaccurate information is directly attributable to your gross
negligence or willful misconduct. The Company shall idemnify and hold you
5
and your respective officers, directors, employees and agents harmless
against and from all costs, expenses, losses, claims, damages and
liabilities (including reasonable attorney's fees and expenses) directly or
indirectly relating to, arising out of or in connection with, and you shall
not be liable for, (i) any action taken, omitted or suffered in good faith
in connection with this Agreement, and the Notes, including but not limited
to the safekeeping, completion, authentication, delivery and payment of the
Notes; (ii) compliance with any facsimile, telegraphic, telex, or written
instructions reasonably believed by you to have been received from
Authorized Company Officers or Designated Company Individuals or (iii) any
reliance on any Note. In the case of a Note payable to bearer, you may
treat the bearer of any such Note as the absolute owner of such note. You
may accept Notes which appear on their face to be in order without
responsibility for further investigation. The obligations of the Company
hereunder shall survive the termination of this Agreement and the payment
in full of all Notes.
The Guarantor agrees that you shall not be responsible for (i)
the validity, sufficiency or genuineness of any Guarantee or (ii) the truth
or accuracy of any statement contained in any Guarantee, whether or not the
same is in fact subsequently proven to be in any respect invalid,
insufficient, fraudulent or forged or any statement contained therein shall
prove in fact to be untrue or inaccurate. You shall not incur any
liability to the Guarantor or to any other person as a consequence of the
inaccuracy of any information obtained by the Guarantor from you,
electronically or otherwise, unless the furnishing of such inaccurate
information is directly attributable to your gross negligence or willful
misconduct. The Guarantor shall indemnify and hold you and your respective
officers, directors, employees and agents harmless against and from all
costs, expenses, losses, claims, damages and liabilities (including
reasonable attorney's fees and expenses) directly or indirectly relating
to, arising out of or in connection with, and you shall not be liable for,
(i) any action taken, omitted or suffered in good faith in connection with
this Agreement and the Guarantees, including but not limited to the
safekeeping, completion, authentication, delivery and payment of the
Guarantees, (ii) compliance with any facsimile, telegraphic, telex, or
written instructions reasonably believed by you to have been received from
Authorized Guarantor Officers or Designated Guarantor Individuals or (iii)
any reliance on any Guarantee. In the case of a Note and Guarantee payable
to bearer, you may treat the bearer of any such Note and Guarantee as the
absolute owner of such Note and Guarantee. You may accept Notes and
Guarantees which appear on their face to be in order without responsibility
for further investigation. The obligations of the Guarantor hereunder
shall survive the termination of this Agreement and the payment in full of
all Notes and Guarantees.
Your duties shall be limited to (i) completing the Certificated
Notes, authenticating the Certificated Notes, delivering the Cerificated
Notes with the Guarantee affixed thereto and sending a copy of the
Certified Notes to the Company, (ii) transmitting to DTC the issuance of
Book-Entry Notes, (iii) making payment for any Notes duly presented to you
for payment, (iv) making demand for payment from the Company and the
Guarantor for such Notes, and (v) applying funds received by you, all in
accordance with and subject to the terms and conditions of this Agreement
and, with respect to Book-Entry Notes, the Manual and the Rules. You shall
have no fiduciary or any other duties whatsoever to the holders of Notes,
except for your obligations to pay amounts on deposit in the Trust Account
to holders of the Notes as set forth in this Agreement. No implied
covenants, warranties, dutiesor obligations shall be read into this
Agreement against you.
Without limiting your rights, duties and obligations under this
Agreement, you may act through one or more agents when performing your
duties and obligations under this Agreement.
6
No failure or delay on your part in exercising any right or
remedy hereunder shall operate as a waiver thereof. Your rights and
remedies hereunder are not exclusive of any rights or remedies provided by
law or in any other agreement between you and the Company or you and the
Guarantor.
The fees for your services hereunder shall be as mutually agreed
upon between the Company and you. The Company will pay your counsel's
reasonable fees and expenses.
This Agreement may be supplemented, modified or amended if such
supplement, modification or amendment is in writing, signed by both parties
hereto. No supplement, modification or amendment shall adversely affect
the rights of holders of the theretofore issued Notes which are unpaid at
the time.
You may at any time resign by giving written notice to the
Company and the Guarantor and the Guarantor of such intention, specifying
the date on which your desired resignation shall become effective;
provided, however, that such date shall not be less than the earlier of
three months after receipt of such notice by the Company and the Guarantor
or such time as a successor issuing and paying agent is appointed by the
Company. You may be removed for any reason or for no reason at any time by
the filing with you of an instrument in writing signed by the Company or
the Guarantor (with a copy to the Guarantor or the Company, as the case may
be) and specifying such removal and the date when such removal is intended
to become effective. Such removal shall take effect upon such date
provided above.
All notices, demands, instructions and other communications
required or permitted to be given to or made upon any party hereto shall be
in writing and shall be personally delivered or sent by registered or
certified mail (or registered or certified airmail if international),
postage prepaid, return receipt requested, or by Federal Express or other
courier, with confirmed delivery, or by prepaid telex, or by telecopier,
and shall be deemed to be given for purposes of this Agreement on the day
that such writing is delivered to or otherwise specified in a notice sent
or delivered in accordance with the foregoing provisions, notices, demands,
instructions and other communications shall be given to or made upon the
respective parties hereto at their respective addresses (or to their
respective telex or telecopier) indicated below:
If to you:
Sakura Trust Company
350 Park Avenue
New York, New York 10022 Telephone: (212) 756-6650 Telex:
255945 Answerback STC UR Telecopier: (212) 756-6699
7
If to the Company:
The Southland Corporation Cityplace Center East
2711 North Haskell Avenue Dallas, Texas 75204-2906
Attention: Treasurer and Legal Department
Telephone: (214) 828-7011
Telex: 1561717
Telecopier: (214) 841-6571
If to the Guarantor:
Ito-Yokado Co., Ltd.
1-4, Shibakoen 4-Chome
Minato-ku
Tokyo 105
Telephone: 81-3-3459-2100
Telex: 23841
Telecopier: 81-3-3459-6873
If any day on which any notice, demand, instruction or other
communication is given by any party hereto is not a day (a "Business Day")
other that a Saturday, Sunday or other day on which banks in The City of
New York and Tokyo are authorized to remain closed, such notice, demand,
instruction or other communication shall be deemed to have been given on
the Business Day next succeeding such day which is not a Business Day. You
shall incur no liability to the Company or the Guarantor in acting
hereunder upon instructions contemplated hereby which you believed in good
faith to have been given by an Authorized Designated Guarantor Individual.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that no party hereto may assign any of its rights or obligations
hereunder except with the prior written consent of the other parties
hereto.
This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall
constitute one and the same Agreement.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York. Each of the Company and the
Guarantor agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at your option, be litigated in any of
the New York State Supreme Court, New York County, the New York State
Supreme Court Appellate
8
Division, First Department, and the Federal District Court of the Southern
District of New York, and that each such court is a convenient forum, and
each service of process upon the Company at the Company's address appearing
on your records, and services so made shall be deemed completed on the date
of certified receipt. Service of process upon the Company may also be sent
by Federal Express or any other public or private form of express delivery
service that can certify actual delivery, and in such event shall be deemed
to have been given on the date of certified receipt. Each of you, the
Company and the Guarantor waives any right to trial by jury in any action
or proceeding relating directly or indirectly to this Agreement. Each of
you, the Company and the Guarantor waives the right to assert in any action
or proceeding relating directly or indirectly to this Agreement. Each of
you, the Company and the Guarantor waives the right to assert in any action
or proceeding relating directly or indirectly to this Agreement any offsets
or counterclaims (other than counterclaims directly relating to this
Agreement) which you the Company or the Guarantor, as the case may be, may
have.
if the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon
this instrument along with all counterparts will become a binding agreement
between you and us in accordance with its terms.
Very truly yours,
THE SOUTHLAND CORPORATION
By: __________________________ Name:
Title:
ITO-YOKADO CO., LTD.
By: __________________________ Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written
SAKURA TRUST COMPANY
By:/s/
Name: Norio Kato
Title: President
9
EXHIBIT 10.(i)(8) - 2
THE SOUTHLAND CORPORATION
Note Number ______________________
$________________
On ___________________________, for value received, The Southland Corporation
Promises To Pay To The Order Of
________________________________________________
The Sum of __________________________________________________________DOLLARS
Payable At
_____________________________________________________________________________
NOT VALID UNLESS COUNTERSIGNED BY
THE SOUTHLAND CORPORATION
New York, New York as This Note is issued in By:______________________
Issuing Agent New York, New York and
this Note shall be governed
by and construed in
accordance with the laws of the State of New York
without reference to the principles of conflict of
By:__________________ laws thereof.
Countersignature By:______________________
EXHIBIT 10.(i)(8) - 3
GUARANTEE
FOR VALUE RECEIVED Ito-Yokado Co., Ltd. (the "Guarantor"),hereby
unconditionally and irrevocably guarantees payment of theface amount of the
note (the "Note") of The Southland Corporation on the face hereof, when,
where and as the same shall become due and payable without any requirement
that the holder first proceed against The Southland Corporation.
The Guarantor waives notice of acceptance of this Guarantee and
notice of non-payment of the Note. The unconditional obligation of
the Guarantor hereunder will not be affected, impaired or released by
any extension of time for payment of the Note or by any other matter
or thing whatsoever which would release a guarantor.
The Guarantee shall be governed by and construed in
accordance with the laws of the State of New York,without reference
to the principles of conflict of laws thereof. The date of this Guarantee
is the date of the Note.
IN WITNESS WHEREOF, Ito-Yokado Co., Ltd. has caused this
Guarantee to be executed by its President and Chief Executive Officer
either manually or by facsimile signature.
Ito-Yokado Co., Ltd.
By:/s/
--------------------------Masatoshi
Ito
President and Chief Executive Officer
EXHIBIT 10.(i)(8) - 4
INDEMNITY AND REIMBURSEMENT AGREEMENT
This Indemnity and Reimbursement Agreement (the "Agreement") made as
of this 17th day of August, 1992 by and between The Southland
Corporation, a corporation organized and existing under the laws of
Texas (the "Company"), and Ito-Yokado Co., Ltd., a Japanese corporation
organized and existing under the laws of Japan (the "Guarantor").
WHEREAS, the Company intends from time to time to issue unsecured
short-term promissory notes known as commercial paper notes (the
"Notes") of the Company pursuant to a program (the "Commercial Paper
Program") that includes a Commercial Paper Dealer Agreement dated as of
even date herewith between Goldman Sachs Money Markets, L.P. ("GSMM LP")
and Merrill Lynch Money Markets Inc. ("MLMMI") (each such firm a "Dealer"
and together the "Dealers"), on the one hand, and the Company and
the Guarantor, on the other hand (the "Dealer Agreement");
WHEREAS, in accordance with the Commercial Paper Program, the Company
has requested the Guarantor to, and the Guarantor is willing to,
guarantee the payment obligations of the Company under the Notes (the
"Obligations") pursuant to certain guarantees (the "Guarantees") to be
endorsed on the Master Note and the Book-Entry Notes, as such terms are
defined in the Issuing and Paying Agency Agreement dated as of even
date herewith between the Company and the Guarantor, on the one hand, and
the Sakura Trust Company, on the other hand (the "Issuing and Paying
Agency Agreement");
WHEREAS, the Guarantor is willing to execute the Guarantee pursuant
to the terms and subject to the conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, it is hereby agreed
as follows:
1. GUARANTEE.
The Company hereby requests and the Guarantor, at the request of
Company, agrees to execute the Guarantees as guarantor of the Obligations;
provided, however, that the obligations of the
- -1-
Guarantor thereunder shall not extend to any indebtedness of the Company
in excess of U.S. $400,000,000, in the aggregate; that the Guarantor's
obligation to provide any Guarantee shall expire and terminate three (3)
years from the date hereof; and that such execution is subject to the
additional terms and conditions contained herein.
2. INDEMNITY.
(a) The Company shall reimburse any and all disbursements made by
the Guarantor in connection with, and shall at all times indemnify and hold
harmless the Guarantor from and against, all liability, loss and
expense, including fees and expenses of counsel, that the Guarantor may
incur
(i) by reason of entering into, performing, making any payment
pursuant to or being held liable under any Guarantee or otherwise in
connection with any Guarantee or the Obligations, including
without limitation any funding and other costs incurred by the
Guarantor (in an amount determined by the Guarantor in its
reasonable judgment) in connection with performance of its
payment and other obligations thereunder;
(ii) in connection with any payment required to be made by the
Guarantor in connection with a U.S. $60,000,000 committed line of
credit extended by Sakura Bank, Limited, New York Branch ("Sakura
Bank"), in favor of the Guarantor as support for the Notes (the "Backup
Line of Credit") as evidenced by an agreement dated of even date
herewith from Sakura Bank to the Guarantor (the "Backup Line Letter
Agreement"), including without limitation any commitment fees
thereunder, any interest or any drawdowns made thereunder, and any
funding costs incurred by the Guarantor (in an amount determined by
the Guarantor in its reasonable judgment) in connection with
performance of its repayment and other obligations thereunder to the
extent not paid directly by the Company pursuant to paragraph 7(b)
below;
(iii) in connection with the Dealer Agreement, including without
limitation reimbursement for any joint or several liability of the
Guarantor pursuant to section 11 thereof to the extent not paid
directly by the Company pursuant to paragraph 7(b) below;
(iv) in connection with the Issuing and Paying Agency Agreement
to the extent not paid directly by the Company pursuant to paragraph
7(b) below;
(v) otherwise in connection with the Commercial Paper Program to the
extent not paid directly by the Company pursuant to paragraph 7(b)
below; or
(vi) in defending or prosecuting any suit, action or other proceeding
brought in connection with any of the foregoing, or in obtaining or
attempting to obtain a release from liability in respect thereof to
the extent not paid directly by the Company pursuant to paragraph 7(b)
below.
- -2-
The Company covenants that it will reimburse the Guarantor for, or
pay over to the Guarantor, all sums of money which the Guarantor shall pay
or become liable to pay by reason of any of the foregoing (collectively
the "Indemnified Losses" and each an "Indemnified Loss"), and will make
such payments to the Guarantor as soon as the Guarantor shall become
liable therefor, whether or not the Guarantor shall have paid out such
sums or any part thereof and whether or not any request, demand or
notice to the Company shall have been made with respect to the payment
of such sum, all of which are hereby expressly waived. The indemnity
provisions hereof shall survive any termination, cancellation or
expiration of this Agreement. Notwithstanding the foregoing, the Guarantor
hereby acknowledges and agrees that the indemnity obligations set forth in
this paragraph 2(a) are subject to the provisions of the Credit Agreement
dated as of November 5, 1987, as amended and restated through the
21st Amendment to the Credit Agreement (the "Credit Agreement"),
between the Company and the financial institutions named therein (the
"Banks"), pursuant to which the Company has agreed with the Banks that any
such indemnity obligations shall not be required or permitted to be paid
to the Guarantor until one year after the payment in full to the Banks of
the term loans and revolving credit loans under the Credit Agreement,
except principal payments under (i) above to the extent that the amount of
Notes outstanding exceeds U.S. $375,000,000.
(b) If any event shall have occurred or if any action shall have been
taken which will or may discharge or exonerate or in any manner whatsoever
affect the Obligations of the Company,including, without limitation, the
payment of any obligation under the Notes, or any obligation of the
Company under the Dealer Agreement, the Company shall forthwith give
notice to the Guarantor specifying such event, act or thing in
reasonable detail.
3. COMPROMISES.
The Guarantor shall have the right in its sole discretion to adjust,
settle or compromise any claim, suit or judgment in respect of any
Indemnified Loss, after notice to the Company, unless the Company desires
to litigate such claim, defend such suit or appeal such judgment and
simultaneously therewith deposits with the Guarantor collateral security
sufficient to pay any judgment rendered, with interest, costs and
expenses; and the right of the Guarantor to indemnification under this
Agreement shall extend to any money paid by the Guarantor in settlement
or compromise of any such claims, suits and judgments in good faith, after
notice to the Company.
4. LEGAL ACTIONS.
If any suit, action or other proceeding is brought by or against a
creditor, or any assignee of a creditor, of the Company in
connection with any Obligation guaranteed by the Guarantor, the
Guarantor shall have the right, at the expense of the Company, to
participate in or, at its election, assume the defense or prosecution of
such suit, action or proceeding, and in the latter event the Company
may employ counsel and participate therein at no cost or expense to the
Guarantor.If any suit, action or other proceeding is brought by the
Guarantor
-3-
against the Company for breach of its covenant of indemnity herein
contained, separate suits may be brought as causes of action accrue
without prejudice or bar to the bringing of subsequent suits on any
other cause or causes of action, whether theretofore or thereafter
accruing.
5. LIABILITY BETWEEN PARTIES.
As between the Company and the Guarantor, the former shall be primarily
liable for the payment of all of the Obligations guaranteed by the
Guarantor, and nothing contained in this agreement shall be construed
to waive, abridge or diminish any right or remedy which the Guarantor
might otherwise have against the Company.
6. EVIDENCE OF LIABILITY.
In the event of payment by the Guarantor of any sums of money by reason of
the Guarantee or in connection with any Indemnified Loss or any
reimbursement pursuant to section 7(b) hereof, the vouchers or other
evidence showing such payment shall be prima facie evidence against the
Company of the fact and amount of the liability of the Company to the
Guarantor hereunder.
7. FEES, CHARGES AND REIMBURSEMENT.
(a) The Company shall pay annually in arrears on each
anniversary date hereof to the Guarantor a guarantee fee (accruing
on a daily basis) at the rate of ONE HALF OF ONE PER CENTUM PER ANNUM
(0.5% p.a.) on the amount daily outstanding of the face value of the
Notes guaranteed by the Guarantor. The guarantee fee shall be computed on
the basis of a year of three hundred and sixty (360) days and for the
actual number of days elapsed. The guarantee fee shall be paid in
arrears in the currency in which the Obligations are paid. The rate
of the guarantee fee accruing after each successive anniversary date
hereof may be varied if agreed by the parties hereto.
(b) The Company shall pay all of the costs and expenses related
to the issuance of the Notes, including any costs for which the
Company and the Guarantor are jointly liable, including, but not
limited to, amounts owing under the Dealer Agreement and the Issuing and
Paying Agency Agreement, printing fees, legal fees and expenses of
Shearman & Sterling, fees and expenses of any rating agencies and
Depository Trust Company and fees and expenses (including commitment
fees) of Sakura Bank under the Backup Line Letter Agreement. The
Company will also reimburse the Guarantor on demand for all actual
expenses (including fees and expenses of counsel) reasonably incurred by
the Guarantor and not paid directly by the Company pursuant to the
preceding sentence in connection with negotiation with the Company;
preparation, execution, issuance, delivery, implementation and performance
of this Agreement, the Notes, the Guarantees, the Dealer Agreement, the
Issuing and Paying Agency Agreement, the Backup Line Letter Agreement
and any other documents or instruments contemplated in connection
herewith or therewith; and the investigation, preservation, exercise
and enforcement of any of its rights or remedies hereunder or
thereunder.
- -4-
8. PAYMENT.
Except as the context otherwise requires or as otherwise expressly
provided herein, all payments to be made by the Company hereunder
shall be made to the Guarantor in such currency or currencies in
which the Guarantor shall have made or will make payments under or in
connection with any Guarantee, the Issuing and Paying Agency Agreement,
the Dealer Agreement, the Backup Line of Credit, the Backup Line Letter
Agreement or this Agreement to the account of the Guarantor, and about
which the Guarantor shall have notified the Company. All sums payable by
the Company hereunder shall be paid in full without set-off or
counterclaim and without deduction for any taxes, deductions, withholdings
or charges of any nature now or hereafter imposed by any taxing or other
authority whatsoever. If the Company shall at any time be compelled by
law to withhold or deduct such taxes, deductions, withholdings or charges
from any amounts payable to the Guarantor, the Company shall pay such
additional amount as shall be necessary to ensure that the Guarantor (after
payment of all such taxes, deductions, withholdings and charges) receives
a net amount equal to the full amount which the Guarantor would
have received had payment of any sums due and payable hereunder not
been subject to such taxes, deductions, withholdings or charges. The
Company shall promptly send to the Guarantor such documentary evidence
with respect to such payments as may be required from time to time by
the Guarantor.
9. FORBEARANCE OF NOTE ISSUANCE.
In the event that the Guarantor in its sole discretion requests
the Company to no longer issue Notes or to no longer affix the
Guarantor's endorsement to the Notes, the Company shall immediately
comply with such request until such time as the Guarantor may inform
the Company that it may resume such issuance or affixing. The Company
shall not issue any Notes, and shall cause Sakura Trust Company and
any other issuing agents not to complete, authenticate, issue or
deliver any Notes, including any Certificated Notes (as such term is
defined in the Issuing and Paying Agency Agreement), or process any
Issuance Instructions with respect to any Book-Entry Notes (as such
terms are defined in the Issuing and Paying Agency Agreement), and
shall not sell any Notes to any Dealer, if the issuance of such Notes
(including such Certificated Notes or Book-Entry Notes, as the case may
be) would cause the aggregate principal amount of Notes then outstanding
to exceed the amount of U.S. $400,000,000 less the amount of liability of
the Company then owed to the Guarantor under this Agreement.
10. RESORT TO BACKUP LINE OF CREDIT.
The Company acknowledges that it understands that the Guarantor
intends that the Backup Line of Credit is to be utilized solely as
a source of funding of final resort. Accordingly, the Company shall
not request resort to the Backup Line of Credit unless and until, in
its reasonable judgment exercised in good faith, the Company has used
its best efforts to secure funding in the marketplace to repay
outstanding Obligations, including efforts to issue additional
commercial
- -5-
paper to repay such Obligations, and such efforts have not succeeded
to secure all necessary funding.
11. BENEFIT.
This Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective legal representatives and
successors. Each party hereto may assign or delegate any of its rights or
obligations hereunder only with the prior written consent of the other
party.
12. MISCELLANEOUS.
(a) This Agreement constitutes a continuous undertaking of the
Company valid and in force and effect in respect of all its obligations
hereunder until the later of (i) payment in full by the Company of all of
the Obligations or (ii) full and complete discharge and satisfaction of
all of the Company's obligations hereunder.
