<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
--------------
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
APPLICABLE ONLY TO ISSUERS 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 Sections 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 No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
409,922,935 shares of common stock, $.0001 par value (the issuer's only
class of common stock), were outstanding as of June 30, 1997.
<PAGE>
THE SOUTHLAND CORPORATION
INDEX
Page
No.
----
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996........................... 1
Condensed Consolidated Statements of Earnings -
Three Months and Six Months Ended June 30, 1997 and 1996...... 2
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996....................... 3
Notes to Condensed Consolidated Financial Statements ........... 4
Report of Independent Accountants............................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 7
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .......................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 16
SIGNATURES........................................................... 17
Exhibit 10(ii)(D)- Master Leasing Agreement dated as of April 15,1997,
among the financial institutions party thereto as
Lessor Parties, CBL Capital Corporation, as Agent
for the Lessor Parties and The Southland
Corporation,as Lessee............................. Tab 1
Exhibit (11)- Statement re Computation of Per-Share Earnings.... Tab 2
Exhibit (15)- Letter re Unaudited Interim Financial Information. Tab 3
Exhibit (27)- Financial Data Schedule........................... *
*Submitted in electronic format only
(i)
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
ASSETS
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . $ 47,023 $ 36,494
Accounts and notes receivable . . . . . . . . . . . 104,452 109,413
Inventories . . . . . . . . . . . . . . . . . 107,745 109,050
Other current assets . . . . . . . . . . . . . . 107,258 95,943
----------- -----------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . 366,478 350,900
PROPERTY AND EQUIPMENT. . . . . . . . . . . . . . . 1,352,922 1,349,839
OTHER ASSETS . . . . . . . . . . . . . . . . . . 296,297 338,409
----------- -----------
$ 2,015,697 $ 2,039,148
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable. . . . . . . . . . . . . . $ 209,369 $ 211,060
Accrued expenses and other liabilities . . . . . . . . 269,352 297,246
Commercial paper. . . . . . . . . . . . . . . . 48,693 98,055
Long-term debt due within one year. . . . . . . . . . 130,026 68,571
----------- -----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 657,440 674,932
DEFERRED CREDITS AND OTHER LIABILITIES . . . . . . . . . 190,365 214,343
LONG-TERM DEBT . . . . . . . . . . . . . . . . . 1,627,381 1,638,828
CONVERTIBLE QUARTERLY INCOME DEBT SECURITIES . . . . . . . 300,000 300,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value . . . . . . . . . . . 41 41
Additional capital . . . . . . . . . . . . . . . 625,574 625,574
Accumulated deficit. . . . . . . . . . . . . . . (1,385,104) (1,414,570)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT ) . . . . . . . . (759,489) (788,955)
------------ ------------
$ 2,015,697 $ 2,039,148
=========== ===========
See notes to condensed consolidated financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales (Including $246,359, $242,640,
$469,124 and $472,064 in excise taxes) $ 1,781,983 $ 1,791,736 $ 3,386,383 $ 3,354,350
Other income . . . . . . . . . . 22,105 22,182 43,728 41,219
------------ ------------ ------------ ------------
1,804,088 1,813,918 3,430,111 3,395,569
COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . 1,259,650 1,266,440 2,414,283 2,387,008
Operating, selling, general and
administrative expenses . . . . . 480,130 473,705 918,418 902,572
Interest expense, net . . . . . . . 21,815 23,128 45,714 46,196
------------ ------------ ------------ ------------
1,761,595 1,763,273 3,378,415 3,335,776
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES . . . . . . 42,493 50,645 51,696 59,793
INCOME TAXES. . . . . . . . . . . . 16,863 20,258 20,544 23,917
------------ ------------ ------------ ------------
NET EARNINGS. . . . . . . . . . . . $ 25,630 $ 30,387 $ 31,152 $ 35,876
============ ============ ============ ============
NET EARNINGS PER COMMON SHARE
(Primary and Fully Diluted) . . . . . $.06 $.07 $.07 $.08
===== ===== ===== =====
See notes to condensed consolidated financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