(b) This Agreement shall be governed by and construed in accordance
with the laws of Japan. Each party agrees that any legal action or
proceeding with respect to this Agreement may be brought in the Tokyo
District Court and hereby accepts and consents to the non-exclusive
jurisdiction of such Court.
(c) All notices, demands, instructions and other communications
required or permitted to be given to or made upon any party hereto shall
be in writing and shall be personally delivered or sent by registered or
certified air mail, postage prepaid, return receipt requested, or by
Federal Express or other courier, with confirmed delivery, or by prepaid
telex, or by telecopier, and shall be deemed to be given for purposes of
this Agreement on the day that such writing is delivered to or received
by the intended recipient thereof in accordance with the provisions
hereof. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provision, notices, demands, instructions
and other communications shall be given to or made upon the respective
parties hereto at their respective addresses (or to their respective
telex or telecopier) indicated below:
If to the Company:
The Southland Corporation
Cityplace Center East
2711 North Haskell Avenue
Dallas, Texas 75204-2906
Attention: Treasurer and Legal Department
Telephone: (214)828-7327
Telex: 240859
Telecopier: (214)828-6571
-6-
If to the Guarantor:
Ito-Yokado Co., Ltd.
1-4, Shibakoen 4 chome
Minatoku, Tokyo 105
Telephone: 03-459-2111
Telex: 23841
Telecopier: 03-434-8375
(d) The headings and captions herein are inserted for
convenience only and shall not affect the interpretation of this Agreement.
(e) This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which
taken together shall constitute a single instrument. This Agreement
constitutes the entire agreement and understanding between the parties
hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
In witness whereof the parties have caused this agreement to be
executed by their duly authorized representatives as of the date first
above written.
THE SOUTHLAND CORPORATION
----------------------
By: John H. Rodgers
Title: Sr. Vice President
ITO-YOKADO CO., LTD.
------------------
By:
Title:
-7-
EXHIBIT 10.(i)(8) - 5
ITO-YOKADO CO., LTD.
1-4, SHIBAKOEN 4 CHOME MINATOKU, TOKYO 105
December 16, 1994
The Southland Corporation
Cityplace Center East
2711 North Haskell Avenue
Dallas, TX 75204-2906
Re: INDEMNITY AND REIMBURSEMENT AGREEMENT
Gentlemen:
Reference is made to the Indemnity and Reimbursement Agreement between
Ito-Yokado Co., Ltd. and The Southland Corporation dated as of August
17, 1992 (the "Agreement").
We have agreed that paragraph 2(a) of the Agreement is hereby amended
by deleting the last sentence thereof and replacing it with the
following sentence:
"Notwithstanding the foregoing, the Guarantor, hereby
acknowledgesand agrees that the indemnity or reimbursement
obligations set forth in this paragraph 2(a) are subject to the
provisions of the Credit Agreement dated as of July 31, 1987,
as amended and restated as of November 5, 1987, as further amended
and restated as of February 17, 1993, as further amended and restated
as of December 16, 1994 (as so amended and restated and as
further amended, restated, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among the Company, the
financial institutions from time to time party thereto at Senior
Lenders and Issuing Banks, Citicorp North America, Inc., as
Administrative Agent for the Senior Lenders and the Issuing Banks
and The Sakura Bank, Limited, New York Branch, as Co-Agent (such
Senior Lenders, Issuing Banks, Administrative Agent and Co-Agent
being referred to herein as the "Banks"), pursuant to which the
Company has agreed with the Banks that any such indemnity or
reimbursement obligations shall not be required or permitted
to be paid to the Guarantor other than (x) payments after the date
which is one year after payment in full in cash of the
"Obligations" and termination of the "Commitments" (in each case
as such terms are defined in the Credit Agreement) and (y) so
long as there does not exist an "Event of Default" or "Potential
Event of Default" and the "Revolving Loan Subfacility" (in each
case as such terms are defined in the Credit Agreement) does not
then equal zero, principal payments under clause (i) above made
solely with proceeds of subsequent issuances of Notes by the
Company."
The Southland Corporation
December 16, 1994
Page 2
If the foregoing is in accordance with your understanding of our
Agreement, please sign and return to us a counterpart hereof.
Very truly yours,
ITO-YOKADO CO., LTD.
By:____________________________________
Name:__________________________________
Title:_________________________________
CONFIRMED & ACCEPTED
as of the date first
above written
THE SOUTHLAND CORPORATION
By:___________________________________
Name:_________________________________
Title:________________________________
Tab 2
EXHIBIT
10.(ii)(B)(1)
STORE FRANCHISE AGREEMENT
FRANCHISEE recognizes the advantages of the 7-Eleven System and
desires to obtain a franchise for a 7-Eleven Store. In connection
therewith, FRANCHISEE wants to lease the Store and Equipment designated in
Exhibits A and B and operate the Store in a manner which will enhance the 7-
Eleven Image and pursuant to the 7-Eleven System, as from time to time
determined by 7-ELEVEN, in its sole discretion (whether or not any
changes therein are within the present contemplation of the parties).
7-ELEVEN, in reliance on the
representations made by FRANCHISEE, is willing to provide certain training
and continuing services and grant a License and Lease, but only on the
terms of this Agreement, which terms are acceptable to FRANCHISEE and are
acknowledged by the parties to be material and reasonable. Therefore, in
consideration of this Agreement, the parties agree as follows:
1. DEFINITIONS. Defined words in this Agreement and in
the Exhibits have the meanings set forth in Exhibit E or, if not
defined in Exhibit E, the meanings set forth in context.
2. FRANCHISE FEE AND DOWN PAYMENT. FRANCHISEE has paid 7-ELEVEN
a Franchise Fee. FRANCHISEE shall be obligated to pay 7-ELEVEN the amount
of the unpaid balance in the Open Account and has made a Down Payment.
The amounts paid are set forth in Exhibit D.
3. TRAINING AND QUALIFICATION. 7-ELEVEN shall provide its
then current training program for operating a franchised 7-Eleven Store,
including the then current Foodservice training program, (if any), to
FRANCHISEE. If FRANCHISEE is only one individual, the
training program will be provided to FRANCHISEE and one individual that
FRANCHISEE has designated in Exhibit D. 7ELEVEN shall reimburse or pay the
training expenses set forth in Exhibit D. 7ELEVEN at any time may
discontinue training, may decline to certify, or may revoke the
certification of any participant who fails to evidence an
understanding of the training satisfactory to 7-ELEVEN, or otherwise by
acts or omissions, at any time prior to the Effective Date, is, in
any way unsatisfactory to 7-ELEVEN. If participation of a
FRANCHISEE or any participant is discontinued by 7-ELEVEN or 7-ELEVEN
does not certify or revokes the certification of a FRANCHISEE or any
participant: (i) the business relationship, if any, between FRANCHISEE
and 7-ELEVEN shall immediately terminate; (ii) this Agreement shall not
become effective and shall be null and void; and (iii) 7-ELEVEN shall
refund without interest an amount equal to the Down Payment (less any
amount due 7-ELEVEN) and the Franchise Fee.
Notwithstanding the foregoing, in the event that any
participant discontinues training upon FRANCHISEE's initiative, 7-ELEVEN may
deduct from the amounts refunded to FRANCHISEE those training expenses
set forth in Exhibit D which have been reimbursed or paid by 7-
ELEVEN. Any expenses
1
incurred or reliance by FRANCHISEE in connection with FRANCHISEE's efforts
to obtain a franchise for a 7-Eleven store, including, but not limited to,
out-ofpocket expenses, other than those which may be reimbursed to
FRANCHISEE pursuant to the terms of this Paragraph, shall be solely at
FRANCHISEE's own risk, upon FRANCHISEE's own judgment, and not in reliance
upon any statements or representations whatsoever.
4. CONDITIONS PRECEDENT. 7-ELEVEN shall use its best efforts to
make the Store available within a reasonable time. As of the date the
Store is available, the following are conditions precedent to the
Effective Date: (i) satisfactory completion of all training by
FRANCHISEE and continued certification of FRANCHISEE until and including
the Effective Date; (ii) availability (and, where possible, the
obtaining) of all licenses, permits, and bonds that are required by any
regulation or law or 7-ELEVEN for the operation of the Store or any
portion thereof; and (iii) the absence of any security interest other
than 7-ELEVEN's Security Interest, any misrepresentation, and any
action that would be or is a breach of this Agreement. If such
conditions have not been met, or the Store is not available within 60
days after satisfactory completion of training, or if the Effective Date is
not within 90 days from the date of this Agreement (or, if the Store is
under construction, 30 days after construction is completed if such date
is later), 7-ELEVEN may, or upon written request shall, refund without
interest the Down Payment (less any amount due 7-ELEVEN), and the
Franchise Fee, and this Agreement shall be null and void.
5. LICENSE. 7-ELEVEN licenses the Service Mark, the 7-Eleven
System, and the Trade Secrets, and the Proprietary Products to FRANCHISEE
for use only in connection with operation of the Store pursuant to this
Agreement. 7-ELEVEN shall defend claims arising from FRANCHISEE's use of the
Service Mark pursuant to this Agreement. FRANCHISEE acknowledges that: (i)
the License is only for the Store; (ii) FRANCHISEE is not obtaining any
exclusive territory whatsoever; (iii) 7-ELEVEN may locate other stores or
businesses, which may be operated by 7-ELEVEN or by franchisees, wherever
it determines, including in near proximity to the Store; and (iv)
FRANCHISEE will promptly notify 7ELEVEN of any uses of the Service Mark,
the Related Trademarks and/or Trade Secrets which appear to be improper and
which come to FRANCHISEE's attention.
6. LEASE. 7-ELEVEN leases the Store and Equipment to FRANCHISEE
for use only in connection with operation of the Store pursuant to
this Agreement. Neither party shall cause a breach of any master lease
referred to in Exhibits A or B. FRANCHISEE shall take all of the
premises leased hereunder subject to all documents of record on the
property and 7-ELEVEN makes no warranty, express or implied, of non-
disturbance. With respect to the Lease, it is the intention of the parties
to create only a landlord-tenant relationship. In the event of a breach of
this Agreement by FRANCHISEE, 7-ELEVEN shall be entitled, in addition
to any other rights under this Agreement: to invoke all rights
and remedies, judicial and otherwise, available to a landlord,
including summary proceedings for possession of leased property, the
right to appointment of a receiver or similar remedies;
2
and/or (ii) to terminate, cancel, or declare a forfeiture of the Lease.
On any holding over, after notice of breach or non-renewal and effective
date of termination as given in the notice, FRANCHISEE shall be only a
tenant at sufferance or a trespasser and shall not be entitled to any
notice to quit or vacate.
7. TERM. The License, Lease, and continuing obligations of
the parties shall begin on the Effective Date and continue for a term
expiring upon the date l0 years following the Effective Date, unless earlier
terminated pursuant to the terms of Paragraph 28 hereof.
8. 7-ELEVEN CHARGE. FRANCHISEE shall pay 7-ELEVEN the 7-Eleven
Charge for the License, Lease, and continuing services. The 7-Eleven Charge
shall be due and payable each Collection Period with respect to the
Receipts from that Collection Period at the time the deposit of such
Receipts is due, and that portion of the Receipts from each Collection
Period allocable to the 7-Eleven Charge shall be deemed to be paid to 7-
Eleven at the time of the deposit of such Receipts; provided that, in the
event that the Receipts deposited for any given Collection Period are
insufficient to discharge the 7-Eleven Charge for that Collection Period,
subsequent Receipts shall be applied first to discharge any such
deficiency and then to the current 7-Eleven Charge. In the event that any
such deficiency remains at the end of an Accounting Period, the deficiency
shall be charged to FRANCHISEE's Open Account. Failure to discharge
the 7-Eleven Charge allocable to a given Collection Period from the
Receipts for that Collection Period shall not be a Material Breach so long
as FRANCHISEE properly accounts for, expends, and deposits the Receipts from
such Collection Period in accordance with the terms of this Agreement.
The 7-Eleven Charge account reflected in the Financial Summaries may be
reconciled on a monthly or other periodic basis at which time appropriate
adjustments may be made for Assured Gross Income, changes in hours of
operation, or other items necessitating an adjustment to the total 7-
Eleven Charge for the Accounting Period.
9. FRANCHISEE'S DRAW. If FRANCHISEE is not in breach of
this Agreement, 7-ELEVEN shall: (i) weekly remit to FRANCHISEE the amount
provided in Exhibit D; (ii) within l0 business days (Monday through Friday)
after the end of each Accounting Period, inform FRANCHISEE of the available
Monthly Draw and Excess Investment Draw for the Accounting Period; and
(iii) remit to FRANCHISEE, upon FRANCHISEE's written request, within l0
days after receipt of such request, that amount of Monthly Draw or Excess
Investment Draw, or both, specified by the FRANCHISEE in such request,
provided that the total amount so requested by FRANCHISEE shall not exceed
the greater of the available Monthly Draw or Excess Investment Draw.
10. DAILY DEPOSITS, BOOKKEEPING RECORDS AND FINANCIAL SUMMARIES.
7- ELEVEN shall have the right, under the terms hereof, to maintain, as
part of its records and in accordance with this Agreement, Bookkeeping
Records on FRANCHISEE's operation of the Store. FRANCHISEE may perform
or obtain any additional bookkeeping FRANCHISEE desires. Either party
may inspect records pertaining to the operation of the Store prepared or
obtained by the other, where maintained, and during normal business
hours. FRANCHISEE shall: (i)
3
properly date and timely submit the Cash Report; (ii) deposit the Receipts
for each Collection Period within 24 hours after the end of the Collection
Period, in the Bank or night depository designated by 7-ELEVEN, except
cash expended by FRANCHISEE from that day's Receipts for Purchases or
Operating Expenses, which Purchases and/or Operating Expenses shall be
properly reported and accompanied by invoices reflecting such payment;
and (iii) deliver to 7ELEVEN, at those times specified by 7-ELEVEN,
written verification by the Bank of such deposit which verification must
be dated as of the business date next following the end of the
Collection Period. If requested by 7-ELEVEN, FRANCHISEE shall deliver
the Receipts (net of cash expenditures for authorized Purchases and
Operating Expenses) to 7-ELEVEN rather than depositing such Receipts in
the Bank. Amounts deposited by FRANCHISEE or delivered by FRANCHISEE
to 7-ELEVEN may be withdrawn from the Bank by or otherwise used for the
benefit of 7-ELEVEN at any time, without payment by 7-ELEVEN of interest
or other compensation to FRANCHISEE.
FRANCHISEE shall prepare and furnish to 7-ELEVEN, on forms and at
times acceptable to and as requested by 7-ELEVEN: (i) daily summaries of
Purchases; (ii) daily reports of Receipts; (iii) weekly time and wage
authorizations for FRANCHISEE's Store employees; (iv) all information
requested by 7-ELEVEN regarding the vendors from which FRANCHISEE makes
purchases; and (v) all such additional reports as 7-ELEVEN may require
from time to time. FRANCHISEE also shall deliver or furnish to 7-ELEVEN
copies of bank drafts, vendor and other receipts, invoices for
Purchases, and receipts and bills for Operating Expenses, and keep
7-ELEVEN currently advised in writing of all of FRANCHISEE's actual
retail selling prices (which FRANCHISEE shall solely select) and of
all discounts, allowances, and/or premiums received by FRANCHISEE.
FRANCHISEE shall retain and make available to 7-ELEVEN any records
or other documents relating to the operation of the Store that 7ELEVEN
requests that FRANCHISEE retain and/or make available.
If FRANCHISEE is not in breach of this Agreement, 7-ELEVEN shall:
(i) provide Financial Summaries for FRANCHISEE for the Store prepared
from the Bookkeeping Records in the form of an income statement and a
balance sheet for each Accounting Period or any portion thereof as 7-
ELEVEN may deem necessary and for each calendar year, payroll checks for
FRANCHISEE's Store employees, draw checks, and merchandise reports; (ii)
timely pay on behalf of FRANCHISEE, upon approval and submission to 7-
ELEVEN, bank drafts and invoices for Purchases (as verified by vendor
statements), bills for Operating Expenses, and the payroll for
FRANCHISEE's Store employees; and (iii) assist FRANCHISEE in the
preparation and filing of business tax reports and returns (except
FRANCHISEE's income tax and related returns) to the extent the information
is available from the Bookkeeping Records.
FRANCHISEE authorizes 7-ELEVEN to collect discounts and allowances,
not deducted from the face of invoices, and to charge FRANCHISEE for the
market value of any premiums FRANCHISEE receives based upon purchases.
4
11. OPEN ACCOUNT AND FINANCING. As part of the
Bookkeeping Records, 7-ELEVEN shall establish and maintain an Open Account
for FRANCHISEE. FRANCHISEE's draw, Purchases, Operating Expenses, and
amounts owed by FRANCHISEE to 7-ELEVEN which relate directly or
indirectly to operation of the Store, shall be charged to the Open
Account. All Receipts deposited or delivered to 7-ELEVEN shall be
credited to the Open Account, and any amounts due from 7-ELEVEN to
FRANCHISEE may be credited to the Open Account. The balance in the Open
Account shall be computed on a monthly basis or at any time during an
Accounting Period as 7-ELEVEN may deem necessary, shall be computed in a
manner 7-ELEVEN may determine to be appropriate, and shall be reflected
in the Financial Summaries prepared by 7-ELEVEN for each Accounting Period
or any portion thereof as 7-ELEVEN may deem necessary. All Receipts
shall be credited to the Open Account for the Accounting Period during
which the Cash Report relating to those Receipts is dated (provided such
Receipts are properly deposited in the Bank or delivered to 7-ELEVEN
as provided herein); and all Purchases, Operating Expenses and amounts
owed by FRANCHISEE to 7-ELEVEN shall be charged to the Open Account for
the Accounting Period during which invoices, reports or information
thereon is received by 7-ELEVEN (regardless of when paid by 7-ELEVEN on
behalf of FRANCHISEE).
If FRANCHISEE is not in breach of this Agreement, and so long as 7-
ELEVEN has a first lien on the Inventory and the Security Interest, 7-
ELEVEN will finance (as a loan) any unpaid balance in the Open Account.
FRANCHISEE shall execute a security agreement and financing statement(s)
and such renewal or continuation financing statements or other documents
relating to the Security Interest as are requested by and acceptable to 7-
ELEVEN. If, at any time, in 7-ELEVEN's sole opinion, there has been a
Material Breach by FRANCHISEE or 7ELEVEN believes its Security Interest
is threatened 7-ELEVEN may discontinue the financing described above and
the unpaid balance in the Open Account shall be immediately due and
payable. FRANCHISEE may obtain financing other than from 7-ELEVEN.
The unpaid balance in the Open Account at the beginning of
each Accounting Period (the amount financed by 7-ELEVEN) shall bear
interest for that Accounting Period at the rate specified in Exhibit D.
A credit balance reflected in the Open Account at the end of an
Accounting Period shall bear interest for the number of days in the
current Accounting Period, at the rate specified in Exhibit D, which
interest will be credited to the Open Account; provided, however, 7-
ELEVEN may, at its option, limit the credit balance amount upon which 7-
ELEVEN will pay interest upon notice to FRANCHISEE.
12. AUDITS. 7-ELEVEN shall cause at least one Audit to be
made each calendar or other designated quarter and, upon FRANCHISEE's
request, shall provide additional Audits for a fee of an amount equal to
.5% of the Retail Book Inventory. 7-ELEVEN shall have the right,
in 7-ELEVEN's discretion, to enter the Store and cause Audits to be made:
(i) upon 72 hours notice during normal business hours; (ii) without
notice, within 24 hours after 7-ELEVEN learns of a Robbery,
Burglary, theft, or mysterious
5
disappearance of Inventory, Receipts, and/or cash register fund, or
casualty; or (iii) without notice if Net Worth is less than the
minimum determined pursuant to Paragraph 13 hereof, or if the last audit
provided by 7-ELEVEN reflected an Inventory Overage or Inventory
Shortage of more than an amount equal to 1% of the Retail Book
Inventory. FRANCHISEE may cause Audits to be made by a reputable
company upon 24 hours notice to 7-ELEVEN. Both parties shall receive
copies of the report on each Audit. Audits shall be binding 24 hours
after receipt of such report unless either party gives notice that such
party believes the Audit to be incorrect. If such notice is given,
either party may cause a re-audit to be made within 24 hours. If any such
re-audit for FRANCHISEE becomes binding and results in an adjustment in
any Inventory Shortage or Inventory Overage reflected by the last 7-
ELEVEN Audit of more than 1% of the Retail Book Inventory reflected
by such last Audit, the reasonable cost of such Audit shall be
borne by 7-ELEVEN. The parties acknowledge that accurate Audits may
be made while the Store is open for business.
13. LOAN REPAYMENT REQUIREMENT. FRANCHISEE shall repay
the financing provided by 7-ELEVEN pursuant to this Agreement. If
FRANCHISEE (i) is not a Previous Franchisee; (ii) is a Previous
Franchisee who is executing this Agreement as the result of a request by 7-
ELEVEN that FRANCHISEE change locations; (iii) is a Previous Franchisee
and is paying 100% of the current Franchisee Fee (or, in the case of a
Previous Franchisee taking by assignment and paying less than 100% of
the then current Franchise Fee pursuant to certain rights granted to the
assignor); or (iv) is a Transferring Franchisee; then FRANCHISEE's
minimum Net Worth shall be that amount determined in accordance with
the following schedule:
<TABLE>
<CAPTION>
LOAN REPAYMENT
SCHEDULE---TIME PERIOD MINIMUM NET WORTH
----------- -----------------
<S> <C>
From the first day through the last $10,000
day of the first Year of Operation
From the first day through the last An amount equal to thirty day
of the second Year of Operation percent (30%) of Total Assets
From the first day through the last An amount equal to thirty-five
day of the third Year of Operation percent (35%) of Total Assets
From the first day through the last An amount equal to forty day
of the fourth Year of Operation percent (40%) of Total Assets
From the first day through the last An amount equal to forty-five
day of the fifth Year of Operation percent (45%) of Total Assets
From the first day through the last An amount equal to fifty day
of the sixth Year of Operation percent(50%) of Total Assets
</TABLE>
6
<TABLE>
<CAPTION>
<S> <C>
From the first day through the last An amount equal to fifty-five
day of the seventh Year of Operation percent (55%) of Total Assets
From the first day through the last An amount equal to sixty day
of the eighth Year of Operation percent(60%) of Total Assets
From the first day through the last An amount equal to sixty-five
day of the ninth Year of Operation percent (65%) of Total Assets
From the first day through the last An amount equal to seventy
day of the tenth Year of Operation percent(70%) of Total Assets.
and thereafter, so long as
FRANCHISEE operates the Store.