------------------------------
- -
1997 1996
------------- -------------
- -
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . $ 31,152 $ 35,876
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization of property and equipment . . . . 88,648 80,807
Other amortization. . . . . . . . . . . . . . . . . 9,513 9,513
Deferred income taxes. . . . . . . . . . . . . . . . 22,025 7,941
Noncash interest expense. . . . . . . . . . . . . . . 1,964 904
Other noncash (income) expense. . . . . . . . . . . . . (299) 474
Net (gain) loss on property and equipment . . . . . . . . . (433) 569
Decrease in accounts and notes receivable . . . . . . . . . 16,319 8,476
Decrease (increase) in inventories . . . . . . . . . . . 1,305 (4,221)
Increase in other assets. . . . . . . . . . . . . . . (11,732) (1,973)
(Decrease) increase in trade accounts payable and other liabilities (58,036) 13,091
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . 100,426 151,457
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment . . . . . . . . (94,518) (94,687)
Proceeds from sale of property and equipment . . . . . . . . . 10,728 7,433
Other . . . . . . . . . . . . . . . . . . . . . . 2,220 376
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . (81,570) (86,878)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit facilities . . . 2,856,548 1,762,600
Payments under commercial paper and revolving credit facilities . . . (2,829,800) (1,712,949)
Principal payments under long-term debt agreements . . . . . . . (34,555) (87,820)
Other . . . . . . . . . . . . . . . . . . . . . . (520) -
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES . . . . . . . (8,327) (38,169)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . 10,529 26,410
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . 36,494 43,047
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . $ 47,023 $ 69,457
============= =============
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS No.15 Interest . . . . . . . . . $ (48,122) $ (51,692)
============= =============
Net income taxes paid . . . . . . . . . . . . . . . . . $ (3,042) $ (5,881)
============= =============
See notes to condensed consolidated financial statements.
3
</TABLE>
<PAGE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated balance sheet as of June 30, 1997, and the
condensed consolidated statements of earnings for the three-month and six-
month periods ended June 30, 1997 and 1996, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1997 and
1996, have been prepared by the Company without audit. In the opinion of
management, all adjustments (which included only normal, recurring
adjustments) necessary to present fairly the financial position at June 30,
1997, and the results of operations and cash flows for all periods presented
have been made. The results of operations for the interim periods are not
necessarily indicative of the operating results for the full year.
The condensed consolidated balance sheet as of December 31, 1996, is
derived from the audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The notes
accompanying the consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, include accounting
policies and additional information pertinent to an understanding of both the
December 31, 1996, balance sheet and the interim financial statements. The
information has not changed except as a result of normal transactions in the
six months ended June 30, 1997.
2. EARNINGS PER SHARE:
The Company will adopt Statement of Financial Accounting Standards
("SFAS") No.128, "Earnings per Share," in December 1997. SFAS No. 128
establishes simplified accounting standards for computing earnings per share
and makes them comparable to international earnings per share standards. The
table below reflects both the current earnings per share amount and the pro
forma earnings per share amount assuming adoption of SFAS No. 128.
Three Months Six Months
Ended June 30, Ended June 30,
--------------- --------------
1997 1996 1997 1996
------ ------ ------ -----
Per Statement of Earnings:
Primary and Fully Diluted $.06 $.07 $.07 $.08
Pro Forma:
Basic $.06 $.07 $.08 $.09
Diluted $.06 $.07 $.07 $.08
<PAGE>
3. COMPREHENSIVE INCOME:
The Company is currently reviewing Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," but has not yet
determined when it will adopt the provisions of this statement. SFAS No. 130
establishes standards for reporting comprehensive income and its components
in a full set of general-purpose financial statements.
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Southland Corporation
We have reviewed the accompanying condensed consolidated balance sheet of The
Southland Corporation and Subsidiaries as of June 30, 1997, the related
condensed consolidated statements of earnings for the three-month and six-
month periods ended June 30, 1997 and 1996, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1997 and
1996. These financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements of The Southland
Corporation and Subsidiaries for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of earnings, shareholders' equity (deficit),
and cash flows for the year then ended (not presented herein); and in our
report dated February 18, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1996, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
August 4, 1997
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Some of the matters discussed in this quarterly report contain forward-
looking statements regarding the Company's future business which are subject
to certain risks and uncertainties, including competitive pressures, adverse
economic conditions and government regulations. These issues, and other
factors which may be identified from time to time in the Company's reports
filed with the SEC, could cause actual results to differ materially from
those indicated in the forward-looking statements.
RESULTS OF OPERATIONS
SUMMARY OF RESULTS OF OPERATIONS
The Company's net earnings for the second quarter and first six months
of 1997 were $25.6 million ($.06 per share) and $31.2 million ($.07 per
share), respectively, compared to net earnings of $30.4 million ($.07 per
share) and $35.9 million ($.08 per share) for the same periods in 1996. The
results for the second quarter of 1997 declined, when compared to the prior
year, due to favorable gasoline market conditions in 1996, combined with the
incremental costs associated with the further implementation of several
strategic initiatives in 1997.
MANAGEMENT STRATEGIES
Since 1992, the Company has been committed to several key strategies
that it believes, over the long term, will provide further differentiation
from competitors and allow 7-Eleven to maintain its position as the premier
convenience retailer. These strategies include:
* Upgrading the Company's store base through developing or acquiring new
stores, continuing the upgrading of existing stores and closing
underachieving stores. During 1997, the Company expects to have net store
growth for the first time in ten years. During the first six months of 1997,
16 new stores opened, with a much greater number of stores expected to be
opened in the third and fourth quarters.
* A customer-driven approach to merchandising, which focuses on providing
the customer an expanded selection of quality products at a good value.
* An everyday-fair-pricing strategy which provides consistent, reasonable
prices on all items.
* Daily delivery of fresh perishable items and high-quality, ready-to-eat
foods through the use of combined distribution centers, fresh-food
commissaries and bakery facilities. These facilities, which are generally
third-party operated, are designed to provide fresher products, improve in-
stock conditions and lower product costs. Since June, 1996, the Company has
expanded into six new areas in support of this initiative, with additional
areas planned for the remainder of 1997 and 1998.
* The development of a retail information system that has helped to
automate accounting and other store-level tasks. The current phase, with
implementation beginning this year, involves the installation of point-of-
sale registers with scanning and a proprietary ordering system.
7
<PAGE>
(EXCEPT WHERE NOTED, ALL PER-STORE NUMBERS REFER TO AN AVERAGE OF ALL STORES
RATHER THAN ONLY STORES OPEN MORE THAN ONE YEAR.)
SALES
The Company recorded net sales of $1.78 billion for the second quarter
and $3.39 billion in the first six months of 1997, compared to net sales of
$1.79 billion and $3.35 billion during the same periods last year. The
decrease in sales for the second quarter of 1997, when compared to the same
period in 1996, is due to a decrease in gasoline sales resulting from lower
retail prices in 1997. Merchandise sales growth per store was as follows:
Periods Ending June 30, 1997
----------------------------
INCREASE (DECREASE) FROM PRIOR YEAR Three Months Six Months
- ----------------------------------- ------------ ----------
U.S. same-store sales 0.4% 0.4% *
U.S. same-store real growth; excluding inflation (0.5)% (0.9)% *
7-Eleven inflation 0.9% 1.3%
* THE FACT THAT 1996 WAS A LEAP YEAR NEGATIVELY IMPACTS THE CURRENT
YEAR-TO-DATE GROWTH RESULTS BY APPROXIMATELY 50 BASIS POINTS. THE
YEAR-TO-DATE INCREASE IN U.S. SAME-STORES SALES, EXCLUDING THE LEAP
YEAR IMPACT WOULD BE 0.9%, WITH THE U.S. SAME-STORE REAL GROWTH
BEING -0.4%.
Gasoline sales dollars per store decreased 5.1% for the second quarter
due to a 7.0 cents per gallon decline in average retail sales price, as per-
store gasoline gallons sold increased only slightly during the second
quarter.