</TABLE>
FRANCHISEE acknowledges that the term of this Agreement shall
be determined in accordance with the provisions of Paragraph 7 hereof, and
may be less than ten years.
If FRANCHISEE is (i) a Renewing Franchisee; or (ii) a Previous
Franchisee paying less than 100% of the current Franchise Fee (except
as otherwise provided in this paragraph); and, in either case,
FRANCHISEE's previous Agreement included a Loan Repayment Schedule, that
Loan Repayment Schedule is deemed incorporated into this Agreement by
reference as if set out verbatim herein, and FRANCHISEE's minimum Net
Worth shall be determined by reference to that schedule, beginning at the
same level on such schedule as was applicable upon the last effective day
of FRANCHISEE's previous Agreement.
If FRANCHISEE is (i) a Renewing Franchisee; or (ii) a Previous
Franchisee paying less than 100% of the current Franchise Fee (except
as otherwise provided in this paragraph); and, in either case,
FRANCHISEE's previous Agreement did not include a Loan Repayment Schedule,
FRANCHISEE's minimum Net Worth from the first day until the last day of
the first Year of Operation, shall be an amount equal to 70% of Total
Assets as of the last effective day of FRANCHISEE's previous Agreement,
and thereafter through the remaining term of the Agreement, shall be an
amount equal to 70% of Total Assets, determined and adjusted annually as
herein set out.
Notwithstanding the foregoing, in no event shall FRANCHISEE be
required, at any time during the first Year of Operation, to maintain a
Minimum Net Worth greater than 85% of total assets (as reflected on
the Bookkeeping Records-Balance Sheet prepared for each Accounting Period
by 7-ELEVEN for the Store) for the immediately preceding Accounting
Period.
7
14. MERCHANDISING AND INVENTORY. On or before the Effective
Date, 7-ELEVEN shall: (i) procure an initial Inventory (which, except
for consigned merchandise, FRANCHISEE shall purchase for an amount equal
to the Cost Value of the initial Inventory); (ii) debit FRANCHISEE's Open
Account for any prepaid Operating Expenses; (iii) assist FRANCHISEE in
cleaning and stocking the Store; and (iv) provide such other services as
are required to make the Store ready to open for business.
Thereafter, FRANCHISEE shall select, purchase from Bona Fide
Suppliers, and stock merchandise that is adequate to provide
customers with a type, quantity, quality, and variety consistent with the
7-Eleven Image, and shall carry in the store at all times the Proprietary
Products listed on Exhibit G to this Agreement (the importance of which
to the 7-Eleven System FRANCHISEE hereby acknowledges). The items listed
on Exhibit G may be changed by 7-ELEVEN from time to time, but no more
than twice each calendar year, effective on the first day of the
Accounting Period beginning 30 days after notice to FRANCHISEE. Any
items for which specifications are set forth in Exhibit G or the
Foodservice Operations Manual shall meet or exceed those
specifications. As to items (such as frozen carbonated beverages,
prepared coffee, fountain beverages, deli products, etc.) which are
customarily sold in standardized containers, FRANCHISEE shall use only
standardized containers which conform to the type, style, and
quality, and, where deemed appropriate by 7-ELEVEN, bear the
distinctive identification designated by 7-ELEVEN and which are properly
accounted for pursuant to the Agreement. 7-ELEVEN shall recommend vendors,
merchandise, and supplies, and suggest retail selling prices. FRANCHISEE
is not required to purchase merchandise or supplies from 7-ELEVEN or
vendors it recommends (provided that Proprietary Products and items
bearing the Service Mark shall be purchased by FRANCHISEE only from
sources authorized by 7-ELEVEN to produce or deal in such items), to
purchase merchandise recommended by 7-ELEVEN (except for FRANCHISEE's
obligation to carry at all times the Proprietary Products listed on
Exhibit G to this Agreement), or to sell merchandise at retail selling
prices suggested by 7-ELEVEN.
15. 7-ELEVEN'S INDEMNITY. Except as otherwise provided herein,
7-ELEVEN shall be responsible for all fire and casualty loss or damage to
the Store building and Equipment (specified in Exhibit B) unless caused
by the intentional acts of FRANCHISEE or FRANCHISEE's agents or employees,
and shall indemnify FRANCHISEE to the extent and from those losses
specified in Exhibit C. This indemnification may be cancelled, and it
and any related definition may be changed by 7-ELEVEN once during each
calendar year, effective on the first day of the Accounting Period
beginning 30 days after notice to FRANCHISEE.
16. FRANCHISEE'S INDEMNITY AND INSURANCE. FRANCHISEE shall
be responsible for and indemnify 7-ELEVEN from all losses, except
those specifically the responsibility of or indemnified by 7-ELEVEN.
FRANCHISEE may obtain insurance in addition to the contractual
indemnification described in Exhibit C. FRANCHISEE shall notify 7-ELEVEN
if FRANCHISEE obtains any such insurance policy, and such policy
shall name 7-ELEVEN as an additional insured. 7-ELEVEN shall have no
obligation to process claims for FRANCHISEE. If FRANCHISEE has obtained
such insurance, it shall be primary, and 7-ELEVEN's
8
indemnity shall be secondary to that insurance except for insurance
coverage specifically endorsed to cover losses over and above the
contractual indemnification. FRANCHISEE shall maintain worker's
compensation insurance, including employer's liability coverage, with a
reputable insurer or with a state agency, satisfactory to 7-ELEVEN,
evidence of which (if with an insurer, reflecting that the premium has been
paid and that 30 days prior notice to 7ELEVEN is required for any
cancellation or change) shall be deposited with 7ELEVEN. FRANCHISEE shall
promptly report to 7-ELEVEN all casualty losses and other events covered by
indemnification or FRANCHISEE's insurance.
17. FRANCHISEE'S ADDITIONAL COVENANTS. FRANCHISEE shall:
(i) devote his best efforts to the business of the Store and maximization
of the Store's sales and gross profit, and shall make himself or herself
available to meet with 7-ELEVEN at reasonable times, upon request by 7-
ELEVEN; (ii) cause the Store to be designated only (and open for
business for at least the hours) as specified in Exhibit D, identified
only by the Service Mark, and operated only pursuant to the 7-ELEVEN
System and, where applicable, in accordance with those standards set
forth in the Foodservice Operations Manual, in a manner that will
enhance the 7-ELEVEN Image; (iii) maintain at all times the minimum Net
Worth specified in Paragraph 13 hereof; (iv) permit 7-ELEVEN access to
all of the Store, Equipment, Inventory, Receipts, cash register fund,
cash register readings, amusement machine, banking and other equipment
readings, money order blanks, bank drafts, and Store supplies at any time
and for any continuous time during Normal Operating Hours; (v) cause all
sales of Inventory to be properly recorded at the time of sale at the
retail prices set by FRANCHISEE and generally offered by FRANCHISEE to
customers of the Store; (vi) wear, and cause Store employees to wear,
apparel approved by 7ELEVEN while working in the Store; (vii) comply with
those minimum standards of operation for the Foodservice Facility as are
set forth in the Foodservice Operations Manual; and (viii) cause all Store
employees to be certified by 7ELEVEN as qualified to work in the
Foodservice Facility prior to beginning work therein and prominently
display the certificates evidencing each employee's certification.
FRANCHISEE shall not at any time: (i) use, or claim any right to (except
pursuant to the terms of this Agreement) the Service Mark or any other
trade indicia, including the Related Trademarks, or the goodwill represented
by any of them or the 7-Eleven System, the Trade Secrets, or any
copyright, copyrighted material or advertising owned or licensed by 7-
Eleven; (ii) challenge or contest the validity or enforceability of any
trade indicia, or rights therein, or any copyright, or copyrighted work,
owned, used or licensed by 7-ELEVEN; (iii) make any unauthorized
disclosure of any of the Trade Secrets; (iv) use any work which is
substantially similar to a work subject to a copyright owned or
licensed by 7-ELEVEN; or (v) use any name, mark, trade dress or other
visual or audible material which is likely to cause confusion with or
dilute the distinctiveness of trade indicia owned or licensed by 7-
ELEVEN or commit any other act which may adversely affect or be detrimental
to 7-ELEVEN, other FRANCHISEES, or any rights of 7-ELEVEN in or to the
Service Mark, such trade indicia, including the Related Trademarks, the 7
Eleven Image, the 7-Eleven System, the Trade Secrets or any copyrights
or advertising. FRANCHISEE acknowledges that any breach of any of the
terms of
9
the covenants contained in the preceding sentence will result in
irreparable injury to 7-ELEVEN and that 7-ELEVEN is entitled to
injunctive relief to prevent any such breach.
In the event that FRANCHISEE fails to comply with the quality or
other reasonable operating standards as from time to time established by
7-ELEVEN and set out in the Foodservice Operations Manual, 7-ELEVEN shall
give notice of such breach to FRANCHISEE. If FRANCHISEE fails to cure
any such breach after notice by 7-ELEVEN and a reasonable opportunity
to cure, 7-ELEVEN may perform or cause to be performed any necessary
action to remedy such failure and charge FRANCHISEE's Open Account for the
cost of such curative action. If, after having received two
previous notices and opportunities to cure, FRANCHISEE receives a third
notice of breach, 7-ELEVEN may, in its sole discretion (i) remove
such portions, or all, of the Foodservice Facility as 7-ELEVEN deems
appropriate, and charge FRANCHISEE's Open Account for the cost of such
removal and of restoring the Store to its previous condition, or (ii)
pursue all other remedies available to it under this Agreement.
Notwithstanding the foregoing or anything in this Agreement to the
contrary, in the event that FRANCHISEE's breach involves a grievous
failure to comply with any of the standards set forth in the
Foodservice Operations Manual intended to protect the health of persons
consuming items prepared in the Foodservice Facility, or with federal,
state, or local health regulations, 7-ELEVEN may, in its sole
discretion, cause FRANCHISEE to immediately cease the service of any
or all items from the Foodservice Facility, and FRANCHISEE shall not
resume such service until such time as that breach has been cured to the
sole satisfaction of 7-ELEVEN.
7-ELEVEN may enter upon the premises and take possession of the
Store, Equipment, Inventory, Receipts, cash register fund, money order
blanks, bank drafts, and Store supplies and continue the operation of
the Store for the benefit and account of FRANCHISEE (or
applicable heirs or legal representatives) pending the expiration or
termination of this Agreement, or resolution of any dispute if: (i)
the Store is not open for operation as provided in Exhibit D; (ii) a
FRANCHISEE dies or becomes incapacitated (except as otherwise provided in
Exhibit F -- "Survivorship"); or (iii) in the opinion of 7-ELEVEN, a
divorce, dissolution of marriage, or felony proceeding involving a
FRANCHISEE jeopardizes the operation of the Store or the 7-Eleven Image.
FRANCHISEE, on behalf of himself, his heirs, and his legal
representatives, consents to such operation of the Store by 7-ELEVEN,
and releases and indemnifies 7-ELEVEN from any liability arising in
connection with its operation of the Store pursuant to the terms of this
Paragraph 17.
18. MAINTENANCE AND UTILITIES. Except to the extent
otherwise assumed by 7-ELEVEN, FRANCHISEE shall be responsible for all
maintenance, repairs, replacements, janitorial services, and expenses
relating to the Store and Equipment, including: (i) maintenance of the
Store, Equipment, other property in the Store, and landscaped areas in a
clean, attractive, orderly, safe, and sanitary condition (and, where
applicable, in accordance with those minimum standards set forth in the
Foodservice Operations Manual) and in good repair and operating
condition, reasonable wear and tear excepted; (ii)
10
replacement of light bulbs, ballasts, vault doors, glass, and door closers
on the Store and Equipment; and (iii) cleaning of the parking lot and walk
areas (including snow and ice removal), and interior of the Store.
Except to the extent otherwise assumed by 7-ELEVEN or provided
pursuant to the terms of any master lease of the Store, FRANCHISEE shall
have contracts with reputable firms for maintenance of the Store and
Equipment, and, if determined by 7-ELEVEN to be appropriate or
necessary, for the landscaped areas outside the Store. Contracts for
maintenance of the Store and Equipment shall either be those available
through 7-ELEVEN, or shall cover services comparable to those provided
under contracts available through 7-ELEVEN. Contracts for maintenance
of the Store and Equipment must not include any maintenance services on
the HVAC Equipment.
Contracts for maintenance of the Store and Equipment, other than
those available through 7-ELEVEN, shall provide for the performance of
services, including preventative maintenance services, comparable to
those services available from 7-ELEVEN at the time such contract is
entered, and be with reputable, financially responsible firms,
which (i) maintain adequate insurance and bonding; (ii) have personnel
who are factory trained to service equipment of the type in the Store;
and (iii) maintain an adequate supply of parts for the Equipment and
tools. Contracts for landscape maintenance shall be with reputable,
financially responsible firms. FRANCHISEE shall provide 7ELEVEN with a
copy of any contract for maintenance which it enters with any outside
maintenance firm.
If the Store, the Equipment, or the landscape is not so maintained,
and such condition continues 72 hours after notice or exists upon
expiration or termination, 7-ELEVEN may cause such maintenance to
be performed at FRANCHISEE's expense and/or may obtain maintenance
contracts for the Store and Equipment and charge the FRANCHISEE for same.
7-ELEVEN shall, when it deems necessary: (i) repaint and repair the
interior and exterior of the Store; (ii) replace Equipment, including, but
not limited to, cash registers and point-ofsale computers; (iii) replace
plate glass in front windows and front doors; (iv) repair the floor
covering, exterior walls, roof, foundation, and parking lot; (v) maintain
the structural soundness of the Store; (vi) pay for sewer, water, gas,
heating oil, and electricity for operation of the Store; and (vii) maintain
the HVAC Equipment; and FRANCHISEE hereby consents to such actions by 7-
ELEVEN. 7-ELEVEN may charge the FRANCHISEE for any of the foregoing
repairs, if, in 7-ELEVEN's opinion, such repairs are occasioned by
FRANCHISEE's abuse or neglect. FRANCHISEE shall not modify, alter, or add
to the Store or Equipment or discontinue use pursuant to the 7-Eleven
System of any of the Equipment without the prior written consent of 7-
ELEVEN.
19. TAXES. 7-ELEVEN shall pay all real and personal property
taxes on the Store and Equipment (specified in Exhibits A and B).
FRANCHISEE shall be solely responsible for and pay all other taxes,
including, but not limited to, sales, inventory, payroll, business, and
income taxes.
11
20. ADVERTISING. 7-ELEVEN shall provide FRANCHISEE
with advertising materials included in the 7-Eleven System and may
arrange such advertising of the Service Mark, the Related Trademarks,
merchandise sold by 7Eleven Stores, or the 7-Eleven System as 7-ELEVEN in
its sole opinion desires. FRANCHISEE shall properly utilize the Foodservice
point-of-sale support and layouts designated by 7-ELEVEN in
accordance with the design of the Foodservice Facility. 7-ELEVEN may,
at its cost and in its discretion, at any time add to or change the signage
in the Foodservice Facility. FRANCHISEE may be requested to participate in
the costs of certain programs. FRANCHISEE may engage in such
advertising as FRANCHISEE desires if that advertising accurately
portrays any use of the Service Mark or the 7-Eleven System, does not
jeopardize the 7-Eleven Image, pertains only to operation of the Store, is
in compliance with all applicable laws, and does not breach any
agreement binding on either party. Any advertising or display of the
Service Mark by FRANCHISEE must have the prior approval of 7-ELEVEN.
21. INDEPENDENT CONTRACTOR. FRANCHISEE shall be an
independent contractor and shall control the manner and means of the
operation of the Store and exercise complete control over and
responsibility for all labor relations and the conduct of FRANCHISEE's
agents and employees, including, but not limited to, the day-to-day
operations of the Store and all Store employees. FRANCHISEE and
FRANCHISEE's agents and employees shall not (i) be considered or held out
to be agents or employees of 7-ELEVEN or (ii) negotiate or enter any
agreement or incur any liability in the name or on behalf of, or that
purports to bind, 7-ELEVEN. No actions taken by FRANCHISEE or
FRANCHISEE's agents or employees shall be deemed to be actions obligating
7ELEVEN. FRANCHISEE acknowledges that nothing herein shall create a
fiduciary or similar relationship with 7-ELEVEN.
22. NONWAIVER. No act or omission by either party shall waive
any right under or breach by the other of this Agreement unless such
party executes and delivers a written waiver. The waiver by either party
of any right under or breach of this Agreement shall not be a
waiver of any subsequent or continuing right or breach. Specifically,
but not by way of limitation, the acceptance of the 7-Eleven Charge shall
not be a waiver of any pre-existing breach of the Lease provisions of this
Agreement, regardless of 7ELEVEN's knowledge of such pre-existing breach at
the time of acceptance of such payment.
23. DISCLOSURE. FRANCHISEE consents to disclosure by 7-ELEVEN
to anyone of any information relating to this Agreement or contained in
the Bookkeeping Records or Financial Summaries.
24. FORCE MAJEURE. Neither party shall be liable in damages
to the other for any failure or delay in performance due to any
governmental act or regulation, war, civil commotion, earthquake, fire,
flood, or other disaster, or similar event, or for any other event
beyond such party's control, if such party shall take all reasonable
steps to mitigate damages caused by such failure or delay.
12
25. NOTICES. Notices shall be in writing and (i) delivered in
person; (ii) mailed return receipt requested and postage paid; or (iii)
delivered to FRANCHISEE's designee, as set forth in a written notice to
7-ELEVEN thereof or, if FRANCHISEE's designee cannot be promptly located,
to an employee of FRANCHISEE at the Store, followed by mailing of such
notice to FRANCHISEE, return receipt requested and postage paid. All
notices by mail shall be addressed as follows: if to FRANCHISEE, to
the address of the Store or the address shown on the signature page; and
if to 7-ELEVEN, to the address shown on the signature page. Addresses may
be changed by notice. Notices delivered to FRANCHISEE's designee or to
an employee of FRANCHISEE shall be deemed received 24 hours after
such delivery. Notices by mail shall be deemed received 3 days after
mailing. Notwithstanding the foregoing, in the event of the death of
FRANCHISEE, if (i) there is no surviving FRANCHISEE, (ii) the FRANCHISEE
has not properly given notice to 7-ELEVEN of a person whom the
FRANCHISEE believes is qualified and wishes to have the opportunity
to franchise the Store after the death of FRANCHISEE, and (iii) there is no
heir of FRANCHISEE known to 7-ELEVEN, notices may be given by publication
of such notices in a newspaper of general circulation in the county where
the Store is located, for a period of five days, to be published not less
than five nor more than twenty days after 7-ELEVEN learns of the death of
FRANCHISEE.
26. RENEWAL OF FRANCHISE. Upon the Expiration Date of
the Agreement, other than termination by FRANCHISEE or by mutual
agreement of FRANCHISEE and 7-ELEVEN, 7-ELEVEN will renew the
franchise, provided the following conditions have been met: (i) 7-
ELEVEN, in its sole discretion unilaterally elects to keep the Store
open as a 7-Eleven Store; (ii) renewal and continued operation of the
Store is permitted by law; (iii) the FRANCHISEE has met the Current
Standards, described below, current at the time of notice (given
approximately two years in advance of the Expiration Date), as
determined by 7-ELEVEN, utilizing the then current Operational Review;
(iv) the FRANCHISEE is not in Material Breach of the Agreement on the
Expiration Date; (v) the FRANCHISEE has had a Net Worth in an amount
equal to that required by Paragraph l3 hereof, for the one (l) year
immediately prior to the Expiration Date; (vi) the FRANCHISEE executes and
delivers to 7-ELEVEN the then current class of Agreement available for
renewal of franchises, but with no franchise or renewal fee, and a
mutual termination and release of this Agreement; (vii) the
FRANCHISEE has not been served with three or more notices of Material
Breach of the Agreement within the two (2) years prior to the Expiration
Date; and (viii) the FRANCHISEE has completed any additional training
requested by 7-ELEVEN, provided that, 7-ELEVEN shall bear those same types
of costs for such training as are set forth in Exhibit D, and in
reasonable amounts.
Approximately two (2) years prior to the Expiration Date, the
FRANCHISEE will be notified in writing of these renewal conditions, and
FRANCHISEE shall participate in an Operational Review, which will be
performed to determine whether FRANCHISEE's operation meets the Current
Standards. The FRANCHISEE will then be informed in writing of those
areas of FRANCHISEE's operation which do not meet the Current
Standards. Thereafter, FRANCHISEE shall continue to participate in the
Operational Review process, and 7-ELEVEN will provide FRANCHISEE with
quarterly status reports on whether or not FRANCHISEE
13
is meeting Current Standards. In the event that a FRANCHISEE's operation
is determined not to be in compliance with the Current Standards, the
FRANCHISEE will be so advised approximately six (6) months (or such longer
period as may be required by applicable law) prior to the
Expiration Date and the FRANCHISEE will have the opportunity to sell
his or her interest in the franchise for a premium in accordance with
the provisions contained in the Agreement, within that six (6) month
period (or such longer period as may be required).
In the event that 7-ELEVEN is not, at the time of such renewal,
offering a current form of Store Franchise Agreement, and is not at
that time attempting to effect a registration of a current form of
Store Franchise Agreement, then, if permitted by applicable law, 7-
ELEVEN will renew the franchise on the same terms and conditions as set
forth herein.
27. ASSIGNMENT. FRANCHISEE's interest under this Agreement
shall not be encumbered, transferred, or assigned in any way,
partially or completely, unless, as conditions precedent: (i)
FRANCHISEE authorizes 7ELEVEN to provide the transferee with, and
the transferee executes, a disclosure form containing a waiver and a
release by the transferee of any claim against 7-ELEVEN for any amount
paid to, or representation made by, FRANCHISEE; (ii) the transferee
is offered, and executes, at 7-ELEVEN's option, the then current form
of the "7-Eleven Store Franchise Agreement" or an assumption of this
Agreement (in either event providing for the then current initial
investment, 7-Eleven Charge, Franchise Fee and all other current
terms), completes the then required training, and is otherwise
determined to be qualified in 7-Eleven's sole opinion; (iii)
FRANCHISEE executes, at 7-ELEVEN's option, a mutual termination and
release of this Agreement, or an assignment of this Agreement and
release, and an indemnity for any claim by the transferee; (iv) any
amount due 7-ELEVEN is paid in full and arrangements satisfactory to 7-
ELEVEN are made for the payment of any amount which may become due
upon delivery of final Financial Summaries, including, at 7-ELEVEN's
option, the payment of all premium monies, to be received by
FRANCHISEE for the franchise, into the Open Account; (v) the Agreement
has not been terminated and no termination is pending; and (vi) 7-ELEVEN
shall have been given at least 5 business days (Monday through Friday)
written right of first refusal by FRANCHISEE, upon the same terms.