<TABLE>
<CAPTION>
GROSS PROFITS
Periods Ending June 30, 1997
----------------------------
Three Months Six Months
------------ ----------
Merchandise Gasoline Merchandise Gasoline
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Gross Profit - dollars in millions $ 475.9 $ 46.4 $ 886.8 $ 85.3
INCREASE/(DECREASE) FROM PRIOR YEAR - ALL STORES
- ------------------------------------------------
Average per-store gross profit dollar change 1.1% (13.2)% 1.6% (9.7)%
Margin point change (gasoline in cents per gallon) (.01) (2.01) .19 (1.07)
Average per-store sales (gasoline in gallons) 1.1% 0.1% 1.0% (1.9)%
</TABLE>
Total merchandise gross profit dollars were $3.6 million higher in the
second quarter and $13.0 million for the six months, when compared to the
same periods in 1996. The increase was due to modest average per-store sales
growth for both the second quarter and first six months, combined with
favorable merchandise margins for year-to-date 1997. The flat merchandise
margin during the second quarter, compared to last year, was due to
improvements in product costs from contract negotiations late in 1996 being
offset by introductory costs associated with the expansion of the fresh food
initiatives (see Management Strategies).
During the second quarter and first six months of 1997, gasoline gross
profits decreased $6.6 million and $8.2 million, respectively, over the same
periods in 1996. The second quarter decline was due to lower margin, as last
year's margin was aided by higher retail prices during a cycle in which
wholesale costs were dropping.
8
<PAGE>
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("OSG&A")
Periods Ending June 30, 1997
----------------------------
Three Months Six Months
------------ ----------
1997 1996 1997 1996
---- ---- ---- ----
Total OSG&A expenses $480.1 $473.7 $918.4 $902.6
Ratio of OSG&A to sales 26.9% 26.4% 27.1% 26.9%
Operating, selling, general and administrative expenses increased $6.4
million during the second quarter of 1997, compared to the same period in
1996 and $15.8 million for the first six months of 1997 compared to 1996. A
portion of the increase in OSG&A expenses resulted from costs associated with
the Company's implementation of its retail information system (approximately
$5 million more in the first six months of 1997) and other strategic
initiatives (see Management Strategies). The incremental cost of these
initiatives, combined with lower gasoline prices in the second quarter of
this year, pushed up the ratio of OSG&A expenses to sales for both the
quarter and the year. While this ratio will vary on a quarterly basis,
management believes it will continue to be slightly less favorable during the
roll-out phase of the retail information system.
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, management
continues to realign and reduce personnel and office facilities, in order to
eliminate non-essential costs, while devoting resources to the implementation
of its retail information system and other strategic initiatives (see
Management Strategies).
INTEREST EXPENSE, NET
Net interest expense decreased $1.3 million and $0.5 million from 1996
during the second quarter and first six months of 1997, respectively. The
decrease was primarily due to lower levels of borrowing. Approximately 36%
of the Company's debt contains floating rates that would be unfavorably
impacted by rising interest rates. The weighted average interest rate for
such debt was 5.7% for the second quarter and 5.8% for the first six months
of 1997 versus 5.7% and 5.9% for the same time periods in 1996. The Company
expects net interest expense in 1997 to remain relatively flat due to higher
borrowings to finance new store development, offset by increased capitalized
interest and a .6% reduction in the cost of borrowing that the Company
negotiated with the lenders in its new, unsecured bank debt credit agreement
("New Credit Agreement") (see Liquidity and Capital Resources).
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 $400 million (reduced by
outstanding letters of credit) 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.