All documents must be acceptable to the parties. Subsequent to the
assignment of FRANCHISEE's interest under this Agreement, FRANCHISEE shall
have no further right, claim or interest in or to the franchise, the
Store, or any assets used or acquired in conjunction therewith.
28. TERMINATION. This Agreement may be terminated by 7-
ELEVEN (subject to FRANCHISEE's right to cure as set forth below) for the
occurrence of any one or more of the following events (each of
which FRANCHISEE acknowledges is a Material Breach and constitutes good
cause for termination):
a. Upon 45 calendar days notice to FRANCHISEE, and subject
to FRANCHISEE's right to cure as set forth herein, in the event that:
(i)
14
FRANCHISEE fails to operate the Store at least the hours set forth in
Exhibit D or otherwise agreed to, in writing, prior to said reduction,
unless said reduction in hours of operation: (A) is the result of
governmental regulation, (B) does not result in less than the hours of
operation required for a Minimum Hour Operation, and (C) is not directly
or indirectly caused by FRANCHISEE's acts or failure to act; (ii)
FRANCHISEE fails to use standardized trademarked containers; (iii)
FRANCHISEE fails to comply with any agreement (including a master lease
pertaining to the Store or Equipment) to which 7-ELEVEN is a party and a
copy of the pertinent provisions of which has been provided to FRANCHISEE
prior to the execution of this Agreement, or with the usual and normal
terms of any lease transaction 7-ELEVEN may enter into regarding the
Store or Equipment; (iv) FRANCHISEE fails to use the Store or Equipment
solely in connection with FRANCHISEE's operation of the store; (v)
FRANCHISEE fails properly to maintain the Store and Equipment; (vi)
FRANCHISEE fails to obtain the prior written consent of 7-ELEVEN to make
additions to the Store or Equipment or discontinue use pursuant to the 7
Eleven System of any of the Equipment; (vii) FRANCHISEE fails to remit
insurance proceeds to 7-ELEVEN, which proceeds are due and owing to 7
ELEVEN pursuant to the terms of this Agreement; (viii) FRANCHISEE fails to
indemnify 7-ELEVEN as required under the terms and conditions of
Paragraph 16 of this Agreement; (ix) FRANCHISEE fails to provide any
records or reports required by 7-ELEVEN or fails to cooperate in
obtaining information from FRANCHISEE's vendors; (x) FRANCHISEE fails to
comply with any provisions of Paragraph 33 hereof; or (xi) FRANCHISEE
fails to comply with the quality or other reasonable operating standards
as from time to time established and set forth in the Foodservice
Operations Manual, where applicable.
b. Upon 30 calendar days notice to FRANCHISEE, and subject to
FRANCHISEE's right to cure as set forth herein, in the event that: (i)
Net Worth is less than the minimum determined pursuant to Paragraph 13 of
this Agreement, but more than an amount equal to one-half of the dollar
amount of FRANCHISEE's minimum Net Worth or $l0,000, whichever is
greater;(ii) FRANCHISEE improperly uses, through advertising or
otherwise, or jeopardizes the Service Mark, the Related Trademarks, or
the goodwill represented by any of them, or copyrights or advertising
owned or licensed by 7-ELEVEN, the Store, the 7-Eleven System, or the 7
Eleven Image; (iii) FRANCHISEE purchases or sells any Proprietary Product
or other product bearing the Service Mark which has been obtained from a
source not authorized to produce or deal in such goods, the purchase of
which by FRANCHISEE has been duly reported to 7-ELEVEN; (iv) FRANCHISEE
fails to pay timely any taxes or debts connected with the Store which
FRANCHISEE is obligated to pay or a tax lien is imposed upon the
FRANCHISEE which affects the Store; (v) FRANCHISEE fails to maintain
worker's compensation coverage; (vi) FRANCHISEE fails to maintain an
Inventory of a type, quantity, quality and variety consistent with the 7
Eleven Image or fails to carry in the Store at any time any of the
Proprietary Products listed on Exhibit G to this Agreement, as may be
amended from time to time; (vii) FRANCHISEE fails to notify 7-ELEVEN in
15
an accurate and timely manner of discounts, allowances or premiums
received by FRANCHISEE, or FRANCHISEE's retail selling prices; (viii)
FRANCHISEE fails to obtain or continue any license, permit, or bond
necessary, in 7-ELEVEN's opinion, for FRANCHISEE's operation of the
Store; (ix) FRANCHISEE violates or fails to comply with any governmental
law, rule, regulation, ordinance or order relating to the operation of
the Store (specifically including, but not limited to, those relating to
the sale of alcoholic beverages); (x) FRANCHISEE fails to repay the loan
from 7-ELEVEN in accordance with this Agreement in the event the unpaid
balance in the Open Account becomes immediately due and payable; (xi)
FRANCHISEE fails to pay the 7-Eleven Charge when due.
c. Upon 30 calendar days notice to FRANCHISEE, and with no right
to cure, in the event that: (i) a voluntary or involuntary petition in
bankruptcy is filed by or against FRANCHISEE, FRANCHISEE makes an
assignment for the benefit of creditors, or a receiver or trustee is
appointed; (ii) FRANCHISEE attempts to encumber, transfer, or assign, in
part or in whole, any interest under the Agreement in breach of the terms
and conditions set forth in Paragraph 27 of this Agreement; (iii)
FRANCHISEE is convicted of, or pleads "Nolo Contendere" to, a felony not
involving moral turpitude; (iv) FRANCHISEE fails to maintain an
independent contractor relationship with 7-ELEVEN; (v) FRANCHISEE
purchases or sells any Proprietary Product or other product bearing the
Service Mark which has been obtained from a source not authorized to
produce or deal in such goods, the purchase of which by FRANCHISEE has
not been duly reported to 7-ELEVEN; or (vi) FRANCHISEE misrepresents,
misstates, or fails or omits to provide material information required as a
part of the qualification process.
d. Upon 3 Business Days (excluding weekends and legal holidays)
notice to FRANCHISEE, and subject to FRANCHISEE's right to cure as set
forth herein, in the event that: (i) FRANCHISEE's Net Worth is less than
the minimum determined pursuant to Paragraph 13 of this Agreement and
less than an amount equal to one-half of the dollar amount of
FRANCHISEE's minimum Net Worth or $10,000, whichever is greater; (ii)
FRANCHISEE fails to properly record, deposit, deliver, or expend and
report Receipts or to deliver deposit slips, cash reports and all
supporting documents, receipts for cash purchases, and invoices or other
reports of Purchases; (iii) FRANCHISEE, at any time during Normal
Operating Hours, fails to permit any Audit provided for in Paragraph 12
of this Agreement or denies access to any part of the Store, Equipment,
Inventory, Receipts, cash register fund, cash register receipts or
readings, amusement machine, banking and other equipment readings, money
order blanks, bank drafts, or Store supplies.
e. Upon 3 Business Days notice to FRANCHISEE, and with no right to
cure, in the event that: (i) FRANCHISEE vacates, deserts or otherwise
abandons the Store, provided that immediately upon 7-ELEVEN's
determination that the Store has been abandoned, 7-ELEVEN may take
possession of the Store pursuant to the provisions of Paragraph 17 hereof
16
and operate the Store for FRANCHISEE's benefit during such notice period;
or (ii) a FRANCHISEE is convicted of, or pleads "Nolo Contendere" to any
charge which involves moral turpitude.
Unless otherwise specified, and if FRANCHISEE has not previously
been served with two notices of termination for any Material Breach
within the three (3) years prior to the occurrence of a third Material
Breach, FRANCHISEE shall have the right to cure any Material Breach set
forth above prior to the expiration of the notice period for termination
due to that Material Breach (or such shorter period as may be imposed by
law or by any agreement to which 7-ELEVEN is a party), by taking such
actions as 7-ELEVEN may reasonably determine to be necessary to
restore 7-ELEVEN to substantially the same condition it would have held
but for FRANCHISEE's breach.
Notwithstanding the three Business Days notice provision
above, FRANCHISEE shall have the right to an extended 30-day notice of
termination, commencing on the date the termination notice is served upon
FRANCHISEE, for any Material Breach if, prior thereto, FRANCHISEE has
obtained Security Certification from 7-ELEVEN.
If FRANCHISEE has failed to obtain Security Certification prior to
notice of termination, FRANCHISEE may nevertheless obtain Security
Certification by increasing Net Worth to 85% of FRANCHISEE's Security
Asset Level, prior to the expiration of the notice period, at which time
the termination date shall be extended to 30 days from the date of the
original notice; provided however, that all other provisions of the
notice of termination shall remain binding and effective.
If FRANCHISEE fails to maintain all necessary requirements for
Security Certification, 7-ELEVEN shall have the right to revoke
same. If the revocation occurs while an extended 30-day notice of
termination is in effect, FRANCHISEE shall be served written notice
specifying the new date for termination, which date shall be not less
than three Business Days from the date of such notice. FRANCHISEE shall
thereafter have one opportunity prior to termination to regain Security
Certification and have the termination date resetto the date which was in
effect immediately prior to the time that theSecurity Certification was
revoked, by increasing Net Worth through paid-in capital to an amount
equal to at least 85% of FRANCHISEE's Security Asset Level as calculated
immediately prior to the date that the notice of termination was
received.
This Agreement also may be terminated by: (i) agreement between
the parties, (ii) by FRANCHISEE upon at least 72 hours (or shorter, if
accepted by 7-ELEVEN) notice, or (iii) as provided in Paragraph 27.
This Agreement may also be terminated by 7-ELEVEN upon at least
30 calendar days notice (or longer if required by law) in the event a
FRANCHISEE dies or becomes incapacitated (except, if there is more than
one FRANCHISEE and only one dies or becomes incapacitated, 7-Eleven
may continue this Agreement with the survivor or person not so
incapacitated, or upon written
17
request by 7-ELEVEN, 7-ELEVEN may execute with same a new "Store
Franchise Agreement" for the
Store in the then current form, but not differing in any financial
terms from this Agreement, for the remainder of the existing term of this
Agreement).
This Agreement will terminate prior to the Expiration Date (i)
30 days prior to the loss of 7-ELEVEN's Leasehold Rights, (ii)
upon a condemnation or transfer in lieu of condemnation which results in
7-ELEVEN's determination not to continue the Store as a 7-Eleven Store,
(iii) upon casualty damage to the Store building or Equipment which cannot
reasonably be repaired or replaced within 30 calendar days, or (iv)
upon closing of the Store required by law (if such closing was not the
result of a violation by 7ELEVEN). In the event that this Agreement is so
terminated, FRANCHISEE may, for a period of 180 days following such
termination, elect either to transfer to another 7-Eleven Store available
for franchise (a "Transfer") or to receive a refund of a portion of the
Franchise Fee paid by FRANCHISEE (a "Refund"), on the terms and
conditions set forth below. If at the end of such 180 day period
FRANCHISEE has not expressly elected otherwise, FRANCHISEE shall be
deemed to have elected the Refund provision.
In order to elect the Transfer, FRANCHISEE shall either sign a
Store Franchise Agreement or the Transfer Election Form. Once the election
is made, the transfer shall be completed, after reasonable prior
notice, within a reasonable time. The following shall be conditions
precedent to FRANCHISEE's ability, if eligible, to elect a Transfer: (i)
FRANCHISEE may not be selling or assigning FRANCHISEE's interest in the
Store for a premium, or transferring such interest to a third party
pursuant to any available transfer mechanisms; (ii) the FRANCHISEE must
not be in Material Breach of this Agreement at the time of such
election; (iii) the FRANCHISEE must have had a Net Worth in an amount
equal to that required by this Agreement, for the one (l) year
immediately prior to the time of such election; (iv) the FRANCHISEE
must execute and deliver to 7-ELEVEN the then current class of Agreement
available for 7-Eleven franchises in the area in which the store to
which FRANCHISEE wishes to transfer is located, but with no franchise
fee, and a mutual termination and release of this Agreement; (v) the
FRANCHISEE must not have been served with three or more notices of
Material Breach of this Agreement within the two (2) years prior to the
time of such election; and (vi) the FRANCHISEE must complete any
additional training requested by 7-ELEVEN, provided that 7-ELEVEN shall
bear those same types of costs for such training as are set forth in
Exhibit D. Provided that these conditions have been satisfied, if
FRANCHISEE elects a Transfer, said Transfer may be to any 7Eleven Store
which is available for franchise, and for which FRANCHISEE is qualified.
7-ELEVEN shall not be responsible for any moving or relocation expenses
of FRANCHISEE or for the payment of any premium amount, broker's fee, or
any other payment to a third party arising in connection with such
Transfer. No damages shall be payable by 7-ELEVEN to FRANCHISEE if one of
the events giving FRANCHISEE the right to elect a Transfer or Refund occurs
prior to the expiration of ten (10) years following the Effective Date
of this Agreement, and the Transfer, or the Refund described in the
immediately succeeding paragraph in lieu of the Transfer, shall be
FRANCHISEE's sole remedy in such event. In the event 7-ELEVEN's Leasehold
Rights expire or are
18
terminated (and are not renewed or otherwise extended) as a result of the
acts or omissions of FRANCHISEE or FRANCHISEE's employees, the Term shall
expire at the expiration or termination of 7-ELEVEN's Leasehold Rights,
and FRANCHISEE shall have no right to a Transfer or Refund.
If FRANCHISEE is eligible for and elects a Refund, the amount of
said refund shall be computed by deducting from the Franchise Fee
paid by FRANCHISEE upon the execution of this Agreement a Base Fee of
$20,000. The remainder after such deduction shall be divided by 120. The
resulting amount multiplied by the number of calendar months from the
first day of the month next following the time FRANCHISEE elects to
receive the refund through the month of the scheduled Expiration Date
shall be refunded to FRANCHISEE.
The following shall be conditions precedent toFRANCHISEE's ability,
if eligible, to elect a Refund: (i) FRANCHISEE may not be selling or
assigning FRANCHISEE's interest in the Store for a premium, or
transferring such interest to a third party pursuant to any available
transfer mechanisms; (ii) the FRANCHISEE must not be in Material Breach of
this Agreement at the time of such election; (iii) the FRANCHISEE must
have had a Net Worth in an amount equal to that required by the
Agreement, for the one (l) year immediately prior to the time of such
election; (iv) the FRANCHISEE must execute a mutual termination and
release of this Agreement; and (v) the FRANCHISEE must not have been
served with three or more notices of Material Breach of this
Agreement within the two (2) years prior to the time of such election.
No Transfer or Refund shall be available in the event that the
Agreement is terminated by 7-ELEVEN for cause, or in the event
FRANCHISEE voluntarily terminates the Agreement. If eligible, the
FRANCHISEE may select either a Refund or a Transfer, and in no event
shall FRANCHISEE have the right to both a Refund and a Transfer.
29. REFUND OF FRANCHISE FEE. If FRANCHISEE's interest under
this Agreement is not being transferred to a third party, then upon l0 days
notice given to 7-ELEVEN, within l70 days from the Effective Date,
FRANCHISEE may terminate this Agreement and, upon FRANCHISEE's
execution of a mutual termination and release (acceptable to 7-ELEVEN)
and compliance with all other terms of this Agreement, 7-ELEVEN shall
refund without interest an amount equal to the Franchise Fee less the
training expenses set forth in Exhibit D which have been reimbursed or
paid by 7-ELEVEN and less the costs set forth in Paragraph 30 upon a
termination; provided, however, that if FRANCHISEE is a Previous
Franchisee or a Renewing Franchisee, an amount equal to l0% of the
Franchise Fee shall be deducted from such refund. This right to a refund
is in no way related to the Refund right described in Paragraph 28.
30. CLOSE OUT PROCEDURE. Upon any expiration or termination
of this Agreement, FRANCHISEE shall: (i) peaceably surrender the
Store and Equipment (without additional notice, except as required by
law and not waivable, all other notices to quit or vacate being
expressly waived by FRANCHISEE) in as good condition as when received by
FRANCHISEE, normal wear and tear excepted;
19
(ii) transfer the final Inventory (for the Cost Value of the final
Inventory), of a type, quantity, quality, and variety consistent with
the 7-Eleven Image, to 7-ELEVEN, or, at 7-ELEVEN's option, to the
transferee (but only if any amount due 7-ELEVEN is paid in full
and arrangements satisfactory to 7-ELEVEN are made for the payment of any
amount which may become due 7-ELEVEN upon delivery of final Financial
Summaries); (iii) transfer to 7-ELEVEN the Receipts, cash register
fund, pre-paid Operating Expenses, money order blanks, bank drafts, and
Store supplies; (iv) cease using the Service Mark, the Related Trademarks,
and the 7-Eleven System, including the Trade Secrets; (v) return
FRANCHISEE's copy of the Franchise Systems Manual and of the Foodservice
Operations Manual; and (vi) return all Trade Secrets and other 7-Eleven
System material.
Within l0 days after such surrender and transfer, 7-ELEVEN shall:
(i) credit FRANCHISEE for such Receipts, cash register fund, prepaid
Operating Expenses, usual and reasonable amounts of Store supplies, the
amount received by or due from 7-ELEVEN for transfer of the final
Inventory, and $100 if FRANCHISEE's copy of the Franchise Systems
Manual and of the Foodservice Operations Manual is returned; (ii) charge
FRANCHISEE a $200 closing fee; and (iii) remit to FRANCHISEE any amount by
which 7-ELEVEN estimates the Net Worth (excluding any amount due
FRANCHISEE under Paragraph 29) will exceed the greater of $l0,000 or
twenty-five percent (25%) of FRANCHISEE's Total Assets. Within 75 days
after the last day of the month in which such surrender and transfer
occurs, 7-ELEVEN shall deliver to FRANCHISEE final Financial
Summaries together with any credit balance in the Open Account. Upon
delivery of the final Financial Summaries, any unpaid balance in the Open
Account shall be due and payable in full and FRANCHISEE shall immediately
pay same to 7-ELEVEN. Any property belonging to FRANCHISEE and left in
the Store after such surrender and transfer shall belong to 7-ELEVEN.
3l. ARBITRATION. The parties may, by mutual agreement,
provide that any controversy relating to this Agreement shall be settled by
individual arbitration. Unless the parties expressly agree otherwise,
such arbitration shall be conducted in accordance with the rules of the
American Arbitration Association; provided that, if such rules are
contrary to this Agreement, this Agreement shall control. The parties
shall bear their own expenses and shall share equally all expenses of the
arbitrator(s) and the American Arbitration Association. If the parties do
not mutually agree to arbitration, each party may pursue any rights and
remedies available at law or in equity.
32. GOVERNING LAWS AND SEVERABILITY. This Agreement shall
be governed by and construed according to the laws of the state where the
Store is located. If, however, any provision, or portion hereof in
any way contravenes the laws of any state or jurisdiction where this
Agreement is to be performed, such provision, or portion thereof,
shall be deemed to be modified to the extent necessary to conform
to such laws, and still be consistent with the parties' intent as
evidenced herein, or if such modification is impossible, to be
deleted here from. If any part of this Agreement for any reason shall
be declared invalid such decision shall not affect the validity of any
remaining portion, which shall remain in full force
20
and effect. In the event that any material provision of this Agreement
shall be stricken or declared invalid, 7-ELEVEN reserves the right to
terminate this Agreement.
33. PERSONAL QUALIFICATION. This Agreement is being entered into by
7ELEVEN with the person(s) named on the signature page, upon the
personal qualifications of, and upon the representation and
agreement that the following person(s) will be the FRANCHISEE(S) of
and will actively and substantially participate in the operation of the
Store and will have full managerial authority and responsibility for
the operation of the Store. No changes in the ownership and/or control
of the franchise shall be made without the prior written approval of 7-
ELEVEN.
34. COMPLETE AGREEMENT. THIS AGREEMENT, ANY OTHER
AGREEMENTS SPECIFIED IN EXHIBIT D, AND THE EXHIBITS, AMENDMENTS, AND
ADDENDA (WHICH ARE INCORPORATED HEREIN BY THIS REFERENCE AND MADE A
PART OF THIS AGREEMENT) CONTAIN ALL AGREEMENTS BETWEEN FRANCHISEE AND 7-
ELEVEN AND COVER THEIR ENTIRE RELATIONSHIP CONCERNING THE STORE, ALL
PRIOR OR CONTEMPORANEOUS PROMISES, REPRESENTATIONS, AGREEMENTS, OR
UNDERSTANDINGS BEING EXPRESSLY MERGED AND SUPERSEDED. NO AGENT OR
EMPLOYEE OF 7-ELEVEN IS AUTHORIZED TO MAKE ANY MODIFICATION, ADDITION,
OR AMENDMENT TO OR WAIVER OF THIS AGREEMENT UNLESS IN WRITING AND
EXECUTED BY AN ASSISTANT SECRETARY OF 7-ELEVEN. FRANCHISEE REPRESENTS
AND WARRANTS THAT ALL INFORMATION PROPERLY REQUESTED HAS BEEN SUPPLIED
AND THAT NO REPRESENTATIONS HAVE BEEN MADE BY 7-ELEVEN (OR ANY AGENT OR
EMPLOYEE) OR RELIED UPON BY FRANCHISEE AS TO THE FUTURE OR PAST INCOME,
EXPENSES, SALES VOLUME OR POTENTIAL PROFITABILITY, EARNINGS OR INCOME OF
THE STORE OR ANY OTHER LOCATION, OTHER THAN THE INFORMATION PROVIDED IN
ITEM XIX OF 7-ELEVEN'S UNIFORM FRANCHISE OFFERING CIRCULAR AND
SITE SPECIFIC INFORMATION PROVIDED IN 7-ELEVEN'S "HERE
ARE THE FACTS" SUPPLEMENTAL DISCLOSURE.
35. SAVINGS CLAUSE. All obligations imposed by Paragraphs 16,
18,30, and 31 hereof which are not discharged prior to termination or
expiration of this Agreement shall remain binding and effective until
fully discharged, to the sole satisfaction of 7-ELEVEN.