<PAGE>
In February 1997, the Company entered into a New Credit Agreement,
refinancing its old term loan ($225 million), revolving credit facility and
letters of credit ($150 million each), all of which were scheduled to mature
on December 31, 1999, with a new term loan facility ("Term Loan") and
revolving credit facility. The Term Loan ($225 million) has scheduled
quarterly repayments of $14.1 million commencing March 31, 1998 through
December 31, 2001. The new revolving credit facility ($400 million) expires
February 2002 and allows for revolving borrowings ("Revolver"), and for
issuance of letters of credit not to exceed $150 million. Interest on the
Term Loan and Revolver is based on a variable rate equal to the
administrative agent bank's base rate or, at the Company's option, a rate
equal to a reserve-adjusted Eurodollar rate plus .225% for drawn amounts. The
new agreement requires letter of credit fees to be paid quarterly at .325% on
the outstanding amount. In addition, a facility fee of .15% is payable
quarterly on the total amount available under the New Credit Agreement, as
such amount is reduced from time to time. The cost of borrowings and letters
of credit under the New Credit Agreement represents a decrease of .6% and
.45%, respectively, from the prior secured senior bank debt credit agreement.
All rates and fees quoted are on a per annum basis.
In April 1997, the Company entered into a Master Lease Facility ("MLF")
of $115 million, which will be the primary financing for a complete
integrated point-of-sale system that is scheduled to be rolled out over the
subsequent six quarters (see Management Strategies). The lease payment on
the MLF will be based on a variable rate equal to the Eurodollar rate plus a
blended all-inclusive spread of .46% per year. The MLF has a three-year
noncancellable term with semiannual options to renew for up to an additional
two years. Based upon current roll-out schedules, it is anticipated that the
commitment under the MLF will be fully utilized by the end of 1998.
The New Credit Agreement and the MLF contain certain financial and
operating covenants requiring, among other things, the maintenance of certain
financial ratios, including interest and rent coverage, fixed-charge coverage
and senior indebtedness to earnings before interest, taxes, depreciation and
amortization ("EBITDA"). The covenant levels established by the New Credit
Agreement and the MLF generally require continuing improvement in the
Company's financial condition.
For the period ended June 30, 1997, the Company was in compliance with
all of the covenants required under the New Credit Agreement, including
compliance with the principal financial and operating covenants (calculated
over the latest 12-month period) as follows:
Requirements:
--------------------
Covenants Actuals Minimum Maximum
--------- ------- ------- -------
Interest and rent coverage * 2.15 to 1.0 2.00 to 1.0
Fixed charge coverage 1.19 to 1.0 0.65 to 1.0
Senior indebtedness to EBITDA 3.12 to 1.0 3.40 to 1.0
* INCLUDES EFFECTS OF THE SFAS NO. 15 INTEREST PAYMENTS.
During the first six months of 1997, the Company repaid $34.6 million of
debt, which included $15.6 million for principal payments on the Company's
yen-denominated loan (secured by the royalty income stream from its area
licensee in Japan) and $11.2 million for SFAS No. 15 interest. Outstanding
balances at June 30 1997, for the commercial paper, the Term Loan and the
Revolver, were $398.7 million, $225.0 million and $25.5 million,
1
<PAGE>
respectively. As of June 30, 1997, outstanding letters of credit issued
pursuant to the New Credit Agreement totaled $68.3 million.
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $73.3 million for the
second quarter and $100.4 million for the first six months of 1997, a
decrease of $22.0 million and $51.0 million compared to the same periods in
1996. The majority of the decrease was due to the timing of payments related
to trade payables. (See Results of Operations section)
CAPITAL EXPENDITURES
In the first six months of 1997, net cash used in investing activities
consisted primarily of payments of $94.5 million for property and equipment.
The majority of this capital was used for implementation of the Company's
retail information system, new store development, remodeling stores,
upgrading retail gasoline facilities, replacing equipment and complying with
environmental regulations.
The Company expects 1997 capital expenditures, excluding lease
commitments, to be approximately $265 million. Capital expenditures are
being used to develop or acquire new stores, upgrade store facilities,
further implement the retail information system, replace equipment, upgrade
gasoline facilities and comply with environmental regulations. The amount of
expenditures during the year will be materially impacted by the Company's
ability to find and acquire new stores that fit its growth strategy and the
portion of new store development that is funded through working capital
versus leases. Most leases for newly constructed stores will contain
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
$15 million in 1997 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 $20
million on such capital improvements from 1998 through 2000.
ENVIRONMENTAL
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 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. The
Company has recently received conditional approval of its clean-up plan. The
Company has recorded undiscounted liabilities representing its best estimates
of the clean-up costs of $13.9 million at June 30, 1997. In 1991, the
Company and the former owner of the facility executed a final settlement
pursuant to which the former owner agreed to pay a substantial portion of the
clean-up costs. Based on the terms of the settlement agreement and the
financial resources of the former owner, the Company has recorded a
receivable of $8.1 million at June 30, 1997.
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Additionally, the Company accrues for the anticipated future costs and
the related probable state reimbursement amounts for remediation activities
at its existing and previously operated gasoline sites where releases of
regulated substances have been detected. At June 30, 1997, the Company's
estimated undiscounted liability for these sites was $36.1 million. 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 remediation work. The Company anticipates that substantially all of the
future remediation costs for detected releases at these sites as of June 30,
1997, will be incurred within the next five years.
Under state reimbursement programs, the Company is eligible to receive
reimbursement for a portion of future remediation costs, as well as a portion
of remediation costs previously paid. Accordingly, as of June 30, 1997, the
Company has a net receivable of $45.3 million recorded for the estimated
probable state reimbursements. In assessing the probability of state
reimbursements, the Company takes into consideration each state's fund
balance, revenue sources, existing claim backlog, status of clean-up activity
and claim ranking systems. As a result of these assessments, the recorded
receivable amount is net of an allowance of $8.5 million. While there is no
assurance of the timing of the receipt of state reimbursement funds, based on
its experience, the Company expects to receive the majority of state
reimbursement funds, except from California, within one to three years after
payment of eligible remediation expenses, assuming that the state
administrative procedures for processing such reimbursements have been fully
developed. The Company estimates that it may take one to eight years to
receive reimbursement funds from California. Therefore, the portion of the
recorded receivable amounts that relate to sites where remediation activities
have been completed have been discounted at 6.2% to reflect their present
value. Thus, the recorded receivable amount is also net of a discount of
$6.6 million.
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.
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
7-ELEVEN OWNERS FOR FAIR FRANCHISING, ET AL. V. THE SOUTHLAND
CORPORATION, ET AL.
As previously reported, in 1993 a purported class action lawsuit
entitled 7-ELEVEN OWNERS FOR FAIR FRANCHISING, ET AL. V. THE SOUTHLAND
CORPORATION, ET AL., Case No. 722272-6, was filed against Southland in the
Superior Court for Alameda County, California ("7-Eleven OFFF"). The
Company's majority owners and approximately 18 of its vendors were also named
as defendants in this litigation.
The Company's majority owners have been dismissed from the case, along
with most of the vendor defendants, including Coca Cola, Pepsi Cola, Hansen's
Juices and Oscar Mayer. The only defendants remaining in the case are
Southland, Citgo Petroleum Corporation and McLane Company, Inc.
The Complaint filed by the plaintiffs alleged a variety of violations of
California state antitrust laws, the California Business and Professions
Code, breaches of the 7-Eleven Franchise Agreement and other claims relating
to the business relationship between the Company and its 7-Eleven
franchisees.