21
IN WITNESS WHEREOF, FRANCHISEE and 7-ELEVEN have executed this
Agreement this ________________ day of ___________________________________,
19________.
7-ELEVEN: THE SOUTHLAND CORPORATION
_______________________________
____________________________________
Signature Signature
_______________________________
____________________________________
Market Manager Assistant Secretary
Full Name (Typed) Full Name (Typed)
7-Eleven Office/Store
No.__________________________________________________
________________________________________________________________________
___ Address of Office Street
________________________________________________________________________
___ City State Zip
FRANCHISEE(S)
______________________________
____________________________________
Signature Signature
______________________________
____________________________________
Full Name (Typed) Full Name (Typed)
Witness:_______________________ Witness:
___________________________
Witness of Above Signature Witness of Above Signature
________________________________________________________________________
___ Address of Franchisee's Residence Street
________________________________________________________________________
___ City State Zip
22
EXHIBIT 10.(ii)B(1) - A
EXHIBIT A
STORE
FRANCHISEE ACCEPTS THE STORE AS IS IN ITS CONDITION
ON THE DATE HEREOF, EXCEPT AS SPECIFICALLY NOTED HEREON.
This Exhibit is based on information available or furnished to 7
ELEVEN on the date hereof. It is accurate to the best of 7-ELEVEN's
knowledge and belief. A complete copy of any master lease is
available on request. If there are any questions concerning this
Exhibit or if a more complete explanation of any item is desired,
please contact the Market Manager. If now owned by 7-ELEVEN, the
Store may be sold and leased back. If leased by 7-ELEVEN, the Lease
to FRANCHISEE is (or then will be) a sublease and the pertinent
provisions of the master lease are included on Exhibit A (or will be
on a revision). 7-ELEVEN reserves the right to designate the area in
which amusement type machines will be located. 7-ELEVEN reserves from
the Lease and/or Common Area such portions as it designates for:
installation of banking or other similar equipment, attended or self
service gasoline, a photo kiosk, or signs or bill boards, and such
additional areas as 7-ELEVEN deems necessary for the installation,
maintenance, repair, and operation of appurtenant equipment and 7
ELEVEN shall have unobstructed non-exclusive ingress and egress in
connection therewith. FRANCHISEE agrees that 7-ELEVEN may at any time
remodel the Store in accordance with one of 7-ELEVEN's remodel
programs.
7-Eleven Store No.____________ Street________________________________
______________________________________________________________________
City State Zip
[ ] Plot Plan Attached
[ ] Owned by 7-ELEVEN:
Legal description of the property (attach copy from deed).
Special Provisions;
Use/Merchandise Restrictions:
Other:
[ ] All or any portion leased by 7-ELEVEN:
Legal description of property (attach copy from master
lease).
The present term of the master lease expires on the ______ day of
_______________________, ________. 7-ELEVEN has no obligation to
renew or exercise any option to extend the master lease. If the
1
master lease is not renewed, the term of this Agreement shall expire
30 days prior to the expiration of the master lease.
Special Charges:
Maintenance:
Co-operative Advertising:
Common Area (including landscaped areas):
Other:
Special Provisions:
Hours:
Signs:
Parking:
Use/Merchandise Restrictions:
Exclusives:
Condemnation:
Rules and Regulations:
Other:
[ ] State and Local Ordinances
Zoning:
Signs:
Hours:
Parking:
Alcoholic Beverages:
Gasoline:
Other:
2
FRANCHISEE: _______________________ (Signature)
FRANCHISEE: _______________________ (Signature)
7-ELEVEN: __________________________ (Signature)
DATE: _______________________________
3
EXHIBIT 10.(ii)B(1)-B
EXHIBIT B
EQUIPMENT
FRANCHISEE ACCEPTS THE EQUIPMENT AS IS IN ITS CONDITION
ON THE DATE HEREOF, EXCEPT AS SPECIFICALLY NOTED HEREON.
This Exhibit is based on information available or furnished to 7-
ELEVEN on the date hereof. It is accurate to the best of 7-ELEVEN's
knowledge and belief. A complete copy of any master lease is available
on request. If there are any questions concerning this Exhibit or if a
more complete explanation of any item is desired, please contact the
Market Manager. If now owned by 7-ELEVEN, the Equipment may be sold
and leased back. If leased by 7-ELEVEN, the Lease to FRANCHISEE is
(or then will be) a sublease and the pertinent provisions of the
master lease are (or will be) applicable. 7-ELEVEN may, at its
discretion, replace any of the Equipment, including, but not limited
to, cash registers and point of sale computers. Any of the
Equipment may be removed, or new Equipment (of a type or category
other than currently exists) added, by 7-ELEVEN. New or additional 7-
ELEVEN Equipment shall be added to this list.
7-Eleven Store No.___________________________
7-ELEVEN
--------
Description Make Model Serial No. 7-E ID Owned
Leased
- ----------- ---- ----- ---------- ------ ----- ----
- --
1
7-ELEVEN
--------
Description Make Model Serial No. 7-E ID Owned
Leased
- ----------- ---- ----- ---------- ------ ----- ----
- --
The following Gasoline and other specified equipment, and any and
all replacements or additions thereto, are excluded from the
Lease of Equipment under this Agreement.
7-ELEVEN
--------
Description Make Model Serial No. 7-E ID Owned
Leased
- ----------- ---- ----- ---------- ------ ----- ----
- --
FRANCHISEE: ______________________
Signature)
FRANCHISEE: ______________________
(Signature)
7-ELEVEN: ______________________
Signature)
DATE: ______________________
2
EXHIBIT 10.(ii)B(1) - C
EXHIBIT C
7-ELEVEN'S INDEMNIFICATION
THIS IS NOT AN INSURANCE BINDER, CERTIFICATE,OR POLICY 7-
ELEVEN CONTRACTUAL INDEMNIFICATION
7-Eleven Store No.______________________
LIABILITY. Subject to the limitations, exclusions and conditions
set forth herein, the Franchisee shall be provided with
contractual indemnification for losses up to a maximum of $500,000
per occurrence, which arise out of or as a result of bodily injury,
personal injury or property damage incurred by any third party,
excluding an employee acting within the course and scope of his
employment or any other agent of the Franchisee, in connection with
the Franchisee's lawful operation of the Store.
For purposes of this Exhibit C, an occurrence shall be defined as
that term is ordinarily used in a standard Commercial General Liability
policy. Bodily injury, personal injury and property damage shall be
defined as those terms are ordinarily used in a standard Commercial
General Liability policy.
The contractual indemnification provided to the Franchisee pursuant
to this Exhibit C is that which would normally be provided under
those portions of a standard Commercial General Liability policy
relating to coverages regarding bodily injury and property damage
liability and personal injury liability, specially endorsed to
include coverage for liquor liability, but otherwise subject to the
exclusions set forth in a standard Commercial General Liability
policy, except to the extent otherwise limited or excluded by this
Exhibit C.
The contractual indemnification provided to the Franchisee under
this Exhibit C shall not be construed to constitute an insurance
binder, certificate or policy nor shall the Franchisee be considered
to be an insured of 7-Eleven nor have the protections or rights
normally associated with an insured vis-a-vis an insurer. Accordingly,
this Exhibit C is to be construed as a contractual indemnity.
FIRE AND OTHER PERILS: Up to full replacement cost of the Inventory
and Store supplies for direct losses as a result of fire,
lightning, windstorm, hail, explosion, riot, riot attending a
strike, civil commotion, aircraft, vehicle, smoke, vandalism, and
malicious mischief.
ROBBERY:
(i) For a single loss of Receipts and cash register fund as the
result of a Robbery, an amount equal to $50 for each cash
register in operation at the time of the Robbery, and one-half
of the full replacement cost for a single loss of Inventory and
Store supplies, as
1
a result of a Robbery, with a maximum aggregate coverage for any single
loss of $200.
(ii) Up to the full replacement amount of the Current Deposit for
a single loss of Receipts as a result of a Robbery, less $l00;
provided Receipts were being properly prepared for deposit or
transported to the Bank or between more than one 7-Eleven Store
franchised by FRANCHISEE while en route to the Bank, and where,
in 7-ELEVEN's opinion, all receipts are properly accounted for in
accordance with this Agreement and appropriate security measures were
taken.
(iii) Up to the full replacement amount equal to the sum of the
Current Deposit, and the Receipts from the current Collection
Period, for a single loss of Receipts as a result of a Safe
Robbery, less $l00; provided that all Receipts are properly
accounted for in accordance with this Agreement and where, in 7-
ELEVEN's opinion, appropriate security measures were taken.
(iv) Up to the lesser of $2,500 or the amount shown in account l0
(or such appropriate account) on the Financial Summaries for a single
loss of the cash register fund (1) as the result of a Safe Robbery
or (2) while the cash register fund is being prepared for
deposit or
transported to or from the Bank or (3) while the cash register fund
is being transported between more than one 7-Eleven Store
franchised by FRANCHISEE while en route to or from the Bank; and
provided the amount taken to the Bank is noted in the Cash Report
and a receipt is obtained from the Bank showing the correct amount of
money obtained.
BURGLARY:
(i) Up to full replacement cost for a single loss of Inventory (other
than tobacco products) as a result of a Burglary, less $l00.
(ii) Up to the lesser of the actual cost of tobacco products taken
or the equivalent of the total reasonable purchases, at cost, of
tobacco products for the Store for the prior 12 weeks, divided by 6
(with a limit of an amount equal to twice the average weekly
purchases, at cost, minus $100 until the Store has been open 12
weeks), for a single loss of tobacco products in the Inventory as a
result of a Burglary, less $l00.
(iii) An amount equal to the sum of the Receipts from the
immediately previous Collection Period plus the cash register fund
for a single loss of Receipts as a result of a Safe Burglary, less
$l00, provided all receipts are properly accounted for in
accordance with this Agreement.
(iv) The maximum aggregate exclusion for a single loss as the result of
a Burglary and/or Safe Burglary shall be $l00.
2
CONDITIONS AND EXCLUSIONS. Notwithstanding anything to the
contrary stated herein, the Franchisee's contractual right to be
indemnified for losses under this Exhibit C shall be expressly subject
to the limitations, exclusions and conditions set forth in this
Paragraph. Neither employees nor agents of the Franchisee shall be
considered indemnities or thirdparty beneficiaries of this Exhibit C.
Further, this Exhibit C does not provide indemnification to the
Franchisee for losses arising from the assumption of liability by
the Franchisee pursuant to any contract or agreement.
The Franchisee's contractual right to be indemnified and 7-
Eleven's contractual obligation to indemnify the Franchisee for losses
under this Exhibit C shall be expressly contingent upon and
subject to the
Franchisee's cooperation, to 7-Eleven's satisfaction, in
any
investigation, prosecution or defense of any claim or lawsuit conducted
by 7-Eleven, 7-Eleven's insurance company or any representative or law
firm designated by 7-Eleven. The failure of the Franchisee to cooperate
in any such investigation, claim or suit, to 7-Eleven's
satisfaction, shall immediately release 7-Eleven of its contractual
obligation to indemnify the Franchisee in connection with such loss.
The Franchisee shall not be entitled to be indemnified for any
loss associated with a robbery or burglary, unless the Franchisee,
within twenty-four (24) hours of such loss, files a report with the
appropriate law agency and furnishes a representative of 7-Eleven with
a notice and proof of loss report (acceptable to 7-Eleven), a copy of
the report filed with the law agency and any report required to be filed
with the insurance company. In addition, the Franchisee shall be
indemnified for Receipts only if the Receipts have been properly
handled in accordance with the terms of the Agreement and the
Franchisee has properly completed a Cash Report for the Receipts and
timely submitted same to a representative of 7Eleven.
Notwithstanding the above, 7-Eleven's contractual obligation to
indemnify the Franchisee shall not extend to any loss suffered by the
Franchisee which is otherwise deemed under the Agreement to be the
responsibility of the Franchisee, nor shall the Franchisee be
indemnified for the loss of any Inventory and/or Store supplies
located outside of the Store building at the time of such loss. In
addition, the Franchisee shall have the duty to use its best efforts to
promptly mitigate any loss for which it may be entitled to be
indemnified. The Franchisee's failure to mitigate such loss shall
relieve 7-Eleven of its contractual obligation to indemnify the
Franchisee for same. The Franchisee will not be indemnified for any
cash register fund loss if the Franchisee has refused to allow an audit
of that fund by 7-Eleven within twelve (12) months prior to such loss.
The Franchisee shall not be entitled to be indemnified for punitive
or exemplary damages or fines. The Franchisee shall not be entitled to
be indemnified for and 7-Eleven shall be released of its
contractual obligation to indemnify the Franchisee for any loss suffered
if (i) the Franchisee is in breach of the Agreement and such breach
causes, creates or contributes to the occurrence of such loss; or (ii)
such loss is caused by, results from or occurs in connection with an
intentional act committed
3
by the Franchisee or by an agent or employee of the Franchisee.
FRANCHISEE: ______________________
(Signature)
FRANCHISEE: ______________________
(Signature)
7-ELEVEN: ______________________
(Signature)
DATE: ______________________
4
EXHIBIT 10.(ii)(B)(1) - D
EXHIBIT D
Complete All Blanks.
(a)FRANCHISEE's operation of the Store shall be designated only
as"________________________________________________________, doing
business as 7-Eleven Store No. _______________________________" and, so
long as permitted by law, the Store shall be open for business (except, at
FRANCHISEE's option, Christmas day) _____________ hours per week. (For a 24-
Hour Operation, use 168 hours per week; if the store is to be operated less
than 24 hours per day, use the actual number of hours per week the store is to
be operated.)
(b) The Franchise Fee was $_______________. The Down Payment on the initial
unpaid balance in the Open Account was $_______________. The
Down Payment also includes a $_______________ contribution toward the
estimated Cost Value of the initial Inventory, a $_______________ payment
toward the estimated initial governmental fees for necessary licenses,
permits, and bonds (an Operating Expense), and a $_______________
payment for the initial cash register fund.
(c) The initial annual interest rate charged by 7-ELEVEN to the
FRANCHISEE on the unpaid balance in the Open Account shall be _______%. The
annual interest rate charged by 7-ELEVEN to FRANCHISEE on the unpaid balance in
the Open Account shall be adjusted, effective each March 1, and continuing in
effect through the last day of February of the succeeding year, to equal
the rate which is two percent in excess of the prime rate charged by
NationsBank (or any successor) as of the first working day of each calendar
year during which such adjustment becomes effective. In the event that the
interest charged hereunder exceeds the maximum amount permitted by applicable
law, the excess amount so charged shall be deemed automatically credited to the
principal balance of the loan, it being the intent of 7-ELEVEN not to
charge an amount of interest that would be in violation of any applicable
law.
(d) The annual interest rate paid by 7-ELEVEN to FRANCHISEE on a credit balance
in the Open Account pursuant to Paragraph 11 shall be equal to the prime rate
at NationsBank (or any successor), as of the first working day of each
calendar year minus two percentage points, effective each subsequent March 1.
(e) Each FRANCHISEE must attend both store and classroom training. If
FRANCHISEE is only one individual, FRANCHISEE designates
________________________________________ to receive training. Each
participant must successfully complete each phase of training in order to
continue the training process.
(f) The training expenses to be reimbursed or paid by 7-ELEVEN are: for
transportation, and accommodations if applicable as arranged by 7ELEVEN,
(up to) $____________ for store training and $_____________ for classroom
training (airline tickets will be provided by 7-ELEVEN); for
1
food, $_____________ daily for each participant; for lodging, where and as
deemed necessary by 7-ELEVEN, at 7-ELEVEN's cost. All other expenses deemed
necessary by trainee will be borne by FRANCHISEE.
(g) The percentage used to adjust retail to cost for determining Cost Value
and Inventory Variation shall be computed by dividing the prior twelve (12)
months' Purchases at cost (including delivery charges, cost equalization, and
adjustment for discounts and allowances received) by the prior twelve (12)
months' Purchases at retail. Purchases of Vending Supplies, container
deposits, consigned merchandise and product markdowns are excluded from
Purchases at cost as well as Purchases at retail. Until the Store has been in
operation three months, the average percentage for all 7-Eleven Stores in the
market based on the prior twelve (12) months will be used; thereafter, the
percentage will be computed for the Store based on the prior twelve (12)
months (or lesser available period) operation of the Store.
(h) Checks from 7-ELEVEN to FRANCHISEE shall be payable to
_____________________________.
(i) FRANCHISEE's draw to be remitted weekly shall be $_______________, unless
changed by mutual agreement of FRANCHISEE and 7-ELEVEN.
(j) 7-Eleven Charge:
(i) For a 24-Hour Operation:
The 7-Eleven Charge for the Store is 52% of the Gross Profit, except
as may be increased pursuant to subsections (ii) or (iii) of this Paragraph
(j).
(ii) Reduced Hours of Operation:
In the event that the hours of operation of the Store are
restricted to less than a 24-Hour Operation as the result of
governmental regulation not caused, directly or indirectly, by
FRANCHISEE's acts or failure to act, or if 7-ELEVEN agrees to
operation of the Store on less than a 24-Hour basis, the 7-Eleven Charge
shall be increased on a pro-rata basis, rounded to the nearest 0.1%
(rounded up at .05% and above) of the Gross Profit, by adding to 52% the
product resulting from multiplying the Hourly Factor times the
difference between 168 and the Weekly Hours of Operation; provided that,
in no event shall the hours of operation of the Store be less than from
7:00 a.m. to 11:00 p.m. daily, 7 days per week (except, at FRANCHISEE's
option, Christmas Day). In
the event the hours of operation of the Store are reduced other than as
provided in this Paragraph (j)(ii), the 7-Eleven Charge for the Store may
be calculated pursuant to Paragraph (j)(iii) below.
2
(iii) Increase of 7-Eleven Charge:
If during any Accounting Period the Store is not open for business the
number of hours per week specified in this Exhibit D, 7-Eleven may, at
its sole discretion, increase the FRANCHISEE's 7-Eleven Charge for any
such Accounting Period by adding to 52% an amount equal to (i) 4% of
the Store's Gross Profit if the Store is operated as a Limited-Hour
Operation or (ii) 6% of the Store's Gross Profit if the Store is
operated as a Minimum-Hour Operation. This increase in the 7-Eleven
Charge is not 7-ELEVEN's sole remedy, but is in addition to any other
remedies available to 7ELEVEN in the event of a reduction in the hours
of operation of the Store by the FRANCHISEE.
(k) The Gross Income for an Accounting Period (where the Store is open for
business throughout the full period) shall be at least equal to:
(i) for a 24-Hour Operation, $60,000 per calendar year, prorated
to $164.39 per day multiplied by the number of days in such
Accounting Period;
(ii) for a Limited-Hour Operation, $40,000 per calendar year
prorated to $109.59 per day multiplied by the number of days in such
Accounting Period; or
(iii) for a Minimum-Hour Operation, $30,000 per calendar year
prorated to $82.20 per day multiplied by the number of days in such
Accounting Period;
provided however, that all of the FRANCHISEE's separate income out of the
Store, including, but not limited to, Gross Profit from alcoholic beverage
sales and gasoline commissions or income, shall be included to determine Gross
Income.
(l) Other special provisions (specify):
FRANCHISEE: ______________________ (Signature)
FRANCHISEE: ______________________ (Signature)
7-ELEVEN: ______________________ (Signature)
DATE: ______________________
3
EXHIBIT 10.(ii)(B)(1) - E
EXHIBIT E
DEFINITIONS
7-ELEVEN STORE No.____________________
"Accounting Period" means a calendar month of FRANCHISEE's operation of
the Store, except that if the Effective Date, expiration, or
termination or surrender of the Store and Equipment occurs during any
calendar month, that portion of said month which follows the Effective
Date or precedes such other events shall be an Accounting Period.
"Audit" means a physical count of the Inventory (priced at retail
value determined as provided in the Agreement), Receipts, cash
register fund, cash, money order blanks, and bank drafts, pursuant to
7-ELEVEN's normal procedures.
"Bank" means the bank or similar institution designated by 7-ELEVEN for
the Store and, specifically, the account established therein for the
Store.
"Bona Fide Suppliers" means persons or entities regularly conducting
the business of supplying merchandise, supplies or services to
retail businesses and performing all of the functions normally
associated with such activities.
"Bond" means a financial guarantee payment bond in favor of 7-ELEVEN, in
a form and from a reputable company satisfactory to 7-ELEVEN and
in a principal amount at least equal to the greater of FRANCHISEE's
Total Assets (at cost) as reflected on the then current
Bookkeeping Records, or $50,000.00.
"Bookkeeping Records" means financial summaries in the form of
income statements, balance sheets, reports reflecting credits and
charges to FRANCHISEE's Open Account, inventory records and such other
records and reports relating to FRANCHISEE's income, expenses,
profits and losses, assets and liabilities as 7-ELEVEN elects to
prepare. 7-ELEVEN may, in its discretion, change the format, manner or
timing of the records it prepares and the procedures for collecting or
compiling data for such reports. The inventory records and reports
derived from such records shall be maintained by 7-ELEVEN by using the
retail inventory method (see definition of "Retail Book Inventory"),
and the retail value will be adjusted to cost as described in
Exhibit D. The Bookkeeping Records shall be based upon information
supplied to 7-ELEVEN by FRANCHISEE, information obtained by 7ELEVEN from
Audits, Store inspections and vendors, and, where necessary or
appropriate, information based upon estimates or factors concerning
Store transactions.
"Burglary" means the stealing of Inventory from within the Store when
the Store is closed, all doors are duly closed and locked, and entry
is by actual force evidenced by visible marks made by tools,
explosives, electricity, or chemicals.
1
"Cash Report" means that form or other method of reporting
FRANCHISEE's Receipts as designated by 7-ELEVEN from time to time.
FRANCHISEE must complete a Cash Report for each Collection Period.
Each Cash Report must indicate the time and date at which the Collection
Period ended.
"Cash Variation" means the difference between (i) Receipts reflected on
the applicable cash register tapes, less Receipts expended by
FRANCHISEE for Purchases or Operating Expenses (and reported to and
verified by 7-ELEVEN), coupons, over-rings, and refunds to customers and
(ii) Receipts deposited or delivered to 7-ELEVEN pursuant to the
Agreement.