On June 13, 1997, the Court heard argument on the plaintiffs' motion to
certify a class in the case. On July 23, 1997, the Court entered an Order on
the plaintiff's motion that contained the following rulings:
(a) the motion to certify a class on the following claims was denied,
and plaintiffs have now elected to abandon these claims: (1) the claim
relating to automated teller machines; (2) the claim relating to proprietary
cups; (3) the claim relating to Southland's accelerated inventory management
program; and (4) the claim that Southland required franchisees to incur
certain expenses as a condition of having their stores remodeled;
(b) the motion to certify a class on the following claims was denied,
but without prejudice to plaintiffs' right to renew their motion: (1) the
claim against Southland and Citgo relating to the manner in which franchisees
are compensated for the sale of gasoline; and (2) the claim that Southland
conspired with certain vendors to fix wholesale prices of 7-Eleven
proprietary items that were purchased by the franchisees;
(c) the motion to certify a class on the following claims was granted:
(1) the claim asserting that Southland should have credited the franchisees'
cost of goods sold with the value of equipment furnished by merchandise
suppliers; (2) the claim asserting that Southland wrongfully failed to credit
the franchisees' cost of goods sold with certain rebates, discounts, and
allowances; (3) the claim relating to advertising allowances that Southland
received from merchandise suppliers; (4) the claim that Southland wrongfully
profited from its sale of goods to the franchisees; (5) the claim requesting
that Southland be enjoined from requiring franchisees to operate 24 hours per
day pursuant to the provisions of their franchise agreements; and (6) the
claim that Southland and McLane conspired to divide wholesale markets and/or
customers within California in violation of California's antitrust statute;
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(d) only the individual franchisees who are named plaintiffs in the case
will be permitted to serve as class representatives, and the association
known as 7-Eleven Owners for Fair Franchising will not be permitted to serve
as a class representative; and
(e) the time period for which the plaintiffs may seek damages on the
claims certified for class action treatment shall not extend back more than
four years from the filing of the Complaint in the case (i.e., to August 20,
1989).
Finally, during the June 13 hearing, the Court ruled that the claim
against Southland and McLane regarding the alleged division of wholesale
markets should be tried separately from the other remaining claims in the
case. The separate trial on this antitrust claim is scheduled to begin on
January 12, 1998. The trial on all other remaining claims is now scheduled
to commence on April 6, 1998. It is anticipated that the notice to potential
class members will be mailed in September or October.
The Company continues to believe that it has meritorious defenses to all
of the claims asserted by the plaintiffs in this case and intends to defend
vigorously against all such claims. The ultimate outcome of a complicated
case of this nature cannot be predicted, because such litigation is
inherently uncertain.
VALENTE, ET AL. V. THE SOUTHLAND CORPORATION, ET AL.
VALENTE I: As previously reported, on March 15, 1996, the same lawyers
representing the plaintiffs in the 7-Eleven OFFF case filed another purported
class action lawsuit against the Company and most of the other defendants in
the 7-Eleven OFFF case, in the U.S. District Court for the Northern District
of California, entitled VALENTE, ET AL. V. THE SOUTHLAND CORPORATION, ET AL.,
Case No. 3:96-CV-1786-P ("Valente I"). Valente I alleged essentially the
same claims as the 7-Eleven OFFF case, and was filed on behalf of all persons
who signed a franchise agreement with Southland on or after March 15, 1990,
relating to a 7-Eleven store in any state, except California.
The Company filed a motion to transfer the case to federal court in
Dallas and on June 24, 1996, that motion was granted. After the transfer of
the case to federal court in Dallas, the plaintiffs moved to dismiss the
case, and on May 27, 1997, that motion was granted and this litigation is now
terminated.
VALENTE II: On November 14, 1996, a third purported class action
lawsuit was filed in the state court in Dallas, Texas (VALENTE, ET AL. V. THE
SOUTHLAND CORPORATION, 14th Judicial District, Case No. 96-11972-A) ("Valente
II"). Southland is the only defendant named in this case, which alleges
breach of contract relating to the manner in which the Company accounted for
discounts and allowances from merchandise vendors. The plaintiffs purport to
represent all persons who signed a franchise agreement with Southland on or
after January 1, 1967, with respect to a 7-Eleven store in any state, except
California.
On June 20, 1997, the Court granted Southland's motion for partial
summary judgment denying the Plaintiffs allegation that a Texas statute
entitled them to seek damages for a period in excess of the four years
allowed by the statute of limitations for breach of contract. The plaintiffs
have attempted to replead their claims in order to avoid the four year
statute of limitations. The Company will continue to resist the plaintiffs'
efforts to avoid the four year statute of limitations.
The hearing on plaintiffs' motion for class certification is scheduled
for November 20, 1997. The Company intends to contest the certification of a
class in this case and to defend
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vigorously against all of the plaintiffs' allegations. The Company continues
to believe it has meritorious defenses to all of the claims asserted by the
plaintiffs in this case. The ultimate outcome of a complicated case of this
nature cannot be predicted, because such litigation is inherently uncertain.