"Collection Period" means each period of time for which FRANCHISEE
reports Receipts. FRANCHISEE's initial Collection Period shall commence
at the time FRANCHISEE begins the operation of the Store, and may end,
at FRANCHISEE's discretion, at any time within FRANCHISEE's first 24
hours of operation. Each subsequent Collection Period shall begin
immediately upon the ending of the immediately preceding Collection
Period, and must be 24 hours (unless otherwise agreed by 7-ELEVEN).
"Cost of Goods Sold" means the Cost Value of Inventory at the beginning
of the Accounting Period (not including the value of consigned gasoline),
plus the cost of Purchases during the Accounting Period (including
delivery charges, cost equalization, and adjustment for discounts and
allowances received), and minus the Cost Value of the Inventory at the
end of the Accounting Period. Adjustment will be made so that any
Inventory Variation and bad merchandise (due to FRANCHISEE causes) will
not be included in Cost of Goods Sold. Retailer discounts and
allowances (including promotional and display allowances) paid to 7-
ELEVEN and allocated or reasonably traceable to Purchases shall be
credited to Cost of Goods Sold, except that 7-ELEVEN shall retain
reimbursements for its expenditures pursuant to vendors' co-operative
advertising or other similar programs where 7-ELEVEN is partially or
wholly reimbursed (or where costs are shared) for advertising
expenditure programs. Those not allocated or reasonably traceable
to Purchases shall be credited to Cost of Goods Sold on the basis of
sales of the Store compared with sales of all stores affected.
Discounts, allowances, and the value of premiums received by
FRANCHISEE shall be credited to Cost of Goods Sold. 7-ELEVEN shall not
be obligated to credit to Cost of Goods Sold any discounts or allowances
not collected. For purposes of determining the 7-Eleven Charge
allocable to a given Collection Period, Cost of Goods Sold for that
Collection Period shall be determined on a pro rata basis by the number
of Collection Periods in the Accounting Period in which that Collection
Period falls.
"Cost Value" means the cost value of the Inventory at any time
determined by: deducting from the Retail Book Inventory the included
retail value of all consigned merchandise, deposit bottles, and Vending
Supplies; adjusting from retail value to cost as specified in Exhibit
D; and adding the wholesale cost of all deposit bottles and Vending
Supplies.
2
"Current Deposit" means all Receipts obtained during the
immediately preceding Collection Period and accounted for by the proper
completion of the most recent 7-ELEVEN Cash Report relating to those
Receipts.
"Current Standards" _ See Paragraph 26 of the Agreement.
"Down Payment" means the initial amount actually paid by FRANCHISEE to
7ELEVEN on the unpaid balance in the Open Account, if any, as set out
in Paragraph (b) of Exhibit D.
"Effective Date" means the date FRANCHISEE first opens the Store
for business under the Agreement.
"Excess Investment Draw" means an amount equal to the amount by
which FRANCHISEE's Net Worth exceeds FRANCHISEE's total assets (as
reflected on the Bookkeeping Records-- Balance Sheet prepared for each
Accounting Period by 7-ELEVEN for the Store).
"Expiration Date" means the date this Agreement expires and terminates
by its own terms, other than termination because of a breach of this
Agreement by FRANCHISEE.
"Financial Summaries"_ See Paragraph 10 of the Agreement.
"Foodservice" means the unique, comprehensive system for retailing
a limited menu of uniform, quality, freshly prepared food products
and related items for take-out purposes, developed by 7-ELEVEN, with
those changes approved and adopted by 7-ELEVEN from time to time.
"Foodservice Facility" means that area or those areas of the Store
and concomitant Equipment from time to time used for the Foodservice
operation.
"FRANCHISEE" means the individual(s) (jointly and severally if more
than one) signing the Agreement as FRANCHISEE.
"Gross Income" means Gross Profit less the 7-Eleven Charge.
"Gross Profit" means Net Sales less Cost of Goods Sold.
"Hourly Factor" means .l07.
"HVAC Equipment" means the heating, ventilation and air conditioning
unit and related equipment, duct work, filters and refrigerant gas for
the air conditioning unit, but does not include water heaters,
equipment and refrigerant gases for refrigerated vaults and cases, and
other equipment used in connection with the sale of Inventory from the
Store.
3
"Inventory" means all merchandise for sale from the Store,
including deposit bottles, Vending Supplies, and consigned merchandise
(other than consigned gasoline).
"Inventory Overage" means any difference at retail value remaining
after (i) the Retail Book Inventory is deducted from (ii) the retail
value of the Inventory as reflected by a binding Audit.
"Inventory Shortage" means any difference at retail value remaining
after (i) the retail value of the Inventory as reflected by a binding
Audit is deducted from (ii) the Retail Book Inventory.
"Inventory Variation" means any Inventory Overage or Inventory
Shortage, adjusted from retail value to cost as specified in Exhibit
D. Inventory Variation is charged or credited, as applicable, to
Operating Expenses.
"Lease" _ See Paragraph 6 of the Agreement. Except as otherwise
provided herein, in the event that an allocation of the 7-Eleven Charge
to the lease of Equipment is required by law or ordinance, or for
taxation purposes, the amount of the 7-Eleven Charge allocable to the
lease of the Equipment shall be equal to the monthly straight line
depreciation of the Equipment.
"Leasehold Rights" means 7-ELEVEN's rights to possession of the Store
under any pre-existing or subsequent lease of the Store, whether
pursuant to the current term of a lease, an option thereto which is
exercised by 7-ELEVEN, or a renegotiation of the lease by 7-ELEVEN. 7-
ELEVEN has no obligation to exercise any options or other contractual
rights, or otherwise enter into any agreement for the purpose of
retaining Leasehold Rights.
"Limited-Hour Operation" means FRANCHISEE's operation of the Store for
less than a 24-Hour Operation, but not less than 136 hours a week,
including from 7 a.m. to 11 p.m. daily, 7 days a week (except, at
FRANCHISEE's option, Christmas day).
"Loan Repayment Schedule" _ See Paragraph 13 of the Agreement.
"Material Breach" _ See Paragraph 28 of the Agreement.
"Minimum-Hour Operation" means FRANCHISEE's operation of the Store
less than a Limited-Hour Operation but not less than from 7 a.m. to
11 p.m. daily, 7 days a week (except, at FRANCHISEE's option, Christmas
day).
"Monthly Draw" means an amount equal to 70% of the total increase in
Net Worth over the three Accounting Periods immediately prior to the date
upon which Monthly Draw is calculated, divided by three, less any
amounts reflected on FRANCHISEE's most recent Bookkeeping Records as
distributions to FRANCHISEE of additional draw, unauthorized draw, or
Excess Investment Draw; but, in no event, greater than an amount which
would reduce Net Worth to the minimum determined pursuant to Paragraph l3
of the Agreement.
4
"Net Income" means Gross Income less Operating Expenses.
"Net Sales" means (i) Receipts reflected on the applicable cash
register tapes (plus any additional receipts of the Store) less (ii)
over-rings, refunds to customers, taxes collected incidental to sales,
and the face value of money orders (not including the value or
sales of consigned gasoline).
"Net Worth" means the cash register fund, the Cost Value of the
Inventory, Store supplies, receivables, prepaids, refundable deposits,
and any portion of the initial cost of an alcoholic beverage
license employed in FRANCHISEE's operation of the Store which is
charged to the Open Account and carried on the Bookkeeping Records
(except nominal governmental fees which are an Operating Expense);
less FRANCHISEE's payables and accruals from FRANCHISEE's operation of
the Store, as reflected on the Financial Summaries.
"Normal Operating Hours" means the hours the Store is continually
obligated to remain open, as set out in Exhibit D or the hours the Store
is actually staying open, if more.
"Open Account" _ See Paragraph 11 of the Agreement.
"Operating Expenses" means the expenses (or credits) incurred by
FRANCHISEE in the operation of the Store for: (i) payroll; (ii)
payroll taxes (including unemployment, worker's compensation, payroll
insurance, and social security contributions); (iii) Inventory
Variation; (iv) Cash Variation; (v) maintenance, repairs,
replacements, laundry expense, and janitorial services; (vi)
telephone; (vii) Store supplies, including grocery bags and other
Store-use items; (viii) nominal governmental fees of licenses, permits,
and bonds; (ix) interest; (x) returned checks; (xi) inventory and
business taxes; (xii) bad merchandise due to FRANCHISEE neglect;
(xiii) advertising and other miscellaneous expenditures which 7ELEVEN
(in its discretion and regardless of the classification by
FRANCHISEE or the Internal Revenue Service) determines to be
Operating Expenses.
"Previous Franchisee" means a FRANCHISEE, other than a Renewing
Franchisee or a Transferring Franchisee, who has, at any previous
time, been a FRANCHISEE of 7-ELEVEN. For purposes of Paragraph 13 of
the Agreement, a Previous Franchisee shall include, but not be limited
to, a FRANCHISEE taking by way of a contractual right of
survivorship from a Previous Franchisee, a FRANCHISEE taking by way
of a son/daughter transfer from a Previous Franchisee, or a FRANCHISEE
corporation in which a FRANCHISEE or Previous Franchisee has or had an
interest.
"Proprietary Products" means certain products developed by 7-ELEVEN
which are unique to 7-ELEVEN by virtue of either their ingredients,
formulas, manufacturing or distribution processes, or the manner in
which they are
5
presented to consumers and which 7-Eleven supports through the use
of trademarks, copyrights, quality control, advertising,
promotions, trademarked packaging, and other activities as listed on
Exhibit G to the Agreement.
"Purchases" means all of FRANCHISEE's purchases of merchandise for
sale from the Store.
"Receipts" means all sales proceeds (whether cash, check, vendor
draft, credit instrument, or other evidence of receipt), money order
revenues, discounts or allowances received by FRANCHISEE, and
miscellaneous income (including rentals, royalties, fees, commissions
and amounts received by FRANCHISEE from on-site currency operated
machines) and the value of premiums received from FRANCHISEE's
operation of the Store. (Receipts from on-site currency operated
machines are deemed received at the time the proceeds are collected
from the machine).
"Related Trademarks" means the trademarks, service marks, trade
names, trade dress and other trade indicia, excluding the Service Mark,
which 7ELEVEN may authorize the FRANCHISEE to use from time to time as
part of the 7-Eleven System and all other combinations of the word or
numeral "7" and the word or numeral "Eleven," in any language, other
than those comprising the Service Mark. By way of example, Related
Trademarks include the trademarks BIG GULP and BIG BITE, as well as the
distinctive trade dress of 7-Eleven Stores.
"Renewing Franchisee" means a FRANCHISEE who is executing this Agreement
as a renewal of a previous Agreement, for the same store as was
franchised under that previous Agreement.
"Retail Book Inventory" means that book inventory maintained as part of
the Bookkeeping Records which reflects the retail value of the Inventory.
The
Retail Book Inventory initially shall be determined by an Audit by 7-
ELEVEN of the initial Inventory. The Retail Book Inventory thereafter
shall be adjusted by: adding the retail value (based on FRANCHISEE's
then current retail selling prices) of subsequent Purchases (other
than gasoline); subtracting Net Sales of items reflected in the
Retail Book Inventory; adding or subtracting the retail value of
all retail selling price increases or decreases of items reflected in
the Retail Book Inventory, as reported by FRANCHISEE to or determined
from surveys of the Inventory by 7ELEVEN; subtracting the included
retail value of any merchandise used as Store supplies and out-of-date
date-coded merchandise or merchandise which is damaged or deteriorated
as reported by FRANCHISEE to and verified by 7ELEVEN; and adding any
Inventory Overage or subtracting any Inventory Shortage. The Retail
Book Inventory at expiration or termination shall be determined by an
Audit by 7-ELEVEN. The Retail Book Inventory shall be appropriately
adjusted to reflect the results of each binding Audit. The
retail value of the Inventory for purposes of an Audit shall be
determined: for the initial Audit and the Audit on expiration or
termination, at 7ELEVEN's then current suggested retail selling
prices; and for any other Audit, at FRANCHISEE's then current retail
selling prices.
6
"Robbery" means the stealing of Receipts (other than a Safe
Robbery), Inventory, or Store supplies from FRANCHISEE or FRANCHISEE's
agents or employees by acts or threat of violence in the Store or while
Receipts are being transported directly from the Store to the Bank
designated by 7ELEVEN or between more than one 7-ELEVEN Store
franchised by FRANCHISEE while en route to the Bank, or while the
cash register fund is being transported directly from the Bank to the
Store or between more than one 7Eleven Store franchised by FRANCHISEE
while en route from the Bank, and in the presence of FRANCHISEE or
FRANCHISEE's agents or employees, if not committed by FRANCHISEE or
FRANCHISEE's agents or employees.
"Safe Burglary" means the stealing of Receipts or cash register fund from
a vault, safe, or security drop box in the Store and approved by 7-
ELEVEN when the Store is closed and all doors of the Store and of
such vault, safe, or security drop box are closed and locked and entry
thereto is by actual force evidenced by visible marks made by
tools, explosives, electricity, or chemicals.
"Safe Robbery" means the stealing of Receipts from a vault, safe,
security drop box, or vending tubes in a safe in the Store and approved
by 7-ELEVEN by acts or threat of violence committed in the presence of
FRANCHISEE or FRANCHISEE's agents or employees, if not committed
by FRANCHISEE or FRANCHISEE's agents or employees.
"Security Asset Level" means FRANCHISEE's total assets (as reflected on
the Bookkeeping Records-- Balance Sheet prepared for each Accounting
Period by 7-ELEVEN for the Store) for the immediately preceding
twelve (12) full Accounting Periods (or the number of full Accounting
Periods following the Effective Date of the Agreement, if less), divided
by twelve (or the number of full Accounting Periods following the
Effective Date of the Agreement, if less).
"Security Certification" means 7-ELEVEN's written acknowledgement
that FRANCHISEE has complied with the Security Certification
requirements by providing 7-ELEVEN with security equal to at least
85% of FRANCHISEE's Security Asset Level, in the form of any one or
a combination of the following: (i) Net Worth; (ii) a bond in a
form and with a company satisfactory to 7-ELEVEN; or (iii) any other
security approved in writing by 7-ELEVEN in its sole discretion.
"Security Interest" means FRANCHISEE's right and interest in the
Inventory, Receipts and premium and going concern value, if any, all of
which have been assigned to 7-ELEVEN as security for the repayment
of any unpaid balance in the Open Account.
"Service Mark" means the service mark logo and design registered in
the United States Patent and Trademark Office (Registration No.
920,897) and the 7-Eleven service mark registered in the United
States Patent and Trademark Office (Registration No. 798,036).
"7-ELEVEN" means The Southland Corporation, a Texas corporation.
7
"7-Eleven Charge" means an amount equal to the percent of Gross
Profit specified in Exhibit D, reduced if necessary (where the Store is
open for business) so that Gross Income for each Accounting Period shall
be at least equal to the amount specified in Exhibit D.
"7-Eleven Image" means the public acceptance, favorable reputation,
and extensive goodwill achieved by 7-ELEVEN and its Franchisees in the
U.S. and elsewhere for the Service Mark, the Related Trademarks and
for 7-Eleven Stores operated pursuant to the 7-Eleven System.
"7-Eleven System" means the system for the fixturization,
layout, merchandising, promotion (sometimes through products or services
consisting of or identified by trademarks, service marks, trade names,
trade dress symbols, other trade indicia, copyrights, or advertising
owned or licensed by 7-ELEVEN), and operation of extended-hour retail
stores operated by 7ELEVEN or its Franchisees in the U.S. and elsewhere
and identified by the Service Mark, which system provides
groceries, take-out foods and
beverages, dairy products, non-food merchandise, specialty items,
and various services, emphasizes convenience to the customer, and has
been developed and is being continually refined, modified and updated
by 7ELEVEN based on experience and new marketing developments to meet
and serve the changing preferences of the customer.
"Total Assets" means the total assets, (as reflected on the
Bookkeeping Records _ Balance Sheet prepared for each Accounting Period
by 7-ELEVEN for the Store) for the 12 Accounting Periods prior to the
first day of each Year of Operation, divided by
12.
"Trade Secrets" means the "Franchise Systems Manual," the
"Foodservice Operations Manual," and all other manuals, forms, and
materials included in the 7-Eleven System. The Trade Secrets are
restricted proprietary information belonging to and exclusively for the
benefit of 7-ELEVEN and its FRANCHISEES.
"Transferring Franchisee" means a FRANCHISEE who is executing
this Agreement as a result of electing a Transfer (as defined in
Paragraph 28 hereof) pursuant to the provisions of a 7-Eleven Store
Franchise Agreement or an amendment thereto.
"24-Hour Operation" means FRANCHISEE's operation of the Store 24 hours
a day, 7 days a week (except, at FRANCHISEE's option, Christmas day).
"Vending Supplies" means those containers, ingredients, condiments,
and other items used or furnished in connection with the preparation or
sale of a specific product and so designated by 7-ELEVEN.
"Weekly Hours of Operation" means the number of hours of operation per
week established by agreement of FRANCHISEE and 7-ELEVEN and/or as
required by governmental regulation, provided the restriction does
not reduce the operation past a Minimum Hour Operation.
8
"Year of Operation" means the period from the Effective Date, or,
as appropriate, the first day of an Accounting Period on or after
the anniversary date of the Effective Date, until the first day
of the Accounting Period on or following the next anniversary
date of the Effective Date.
FRANCHISEE: ______________________
(Signature)
FRANCHISEE: ______________________
(Signature)
7-ELEVEN: ________________________
(Signature)
DATE: ____________________________
9
EXHIBIT 10(ii)B(i) - F
EXHIBIT F
SURVIVORSHIP
7-ELEVEN STORE NO.__________________
Notwithstanding anything in this Agreement or the Exhibits hereto to the
contrary:
l. In the event of the death of a FRANCHISEE, 7-ELEVEN will
operate the Store for the benefit of FRANCHISEE's estate from the period
beginning on the death of FRANCHISEE and ending on the earliest of
the following events: (l) sale of the franchise by the estate and
mutual termination of the Agreement, all in accordance with the
terms hereinbelow and in the Agreement; (2) the Effective Date of a
new 7-Eleven Store Franchise Agreement with a designated individual
as provided herein; or (3) the expiration of 30 days, or such longer
notice period provided in the Agreement. "Death of the Franchisee"
shall be defined as the death of the individual or simultaneous death
of the individuals who executed the Agreement.
The period beginning with the death of the FRANCHISEE and ending upon
the occurrence of one of the above referenced events is referred to
hereinafter as the "Notice Period". Upon occurrence of any of the
events specified above, the Agreement shall terminate as provided
herein. "Simultaneous death," as used herein, is defined as meaning
the death of all of the FRANCHISEES within a 72 consecutive hour
period, whether or not the deaths arise from the same casualty or
occurrence.
For any Accounting Period during the Notice Period the Open
Account will not be charged an amount for Inventory Variation or for
payroll and payroll taxes (including FRANCHISEE's draw amount) in
excess of the average experience of the Store for the three calendar
months prior to the death of FRANCHISEE, or such shorter period as the
Agreement was in effect, and 7-ELEVEN will indemnify FRANCHISEE's
estate from any claims which arise during such operation. Any balance
due FRANCHISEE from 7-ELEVEN will be paid to the estate in accordance
with the Agreement.
2. FRANCHISEE may designate in writing, and notify 7-ELEVEN
pursuant to the notice provision in the Agreement, up to three (3)
individuals, listed alternatively and in order of preference, who
FRANCHISEE believes are qualified and each of whom
individually wishes to have the opportunity to franchise the Store
after the death of FRANCHISEE. FRANCHISEE acknowledges and agrees that
the opportunity to franchise the Store will be offered to one
individual (and his or her spouse) only, and will be offered to one
individual at a time in accordance with the order in which the
individuals are designated on the notice provided to 7-ELEVEN. To be
effective, the notice of designation must be either personally
delivered or postmarked not later than one (l) day prior to FRANCHISEE's
death. Such designation may be changed by FRANCHISEE in writing to 7-
ELEVEN, effective upon
1
receipt. If there are designated individuals, 7-ELEVEN, after the death
of FRANCHISEE, will promptly attempt to locate and arrange an interview
with the designated individual and will advise the estate whether or not
that designated individual has been located and is qualified in accordance
with 7-ELEVEN's then current qualification procedures. If more than one
individual is designated and the first designated individual cannot
be
reasonably located, is not qualified under 7-ELEVEN's then current
qualification procedures, or is not interested in obtaining a
franchise for the Store, 7-ELEVEN will attempt to locate and determine the
qualifications and interest of the second designated individual, and
likewise for the third individual, if necessary, and the estate will
be advised accordingly.
If, before the expiration of the Notice Period, one of the designated
individuals qualifies and desires to franchise the Store, and the estate
mutually terminates the Agreement, waives, in form satisfactory to 7-ELEVEN,
any claim it may have to sell the franchise, and pays or makes arrangements
satisfactory to 7ELEVEN for payment of any amount due 7-ELEVEN under
the
Agreement, and in the case of an Incorporated Franchisee, if the designated
individual acquires ownership or control of all of the authorized, issued, and
outstanding shares of the Incorporated Franchisee, 7-ELEVEN will sign a new
7-Eleven Store Franchise Agreement for the Store in the then current
form with said designated individual (if qualified). In addition, in the
case of an Incorporated Franchisee, after the designated individual has
acquired ownership or control of all of the authorized, issued, and
outstanding shares of the Incorporated Franchisee and signed a new 7-Eleven
Store Franchise Agreement for the Store in the then current form, 7-ELEVEN
will effectuate the assignment of the new 7-Eleven Store Franchise
Agreement to the former Incorporated Franchisee or other corporation,
provided that all then current conditions required by 7-Eleven in its
sole discretion for assignment have been satisfied. No franchise fee will be
charged, there will be no change in the financial terms from those in the
Agreement until such time as the term of the Agreement would have expired if
not earlier terminated, at which time the financial terms set forth in the
new 7-Eleven Store Franchise Agreement executed by said designated individual
shall become effective for the remainder of the term thereof.
3. If during the Notice Period neither of the first two events
specified in Paragraph 1 above occurs, and the estate delivers to 7-ELEVEN a
written request indicating that it desires to arrange a sale of the
franchise and has and will continue to make good faith efforts to find a
qualified purchaser, and the estate pays or makes arrangements satisfactory to
7-ELEVEN for the payment of any amount due 7-ELEVEN under the Agreement, 7-
ELEVEN will extend to the estate the opportunity to arrange a sale of the
franchise for a total of 120 days from the death of FRANCHISEE (including the
Notice Period) and will not refranchise the Store during that time unless the
estate waives in writing any claim it may have to sell the franchise (even
though the Agreement previously has terminated); however, from the 31st
through the 120th day, the Store shall be operated by and for the benefit of
7-ELEVEN.
2
4. An officer of 7-ELEVEN shall review any arrangement between 7-
ELEVEN and the estate, including application of the terms hereof,
before implementation of that arrangement.
5. For and in consideration of 7-ELEVEN allowing FRANCHISEE to
designate a successor to FRANCHISEE's interest, and as a
condition precedent to 7-ELEVEN being bound by the terms hereof,
FRANCHISEE does hereby agree and covenant with 7-ELEVEN:
a. That notwithstanding any probate or estate
administration proceedings involving
FRANCHISEE or FRANCHISEE's estate, or disputes by, among, or
between the FRANCHISEE's designees, heirs, legatees,
beneficiaries, successors in interest or the like, the time limits
established by the terms hereof shall control and govern any
obligations of 7-ELEVEN or rights of any party arising from the terms
hereof; and
b. That in the event a dispute arises concerning the
disposition of the franchise pursuant to the Agreement, and such
dispute involves 7-ELEVEN or its rights or obligations, any
expenses reasonably incurred by 7-ELEVEN in that dispute, to
include attorneys' fees and court costs, shall be borne either by the
Open Account or FRANCHISEE's estate, or both, as determined by 7-
ELEVEN.
The terms used herein shall have the meanings defined in the
Agreement.
FRANCHISEE: ______________________
(Signature)
FRANCHISEE: ______________________
(Signature)
7-ELEVEN: ________________________
(Signature)
DATE:____________________________
3
EXHIBIT 10(ii)B(i) - G
EXHIBIT G
REQUIRED PROPRIETARY PRODUCTS
Following is a list of the Proprietary Products that FRANCHISEE is
required to carry in the Store at all times. Any of these items may
be deleted, or new items may be added, by 7-ELEVEN at any time but no
more than twice each calendar year.
PRODUCT DESCRIPTION AND PRESENTATION
Slurpee-R- Frozen carbonated beverage,
prepared with a variety of high-
quality syrups, properly brixed, and
served in standardized,trademarked
Slurpee-R- cups.
Big Gulp-R- Post-mix fountain beverage,
prepared with a variety of high-
quality syrups, properly brixed, and
served in standardized, trademarked
32 ounce Big Gulp-R- cups.
Super Big Gulp-R- Post-mix fountain beverage,
prepared with a variety of high-
quality syrups, properly
brixed, and served in standardized, trademarked 44 ounce Super Big Gulp-
R- cups.
7-Eleven-R- Coffee Fresh brewed coffee, prepared
with the regionally approved 7-Eleven-
R- coffee blend, and
served in standardized, trademarked 7-Eleven-R- coffee cups.
Big Bites-R- High quality, all-beef hot dog,
prepared using the 7-Eleven-R-
approved spice mix, offered in both
8:1 lb. and 1/4 lb. sizes, and served
in standardized, trademarked Big
Bites-R- hot dog containers.
1
FRANCHISEE:_____________________________
(Signature)
FRANCHISEE:_____________________________
(Signature)
7-ELEVEN:_______________________________
(Signature)
DATE:____________________________________
2
Tab 3
Exhibit 10(iii)(A)(8)
[SOUTHLAND LOGO]
THE SOUTHLAND CORPORATION
1995 PERFORMANCE PLAN
(As Adopted January 1995) (Amended July 1995)
THE SOUTHLAND CORPORATION 1995 PERFORMANCE PLAN
SECTION 1: PURPOSE
The purpose of this Plan is to (a) provide incentives and rewards to
eligible Employees of the Corporation by allowing Participants to earn
Awards based upon the Corporation's performance; (b) assist the
Corporation in attracting, retaining, and motivating employees of high
ability and experience; (c) direct the focus of management on maximizing
the value of the Corporation as a going concern over a multi-year period; and
(d) promote the long-term interests of the Corporation and its
shareholders.
SECTION 2: DEFINITIONS
2.1 ACTUAL OPERATING EARNINGS, shall mean Operating Earnings
in a particular Plan Year, as set forth on the Corporation's internal
financial statements for such Plan Year, calculated in accordance with GAAP;
both the calculation of Operating Earnings and the internal financial
statements being certified by the Corporation's Chief Accounting Officer (1)
as accurate and (2) that such Operating Earnings were calculated, and such
financial statements were prepared, in a manner consistent with the
accounting principles utilized in preparation of the
Corporation's annual budget.
2.2 ANNUAL AWARD shall mean the amount payable to a
Participant pursuant to Section 5.5 if the Annual Threshold Operating
Earnings set forth on Exhibit 1 are achieved.
2.3 ANNUAL AWARD POOL shall mean the amount available for
payment of Annual Awards as a result of the achievement of Actual Operating
Earnings in excess of Threshold Operating Earnings in any Plan Year as
described in Section 5.4.
2.4 AWARD shall mean the amount payable, either as an Annual Award or
Cumulative Award, to Participants in this Plan.
2.5 BENEFICIARY shall mean a Participant's beneficiary
designated in accordance with Section 7.
2.6 BOARD shall mean the Board of Directors of the Corporation.
2.7 BONUS AMOUNT shall mean the annual amount payable, as of the
Determination Date (at 100% of normal bonus) under the Corporation's
Annual Performance Incentive Plan, in each Plan Year for Employees in
Grade Levels 50-58 and 41-44 or such equivalent Grade Levels as may be
established.
2.8 BUDGETED OPERATING EARNINGS shall mean the amount of Operating
Earnings included in the Corporation's annual budget for a particular
year, as determined during the budgeting process, generally in the fourth
quarter of the preceding year.
2.9 CAUSE shall mean acts constituting insubordination, theft,
dishonesty, fraud, embezzlement or other acts detrimental
1
to the interests of the Corporation, or any breach of any employment,
nondisclosure, noncompetition or other contract with the Corporation, all
as determined in good faith by the Committee.
2.10 COMMITTEE shall mean the Compensation and Benefits Committee of
the Board or, if such committee has not been designated, shall mean the
Board.
2.11 CORPORATION shall mean The Southland Corporation, a Texas corporation,
and any of its wholly owned subsidiaries, and any successor or assignee of
The Southland Corporation, by merger, consolidation, acquisition or
otherwise, of all or substantially all of the assets thereof.
2.12 CUMULATIVE AWARD shall mean an amount payable to participants
based on the achievement of Excess Actual Operating Earnings in either, or
both, Plan Years.
2.13 CUMULATIVE AWARD POOL shall mean the amount available to pay
Cumulative Awards as a result of the achievement of Excess Actual Operating
Earnings.
2.14 DEPARTMENT shall mean the Corporation's Compensation and Benefits
Department.
2.15 DETERMINATION DATE shall mean the date designated by the Committee
each Plan Year, or, if no date is so designated, May 1 of each Plan Year, for
certain specified purposes under the Plan.
2.16 DISABILITY shall mean the mental or physical disability, either
occupational or non-occupational in cause, which, in the opinion of the
Committee, on the basis of medical evidence satisfactory to it, prevents
the employee from engaging in any occupation or employment for wage or
profit, which has continued for at least 12 months and is likely to be
permanent.
2.17 DIVESTITURE shall mean the sale of, or closing by, the Corporation
of the business operations in which the Participant was employed.
2.18 EMPLOYEE shall mean any person employed by the Corporation.
2.19 EXCESS ACTUAL OPERATING EARNINGS shall mean Actual Operating
Earnings in a Plan Year that are in excess of the Actual Operating
Earnings required to pay 100% of the Annual Awards under this Plan for
the particular Plan Year. Excess Actual Operating Earnings shall be used to
fund the Cumulative Award Pool.
2.20 GAAP shall mean generally accepted accounting principles in the United
States as in effect from time to time.
2.21 GRADE LEVEL shall mean a Participant's grade level classification
(as such grade levels are specified in the Corporation's exempt salary
administration and/or job evaluation programs) as of the Determination Date in
the Plan Year for which his or her Grade Level is to be determined.
2.22 OPERATING EARNINGS shall mean the earnings of the Corporation
before non-operating income and expense items, interest expense, taxes2
and extraordinary items, as set forth on the Corporation's internal
financial statements for such Plan Year, calculated in accordance with
GAAP and in a manner consistent with the accounting principles utilized
in preparation of the Corporation's annual budget for such Plan Year; both
the calculation of Operating Earnings and the internal financial statements
being certified by the Corporation's Chief Accounting Officer (1) as
accurate and (2) that such Operating Earnings were calculated, and such
financial statements were prepared, in a manner consistent with the
accounting principles utilized in preparation of the Corporation's annual
budget.
2.23 PARTICIPANT shall mean any Employee who is selected to
participate in the Plan as of the Determination Date.
2.24 PERFORMANCE UNIT shall mean a unit of measurement for
purposes of determining a Participant's Award under the Plan, as more fully
described in Section 5.2.
2.25 PLAN shall mean The Southland Corporation 19935 Performance
Plan, as it may be amended from time to time.
2.26 PLAN PERIOD shall mean the two-year period commencing on
January 1, 19935, and ending on December 31, 19946.
2.27 PLAN YEAR shall mean a calendar year occurring during the Plan Period.
2.28 RETIREMENT shall mean, in the case of any Participant,
the date established by the Corporation as his or her normal retirement
date, generally when the Participant reaches age 65 (or earlier if approved
by the President of the Corporation).
2.29 THRESHOLD OPERATING EARNINGS for a Plan Year shall equal
(a) Budgeted Operating Earnings for such Plan Year, or, if the Committee so
determines, a different amount that is based on Budgeted Operating
Earnings, with the number as determined for each year to beless (b) the
Bonus Amount payable to eligible Participants for such Plan Year divided by
35% and shallor, if the Committee so determines, a different amount that is
based on Budgeted Operating Earnings, with the number, as determined for
each year to be as set forth in Exhibit 1.
SECTION 3: ADMINISTRATION
3.1 COMMITTEE. This Plan shall be administered by the
Committee.
3.2 COMMITTEE'S POWERS. Subject to the express provisions
hereof and in addition to the other powers set forth in this Plan, the
Committee shall have the authority, in its sole and absolute discretion, to
(i) determine criteria for eligibility for inclusion in this Plan; (ii)
adopt, amend, and rescind administrative and interpretive rules and
regulations relating to this Plan; (iii) construe this Plan or any
agreements contemplated hereunder; and (iv) make all other determinations
and perform all other acts necessary or advisable for
administering this Plan, including the delegation of such ministerial
acts and responsibilities as the Committee deems appropriate. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any agreement contemplated hereunder in the
manner and to the extent it shall deem expedient to carry it into effect and
it shall be the sole and final judge of the necessity of such action. The
determination of the Committee on the matters referred to in this Section 3.2
shall be final and conclusive.
3.3 ADMINISTRATION. The Department shall (i) prepare and
distribute designation of beneficiary forms to Participants; (ii)
3
maintain records of designations of Beneficiaries; (iii) prepare
communications to Participants; (iv) prepare reports and data required by
the Corporation, the Committee and government agencies; (v) obtain data
requested by the Committee; and (vi) take such other actions requested by
the Committee as are necessary for the effective implementation of the Plan.
SECTION 4: PARTICIPATION
4.1 ELIGIBILITY. Eligibility for participation in the Plan
shall be limited to those Employees who, as of the Determination Date, are in
Grade Levels 50-58 or 41-44 or such equivalent Grade Levels as may be
established, and who, in the judgment of the Committee or the President of
the Corporation, have the ability and opportunity to influence
significantly the Corporation's performance over a multi-year period.
Employees shall be selected for participation in the Plan as of the
Determination Date each year, as approved by the President of the Corporation.
SECTION 5: AWARDS
5.1 GENERAL. A Participant shall be entitled to an Annual
Award or Cumulative Award out of the applicable Award Pool with respect to
any Plan Year or the Plan Period, if the performance level described in Section
5.3 is achieved.
5.2 PERFORMANCE UNITS.
(a) Based on the Grade Level of each Participant as of the
Determination Date in a Plan Year, the Committee shall grant to each
Participant for such Plan Year a specified number of Performance Units as
determined under subsection (b) below. Performance Units shall be solely
units of account, shall imply no ownership interest in the Corporation, and
shall carry no value outside the context of the Plan.
(b) The number of Performance Units to be granted to each
Participant for each Plan Year shall equal the Bonus Amount payable to a
person earning the mid-point of such Participant's Grade Level (as determined
as of the Determination Date) for such Plan Year.
5.3 Performance Level. If, at the end of the Plan Period, Cumulative
Actual Operatingare greater than Cumulative Threshold Operating Earnings
5.3 PERFORMANCE LEVEL. The performance level under the Plan can be
satisfied either on an annual or a cumulative basis. If at the end of any
year in the Plan Period, Actual Operating Earnings exceed Threshold
Operating Earnings, Earnings, then the performance level under the Plan is
satisfied for that year and the Annual Award Pool shall be determined in
accordance with Section 5.4.
5.4 CALCULATION OF AWARD POOL. After giving effect to the exclusions
provided in Section 5.8, tThe amount to be credited to the Annual Award Pool
for 1995 shall be determined as follows: if 1995 Actual Operating Earnings
exceed 1995 Threshold Operating Earnings, as defined in Section 2.29, then
$.15 of every excess
4
dollar of 1995 Actual Operating Earnings shall be contributed to the Annual
Award Pool for 1995. In addition, if Actual Operating Earnings are
sufficient to pay 150% of the annual performance incentive ("API") payable
to all covered employees in theCorporation's 1995 Annual Performance
Incentive Plan, then $.35 of every dollar of 1995 Actual Operating
Earnings earned in excess of the amount necessary to pay 150% of the API
payable pursuant to the Annual Performance Incentive Plan, shall be
contributed to the Annual Award Pool, up to the maximum Annual Awards
payable for 1995 under this Plan, as described in Section 5.6. If there are
Excess Actual Operating Earnings in any Plan Year, then until 200% of the API
payable to all covered employees pursuant to the Annual Performance Incentive
Plan has been paid pursuant to the Annual Performance Incentive Plan, $.15 of
every dollar of Excess Actual Operating Earnings shall fund
theCumulative Award Pool for this Plan and, after 200% of the API has been
paid to all covered employees pursuant to the Annual Performance Incentive
Plan, then $.35 of every additional dollar of Excess Actual Operating
Earnings shall be designated to fund the Cumulative Award Pool for this Plan,
up to the maximum Awards payable for the Plan Period, as described in Section
5.6. The 1996 Annual Award Pool shall be determined according to the same
formula as 1995, unless a different formula is approved by the Committee. An
Annual Award that is based on achievement of only the 1995 performance level
shall be based on the Performance Units granted for that year only; an
Annual Award that is based on the achievement of the 1996 performance level
shall be based on the Performance Units granted for that year only; and any
Cumulative Awards that are based on the achievement of Excess Actual
Operating Earnings in either Plan Year shall be based upon the total
Performance Units granted for both years in the Plan Period.
5.5 AWARDS. Subject to the limitations under Section 5.6, a Participant
shall be entitled to an Annual Award equal to (a) the Annual Award Pool
determined under Section 5.4 multiplied by (b) a fraction, the numerator of
which is the number of such Participant's Performance Units granted for
that Plan Year, and the denominator of which is the total Performance Units
for that Plan Year granted and outstanding under the Plan to persons who are
to participate in the Annual Awards for that Plan Year. If the Award is a
Cumulative Award based on Excess Actual Operating Earnings from either Plan
Year, then a Participant shall be entitled to a Cumulative Award equal to (a)
the Cumulative Award Pool determined under Section 5.4 multiplied by (b) a
fraction, the numerator of which is the number of such Participant's
Performance Units granted for the Plan Period, and the denominator
of which is the total Performance Units granted and outstanding under the Plan
to persons who are to participate in the Cumulative Awards for the Plan
Period. A Cumulative Award shall not be paid if the maximum Annual Awards
have been paid for each Plan Year in the Plan Period.
5.6 LIMITATIONS ON AWARDS. Awards under the Plan shall be subject to
the limitations described in subsections (a), (b)and(c) below.
(a) The Awards payable to all Participants under the Plan shall
not exceed the sum of the Bonus Amounts to all eligible Participants for
(i) each Plan Year for an Annual Award and (b) the Plan Period, less any
amounts paid as Annual Awards, for any Cumulative Awards.
(b) The amount of Annual and Cumulative Awards payable under the
Plan shall be subject to the condition that the Corporation has
sufficient liquidity as determined by the President of the Corporation,
either from available cash or from borrowings to make the payments under this
Plan at the time provided in Section 5.7.
(c) Except as provided in Section 6.1 and Section 6.3, to be
eligible for an Award, a Participant must be actively
5
employed by the Corporation at the end of the applicable Plan Year for any
Annual Award and at the end of the Plan Period to be eligible for a Cumulative
Award based on Excess Actual Operating Earnings in either Plan Year.
5.7 PAYMENT. Except as set forth in Section 9.1, Awards will be paid to
Participants within one hundred twenty (120) days after the end of the
Plan Year for which an Annual Award is earned or within one hundred twenty
(120) days after the end of the Plan Period for a Cumulative Award. As
determined by the Committee, Awards may be paid in cash or stock of
the Corporation, or a combination of cash and stock, and may be paid in
different forms to different Participants.
SECTION 6: TERMINATION OF EMPLOYMENT; CHANGE IN GRADE LEVEL
6.1 TERMINATION WITHOUT FORFEITURE. If a Participant ceases to be
employed by the Corporation prior to the end of the applicable Plan
Year or Plan Period because of (i) Disability, (ii) death, (iii) Retirement,
(iv) a Divestiture, or (v) other termination by the Corporation for any
reason other than Cause, then such Participant shall be entitled to an Award
as provided in Section 6.3 below.
6.2 CHANGE IN GRADE LEVEL. If a Participant ceases participation
in this Plan prior to the end of the applicable Plan Year or Plan Period
because of a change in Grade Level, then such Participant shall be entitled to
a partial Award as provided in Section 6.3.
6.3 PARTIAL AWARD. A Participant who ceases to be employed by the
Corporation in accordance with any of the applicable conditions set forth
in Section 6.1 or who ceases participation in the Plan for the reason set
forth in Section 6.2, will be entitled to receive an Annual Award under
Section 5.5 only for a Plan Year during which the Participant was employed
and granted Performance Units and the Participant's Annual Award for that
Plan Year shall be determined by multiplying the number of Performance
Units granted to such Participant for that Plan Year by a fraction, the
numerator of which is the number of days in the Plan Year prior to such
cessation of employment or participation, and the denominator of which is
the number of days in the particular Plan Year. If a Cumulative Award
based on Excess Actual Operating Earnings is earned under the Plan for any
Plan Year, then a Participant who is described in the first sentence of
this section shall be entitled to a Cumulative Award based on (i) the
Participant's Performance Units for each full Plan Year occurring prior to
such Participant's cessation of employment or participation in the Plan, plus
(ii) the number of Performance Units granted to such Participant for the Plan
Year in which the Participant's employment or participation terminated
multiplied by a fraction, the numerator of which is the number of days in the
Plan Year prior to such cessation of employment or participation, and the
denominator of which is the number of days in the particular Plan Year. Such
resulting number of eligible Performance Units shall then share pro rata in
the Cumulative Award Pool by multiplying the Cumulative Award Pool by
a fraction, the numerator of which is the eligible number of such
Participant's Performance Units, and the denominator is the total number of
Performance Units granted and outstanding for the Plan Period.
Awards paid in accordance with this Section 6.3 shall be paid at the same
time and in the same manner as described in Section 5.7.
6.4 TERMINATION RESULTING IN FORFEITURE. If a Participant ceases to be
employed by the Corporation for any reason other than those specified in
Section 6.1 above, including, without limitation, voluntary termination of
6
employment, then such Participant shall only be entitled to an Annual Award
under the Plan if the Participant was actively employed on December 31 of
the Plan Year for which the Annual Award was earned and shall not be entitled
to share in any Cumulative Award, regardless of the Plan Year in which the
Excess Actual Operating Earnings were achieved.
SECTION 7: DESIGNATION OF BENEFICIARIES
7.1 DESIGNATION AND CHANGE OF DESIGNATION. Each Participant shall file
with the Department a written designation of the Beneficiary who shall be
entitled to receive the amount, if any, payable under the Plan upon his or her
death. A Participant may, from time to time, revoke or change his or her
Beneficiary designation without the consent of any prior Beneficiary by
filing a new designation with the Department. The last such designation
received by the Department shall be controlling; provided, however, that
no designation, or change or revocation thereof, shall be effective unless
received by the Department prior to the Participant's death, and in no
event shall it be effective as of a date prior to the date of such receipt.
7.2 ABSENCE OF VALID DESIGNATION. If no such Beneficiary designation
is in effect at the time of a Participant's death, or if no designated
Beneficiary survives the Participant, or if such designation conflicts with
law, the Participant's estate shall be deemed to have been designated his or
her Beneficiary and shall receive the payment of the amount, if any, payable
under the Plan upon his or her death. If the Committee is in doubt as to
the right of any party to receive such amount, the Corporation may retain
such amount, or the Corporation may pay such amount into any court of
appropriate jurisdiction and such payment shall be a complete discharge of
the liability of the Plan and the Corporation therefor.
SECTION 8: GENERAL PROVISIONS
8.1 NO ASSIGNMENT. A Participant may not assign an Award without the
Committee's prior written consent. Any attempted assignment without such
consent shall be null and void; provided, however, that an assignment to the
Corporation to collateralize indebtedness of the Participant to the Corporation
does not need the consent of the Committee. For purposes of this
paragraph, any designation of, or payment to, a Beneficiary shall not be
deemed an assignment.
8.2 UNFUNDED INCENTIVE COMPENSATION ARRANGEMENT. The Plan is intended to
constitute an unfunded incentive compensation arrangement covering a
select group of management or highly compensated employees. Nothing
contained in the Plan, and no action taken pursuant to the Plan, shall
create or be construed to create a trust of any kind. A Participant's right
to receive an Award shall be no greater than the right of an unsecured
general creditor of the Corporation. All Awards shall be paid from the
general funds of the Corporation, and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of
such Awards.
8.3 NO RIGHT TO EMPLOYMENT. Nothing contained in the Plan shall give
any Participant the right to continue in the employment of the
Corporation or affect the right of the Corporation to discharge a
Participant.
8.4 GOVERNING LAW. The Plan shall be construed and governed in
accordance with the laws of the State of Texas except to the extent Texas law
is preempted by federal law.
7
8.5 NO RIGHT TO SPECIFIC ASSETS. There shall not vest in any Participant
or Beneficiary any right, title, or interest in and to any specific assets of
the Corporation.
8.6 NO EFFECT ON OTHER BENEFIT PLANS. Benefits under the Plan shall
not increase, decrease, modify or otherwise be taken into account for purposes
of determining benefits under any other employee benefit plan unless such
other plan expressly provides, by referring to this Plan, that benefits under
the Plan are to be so taken into account.
8.7 WITHHOLDING. The Corporation shall have the right to deduct from
all payments made to any Participant pursuant to this Plan any federal, state
or local taxes required by law to be withheld with respect to such
payments, as well as any amount then owed by the Participant to the
Corporation.
8.8 EFFECTIVE DATE. This Plan is effective as of January 1, 1995.
Subject to Section 9.1, the Plan shall expire December 31, 1996.
8.9 HEADINGS. The titles and headings of Sections are included for
convenience of reference only and are not to be considered in construction
of the provisions hereof.
8.10 WORD USAGE. Words used in the masculine shall apply to the feminine
where applicable, and wherever the context of this Plan dictates, the plural
shall be read as the singular and the singular as the plural.
SECTION 9: AMENDMENT, SUSPENSION OR TERMINATION
9.1 The Board may amend, terminateor the Committee may amend, terminate,
extend or suspend the Plan at any time. If the Plan is terminated within
the Plan Period, (i) Awards, if any, shall be determined as of the date of
termination, (ii) Annual Awards for 1995 will be paid to Participants within
one hundred twenty (120) days after December 31, 1995, and Annual Awards for
1996 and/or Cumulative Awards based on Excess Actual Operating Earnings
shall be paid within one hundred twenty (120) days after December 31, 1996;
(iii) for all other purposes under the Plan, the date of such termination
shall be deemed the last day of the Plan Period.
8
EXHIBIT 1
THRESHOLD OPERATING EARNINGS
1995 Annual Threshold ______million (determined in accordance
Operating Earnings with Section 2.29, as amended
based on 1995 Budgets)
1996 Annual Threshold $______million (determined in accordance
Operating Earnings with Section 2.29, based
on 1996 Budgets)
Tab 4
Exhibit 10(iii)(A)(10)
THE SOUTHLAND CORPORATION
1995 Stock Incentive Plan
Award Agreement
GRANT OF NONQUALIFIED STOCK OPTION (NQSO)
The Southland Corporation (the "Company") hereby grants
to
______________________ ) (Social Security Number ______________)
(the "Participant") on October 23, 1995 (the "Date of Grant"), subject
to the approval by Company shareholders of the 1995 Stock Incentive
Plan (the "Plan"), a stock option subject to the Plan and upon
the terms and conditions set forth below. Capitalized terms used
and not otherwise defined herein have the meanings given to them in the
Plan.
1.GRANT OF OPTION
Subject to the terms and conditions hereinafter set forth, the
Company, with the approval and direction of the Incentive Compensation
Committee of the Board of Directors (the "Committee"), grants to the
Participant, as of the Date of Grant, an option to purchase up to
____________ shares of Common Stock at a price of $ ____ per share,
the Fair Market Value of the Common Stock on the Date of Grant. Such
option is hereinafter referred to as the "Option" and the shares of
stock purchasable upon exercise of the Option are hereinafter referred
to as the "Option Shares." This Option is a Nonqualified Stock Option,
and as such is not intended by the parties hereto to be an Incentive
Stock Option (as such term is defined under the Code ).
2.EXERCISABILITY OF OPTIONS
Subject to such further limitations as are provided herein, the
Option shall become exercisable in five (5) installments, the Participant
having the right hereunder to purchase from the Company the following
number of Option Shares upon exercise of the Option, on and after
the following dates, in cumulative fashion:
(a) on and after the first anniversary of the Date of Grant, up to one-
fifth (ignoring fractional shares) of the total number of Option Shares;
(b) on and after the second anniversary of the Date of Grant, up to
an additional one-fifth (ignoring fractional shares) of the total
number of Option Shares;
(c) on and after the third anniversary of the Date of Grant, up to
an additional one-fifth (ignoring fractional shares) of the total
number of Option Shares;
(d) on and after the fourth anniversary of the Date of Grant, up to
an additional one-fifth (ignoring fractional shares) of the total
number of Option Shares; and
(e) on and after the fifth anniversary of the Date of Grant, the
remaining Option Shares.
1
3.PERFORMANCE ACCELERATED VESTING
After the first anniversary of the Date of Grant, an additional
onefifth (ignoring fractional shares) of the total number of Option
Shares shall become exercisable on and after each of the following
events:
(a) on and after the twentieth consecutive trading day that the Closing
Price is equal to or greater than $4.00;
(b) on and after the twentieth consecutive trading day that the Closing
Price is equal to or greater than $5.00;
(c) on and after the twentieth consecutive trading day that the Closing
Price is equal to or greater than $6.50; and
(d) on and after the twentieth consecutive trading day that the Closing
Price is equal to or greater than $8.00.
4. TERMINATION OF OPTION
(a) The Option and all rights hereunder with respect thereto, to
the extent such rights shall not have been exercised, shall
terminate and become null and void after the expiration of ten (10)
years from the Date of Grant (the "Option Term").
(b) If the Participant has an exercisable Option (in whole or in
part) as of the date of the Participant's voluntary termination of
employment with the Company, then the exercisable portion of such Option
shall remain exercisable for a period equal to the lesser of (1) the
remainder of the Option Term or (2) the date which is 60 days
after the date of Participant's voluntary termination of employment.
(c) Upon termination of the Participant's employment with the Company
by reason of Normal Retirement, the Option shall become immediately
one hundred percent (100%) vested, and the Participant shall have
until the expiration of the Option Term to exercise the Option.
(d) Upon termination of the Participant's employment with the Company
by reason of Early Retirement or Disability, any portion of the Option
that is not yet vested shall continue to vest and to be exercisable in
accordance with the provisions of Sections 2 and 3 of this Award
Agreement and, once vested, the Option shall remain exercisable until
the expiration of the Option Term unless, prior thereto, the
Participant reaches age 65, at which time all remaining Options shall
vest.
(e) Upon termination of the Participant's employment with the Company
by reason of Divestiture, any portion of the Option that as of the
date of termination is not yet exercisable shall become null and void
as of the date of termination and the portion, if any, of the
Option that is exercisable as of the date of termination shall remain
exercisable for a period equal to the lesser of (1) the remainder of
the Option Term or (2) the date which is one year after the date of
termination.
(f) In the event of death of the Participant, regardless whether the
Participant has had previously retired (either Early Retirement or
Normal Retirement) or is was disabled at the time of death, the Option
shall
2
become immediately one hundred percent (100%) vested and the
Participant's Designated Beneficiary shall have twelve (12) months
following the Participant's death during which to exercise the Option.
(g) A transfer of the Participant's employment between the Company
and any Subsidiary of the Company, shall not be deemed to be a
termination of the Participant's employment.
(h) Notwithstanding any other provisions set forth herein or in the
Plan, if the Participant shall (i) commit any act of malfeasance or
wrongdoing affecting the Company or any Subsidiary of the Company, (ii)
breach any covenant not to compete, or employment contract with the
Company or any Subsidiary of the Company, or (iii) engage in conduct
that would warrant the Participant's discharge for cause (excluding
general dissatisfaction with the performance of the Participant's
duties, but including any act of disloyalty or any conduct clearly
discrediting the Company or any Subsidiary or Affiliate of the
Company), any unexercised portion of the Option shall immediately
terminate and be void.
5.EXERCISE OF OPTIONS
(a) The Participant may exercise the Option from time to time
with respect to all or any part of the number of Option Shares then
exercisable hereunder by giving the Manager of the Company's Compensation
and Benefits Department written notice of the intent to exercise.
The notice of exercise shall specify the number of Option Shares as to
which the Option is to be exercised and the date of the exercise
thereof (the "Exercise Date"), which date shall be within five days
after the giving of such notice.
(b) On or before the Exercise Date, the Participant shall pay the
full amount of the purchase price for the Option Shares in cash (U.S.
dollars) or through the surrender of previously acquired shares of Stock
valued at their Fair Market Value on the Exercise Date. In addition,
to the extent permitted by applicable law, the Participant may arrange
with a brokerage firm for that brokerage firm, on behalf of the
Participant, to pay the Company the Exercise Price of the Option being
exercised (either as a loan to the Participant or from the proceeds
of the sale of Stock issued pursuant to that exercise of the
Option), and the Company shall promptly cause the exercised shares to
be delivered to the brokerage firm. Such transactions shall be effected
in accordance with such further procedures as the Committee may establish
from time to time.
On the Exercise Date or as soon thereafter as is practicable,
the Company shall cause to be delivered to the Participant, a
certificate or certificates for the Option Shares then being purchased
(out of theretofore unissued Stock or reacquired Stock, as the Company
may elect) upon full payment for such Option Shares. The obligation
of the Company to deliver Option Shares shall, however, be subject to
the condition that if at any time the Committee shall determine in
its discretion that the listing, registration or qualification of the
Option or the Option Shares upon any securities exchange or such other
securities trading system or market or under any state or federal
law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the
Option or the issuance or purchase of the Option Shares thereunder, the
Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained free of any conditions not acceptable to the Committee.
(c) If the Participant fails to pay for any of the Option
Shares specified in such notice or to pay any applicable withholding tax
relating thereto or fails to accept delivery of the Option Shares, the
Participant's right to purchase such Option Shares may be terminated
by the Committee.
3
6. FAIR MARKET VALUE
As used herein, the "fair market value" of a share of Stock shall be
the Closing Price per share of Stock on Tthe NASDAQ Nasdaq national
Stock mMarket, or such other securities trading system or exchange which
is the primary market on which the Stock may then be listed or traded on
the date in question, or if the Stock has not been traded on such date,
the Closing Price on the first day prior thereto on which the Stock was
so traded.
7. NO RIGHTS OF SHAREHOLDERS
Neither the Participant nor any personal representative shall be,
or shall have any of the rights and privileges of, a shareholder of
the Company with respect to any shares of Stock purchasable or issuable
upon the exercise of the Option, in whole or in part, prior to the
date of exercise of the Option.
8. NON-TRANSFERABILITY OF OPTION
During the Participant's lifetime, the Option shall be exercisable
only by the Participant or any guardian or legal representative
of the Participant, and the Option shall not be transferable except, in
case of the death of the Participant, by will or the laws of
descent and distribution, nor shall the Option be subject to attachment,
execution or other similar process. In the event of (a) any attempt by
the Participant to alienate, assign, pledge, hypothecate or otherwise
dispose of the Option, except as provided for herein, or (b) the levy
of any attachment, execution or similar process upon the rights or
interest hereby conferred, the Company may terminate the Option by
notice to the Participant and it shall thereupon become null and void.
Notwithstanding the above, in the discretion of the Committee,
Options may be transferable pursuant to a QDRO.
9.RESTRICTIONS ON TRANSFER FOLLOWING EXERCISE
(a) Thirty percent (30%) of the Option Shares (the "Restricted
Option Shares") acquired upon exercise of the Option shall be
delivered to Participant via a stock certificate bearing a legend
restricting the transfer or sale of such Option Shares for a period of
24 months following the Exercise Date. Seventy percent (70%) of the
Option Shares acquired upon exercise of the Option shall not be subject
to any restriction against the transfer or sale of such Option Shares by
the Participant.
(b) If the Participant's employment with the Company is
voluntarily terminated within the 24-month period following the Exercise
Date (other than due to Early Retirement or Normal Retirement) or is
terminated due to cause, the Company may repurchase the Restricted
Option Shares at the Exercise Price paid by the Participant. If
the Company elects not to purchase such Restricted Option Shares, the
Participant shall continue to hold such Shares subject to the
restrictions thereon.
(c) Upon a termination of employment as a result of death,
Disability, Divestiture, Early Retirement or Normal Retirement, any
Restricted Option Shares then held by a Participant or a Participant's
Designated Beneficiary shall be released from, and no Option Shares
acquired after the date of termination shall be subject to, the
restrictions on transfer or sale set forth in paragraph 9(a) above.
Promptly after the date of any such termination, upon receipt of
certificates representing any Restricted Option Shares, the Company
shall exchange any such certificates for certificates representing
4
such Shares free of any restrictive legend relating to the lapsed
restrictions.
10. WITHHOLDING TAX REQUIREMENTS
Following receipt of each notice of exercise of the Option, the
Company shall deliver to Participant a notice specifying the
amount that Participant is required to pay to satisfy applicable
tax withholding requirements. Participant hereby agrees to either
(i) deliver to the Company by the due date specified in such notice
from the Company a check payable to the Company and equal to the amount
set forth in such notice or (ii) make other appropriate arrangements
acceptable to the Company to satisfy such tax withholding requirements.
11. NO RIGHT TO EMPLOYMENT
Neither the granting of the Option nor its exercise shall be
construed as granting to the Participant any right with respect
to continued employment with the Company.
12. CHANGE IN CONTROL
The Committee shall, in its sole discretion, have the right
to accelerate the vesting of any Option and to release any restrictions
on the Restricted Option Shares, in the event of a Change in Control.
13. ADJUSTMENT OF AWARDS
The terms of this Option and the number of Option Shares
purchasable hereunder shall be subject to adjustment pursuant to Sections
5(c) through (hg) of the Plan.
14. AMENDMENT OF OPTION
The Option may be amended by the Committee at any time (i) if
the Committee determines, in its sole discretion, that amendment is
necessary or advisable in the light of any additions to or changes in
the Code or in the regulations issued thereunder, or any federal or
state securities law or other law or regulation, which change occurs
after the Date of Grant and by its terms applies to the Option; or (ii)
other than in the circumstances described in clause (i), with the consent
of the Participant.
15. NOTICE
Any notice to the Company provided for in this Award Agreement shall
be in writing and addressed to the Company in care of the Manager of
the Company's Compensation and Benefits Department, and any notice
to the Participant shall be in writing and addressed to the
Participant at the Participant's current address shown on the records
of the Company or such other address as the Participant may submit to
the Company in writing. Any notice shall be deemed to be duly given if
and when properly addressed with postage prepaid, or if personally
delivered to the addressee or, in the case of notice to the Company,
if sent via telecopy to the Compensation and Benefits Department's
facsimile machine at such telephone number as may be published in the
Company's published telephone directory.
5
16. INCORPORATION OF PLAN BY REFERENCE
The Option is granted pursuant to the terms of the Plan, which terms
are incorporated herein by reference, and the Option shall in all
respects be interpreted in accordance with the Plan. The Committee
shall interpret and construe the Plan and this Award Agreement, and
its interpretations and determinations shall be conclusive and binding
on the parties hereto and any other person claiming an interest
hereunder, with respect to any issue arising hereunder or thereunder.
In the event of a conflict between the terms of this Award Agreement
and the Plan, the terms of the Plan shall control.
17. GOVERNING LAW
The validity, construction, interpretation and effect of this
Award Agreement shall exclusively be governed by and determined in
accordance with the law of the State of Texas, except to the extent
preempted by federal law, which shall to that extent govern.
IN WITNESS WHEREOF, The Southland Corporation has caused its
duly authorized officer to execute this Grant of Nonqualified Stock
Option, and the Participant has placed his or her signature hereon,
effective as of the Date of Grant.
THE SOUTHLAND CORPORATION
By:_____________________________________
President and Chief Executive Officer
ACCEPTED AND AGREED TO:
By:_____________________________________
Participant
Participant's Social Security Number: _____________
Tab 5
<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
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Earnings (loss) before extraordinary gain and cumulative
effect of accounting change ............................. $ 167,594 $ 91,996 $ (11,280)
Add interest on Convertible Debt, net of tax .............. 1,093 - -
---------- ---------- ----------
Earnings (loss) before extraordinary gain and cumulative
effect of accounting change applicable to common stock
and equivalents outstanding.............................. 168,687 91,996 (11,280)
Extraordinary gain ........................................ 103,169 - 98,968
Cumulative effect of accounting change for postemployment
benefits ................................................ - - (16,537)
---------- ---------- ----------
Net earnings applicable to common stock and equivalents
outstanding.............................................. $ 271,856 $ 91,996 $ 71,151
========== ========== ==========
Weighted average number of common shares outstanding....... 409,923 409,923 409,938
Weighted average number of common shares issuable upon
conversion of Convertible Debt .......................... 6,811 - -
---------- ---------- ---------
Weighted average number of common shares and
equivalents outstanding.................................. 416,734 409,923 409,938
========== ========== =========
Earnings (loss) per common share and equivalents (Primary
and Fully Diluted):
Before extraordinary gain and cumulative effect of
accounting change .................................... $ .40 $ .22 $(.03)
Extraordinary gain ..................................... .25 - .24
Cumulative effect of accounting change ................. - - (.04)
-------- ------ ------
Net earnings ........................................... $ .65 $ .22 $ .17
======== ====== ======
Tab 6
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 21
SUBSIDIARIES OF THE SOUTHLAND CORPORATION
(Wholly owned unless indicated otherwise)
NAME JURISDICTION
OF INCORPORATION
ACTIVE:
<S> <C>
Bawco Corporation Ohio
Brazos Comercial E Empreendimentos Ltda. (a) Brazil
Cityplace Center East Corporation Texas
HDS Sales Corporation (b) Texas
Melin Enterprises, Inc. (c) Colorado
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 Mexico, S.A. de C.V. (h) Mexico
7-Eleven of Idaho, Inc. (b) Idaho
7-Eleven of Massachusetts, Inc. (b) Massachusetts
7-Eleven of Nevada, Inc. Delaware
7-Eleven of Virginia, Inc. Virginia
7-Eleven Sales Corporation (b) Texas
Small Shops Holding A/S (i) Norway
Subsidiaries of Small Shops Holding A/S:
- Naroppet AB * (inactive) (j) Sweden
- Small Shops Danmark A/S (active) (j) Denmark
- Small Shops Norge A/S (active) (j) Norway
- Small Shops Sverige AB (active) (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
Valso, S.A. (l) Mexico
Subsidiary (active) of Valso, S.A.:7-Eleven Mexico, S.A. de C.V. (h) Mexico
INACTIVE:
Lavicio's, Inc. California
MTA CAL, Inc. California
7-Eleven, Inc. Texas
7-Eleven Limited United Kingdom
7-Eleven Pty. Ltd. (m) Australia
7-Eleven Stores (NZ) Limited (n) New Zealand
SLC Financial Services, Inc. Texas
Superior 7-11 Stores, Inc.** Wisconsin
The Seven Eleven Limited (o) Hong Kong
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 (p) Texas
</TABLE>
* This company was merged into Small Shops Holding A/S during 1995.
** This company was merged into Southland during 1995.
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) 4.63% owned by The Southland Corporation, and remaining 95.37% owned by
various investors
(e) 59.07% owned by The Southland Corporation, and remaining 40.93% owned by
group of investors in Puerto Rico
(f) as of 6-30-95, 2.38% owned by The Southland Corporation, 97.47% owned
by Super Trade, Ltd., and remaining .15% owned by other investors;
Southland has options to purchase up to 49% of this affiliate until 1-97
(g) 15,999 quotas (almost 100%) owned by The Southland Corporation,
and remaining 1 quota owned by 7-Eleven of Nevada, Inc. (a wholly
owned subsidiary of The Southland Corporation)
(h) 99.965% of Series A shares owned by Valso, S.A., and remaining .035%
owned by Casa Chapa, S.A.; 100% of Series B shares owned by Valso, S.A.
(i) 7.62% owned by The Southland Corporation, and remaining 92.38% owned by
various investors (based on Class A common shares only)
(j) 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, and remaining 51% owned by
Valores Corporativos, S.A.
(m) 99% owned by The Southland Corporation, and remaining 1% owned jointly
by Southland's local counsel, Bruce Nelson Davidson and Bruce Eynon
Tunnicliffe
(n) 50% owned by David Anthony Walsh, and remaining 50% owned by Anthony
Peter John Kelly, for the benefit of Southland
(o) 99.9% owned by The Southland Corporation, and remaining .1% owned by
Wilgrist Nominees Limited, Southland's agent in Hong Kong.
(p) This company was established by The Southland Corporation Employees'
Savings and Profit Sharing Plan to hold title to properties under tax
code Section 501(c)(25). As of November 15, 1991, U.S. Trust Company
of California, N.A. was appointed as trustee for The Southland Employees'
Trust and The Southland Corporation Employees' Savings and Profit Sharing
Plan and assumed all responsibility for this company.
Tab 7
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 14,
1996, on our audits of the consolidated financial statements and
financial statement schedule of The Southland Corporation and
Subsidiaries as of December 31, 1995 and 1994, and for each of the three
years in the period ended December 31, 1995, which reports are included in
this Annual Report on Form 10-K.
Registration No.
On Form S-8 for:
Post-Effective Amendment No. 3 to The Southland 33-23312
Corporation Equity Participation Plan
Post-Effective Amendment No. 1 to The Southland 33-25327
Corporation Grant Stock Plan
The Southland Corporation 1995 Stock Incentive Plan 33-63617
Coopers & Lybrand L.L.P.
Dallas, Texas
March 28, 1996
Tab 8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 43,047
<SECURITIES> 0
<RECEIVABLES> 112,082
<ALLOWANCES> 4,858
<INVENTORY> 102,020
<CURRENT-ASSETS> 356,107
<PP&E> 2,466,634
<DEPRECIATION> 1,130,851
<TOTAL-ASSETS> 2,081,117
<CURRENT-LIABILITIES> 720,127
<BONDS> 2,005,237
<COMMON> 41
0
0
<OTHER-SE> (880,833)
<TOTAL-LIABILITY-AND-EQUITY> 2,081,117
<SALES> 6,745,850
<TOTAL-REVENUES> 6,816,789
<CGS> 4,762,707
<TOTAL-COSTS> 4,762,707
<OTHER-EXPENSES> 1,866,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,582
<INCOME-PRETAX> 101,529
<INCOME-TAX> (66,065)
<INCOME-CONTINUING> 167,594
<DISCONTINUED> 0
<EXTRAORDINARY> 103,169
<CHANGES> 0
<NET-INCOME> 270,763
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