EMIL V. SPARANO, ET AL. V. THE SOUTHLAND CORPORATION, ET AL.
As previously reported, a lawsuit entitled EMIL V. SPARANO, ET AL. V.
THE SOUTHLAND CORPORATION, ET AL. was filed against the Company, its majority
owners and seven of its current and former officers in the United States
District Court for the Northern District of Illinois, in April 1994.
Plaintiffs are several franchisees of 7-Eleven stores in Illinois,
Pennsylvania, New Jersey and Nevada, who 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. During 1996, as the result of several
rulings in the Company's favor, the only defendants remaining in the case are
the Company, John Thompson, Jere Thompson and Clark Matthews. In addition,
of the 11 original causes of action, only one claim has been certified to
proceed as a class action against the remaining defendants. This claim
alleges that 7-Eleven franchisees were injured as a result of allegedly
fraudulent statements about the Company's financial condition that were made
during and after the Company's LBO and Chapter 11 bankruptcy proceedings.
The class has now been defined to consist of all persons who operated a
7-Eleven convenience store franchise at any time between December 1, 1987 and
March 4, 1991. The Class Notice was mailed on or about April 24, 1997. No
trial date has been set for this matter and no motions are currently pending.
The Company has aggressively attacked the merits of this suit from its
inception and believes that it has meritorious defenses to the remaining
claim. At this time, however, the litigation is still at an early stage of
development and the ultimate outcome of a complicated case of this nature
cannot be predicted because such litigation is inherently uncertain.
TONKAWA SPRINGS HOMEOWNERS ASSOCIATION, ET AL. V. THE SOUTHLAND CORPORATION
As previously reported a lawsuit was filed in Georgetown, Texas on
behalf of a purported class of property owners in a subdivision near Round
Rock, Texas who claimed their properties had been damaged as the result of a
release of petroleum products from the 7-Eleven store in Round Rock (TONKAWA
SPRINGS HOMEOWNERS ASSOCIATION VS. THE SOUTHLAND CORPORATION, 97-021-C277, in
the 277th Judicial District Court for Williamson County, Texas). On May 8,
1997, this case was dismissed pursuant to a Notice of Nonsuit filed by the
plaintiffs. The Company paid no damages to plaintiffs in connection with the
dismissal.
There are no other reportable suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company, other
than as previously reported.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 23, 1997, the Company held its annual meeting of shareholders.
Each of the fourteen nominated directors were elected without contest. In
addition, the shareholders approved the adoption of the Company's 1997
Performance Plan, and ratified the approval of Coopers & Lybrand L.L.P. to be
the Company's independent auditors for 1997.
(a) The votes for and the votes withheld for each of the nominees for
director were as follows:
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NOMINEE FOR WITHHELD
Masatoshi Ito 317,098,101 128,783
Toshifumi Suzuki 317,098,101 128,783
Clark J. Matthews, II 317,068,551 158,333
Yoshitami Arai 317,099,111 127,773
Masaaki Asakura 317,099,196 127,688
Timothy N. Ashida 317,099,196 127,688
Jay W. Chai 317,097,702 129,182
Gary J. Fernandes 317,097,927 128,957
Masaaki Kamata 317,099,111 127,773
James W. Keyes 317,091,193 135,691
Stephen B. Krumholz 317,099,195 127,689
Kazuo Otsuka 317,099,196 127,688
Asher O. Pacholder 317,099,195 127,689
Nobutake Sato 317,099,111 127,773
(b) The votes for, against, abstaining and broker non-votes in
connection with the approval of the Company's 1997 Performance Plan were as
follows:
303,512,176 shares were voted for; 581,487 shares were voted against;
74,086 shares abstained from voting; and 13,059,135 broker non-votes were
received.
(c) The votes for, against, abstaining and broker non-votes in
connection with the ratification of the appointment of Coopers & Lybrand
L.L.P. to be the independent auditors of the Company for 1997 were as
follows:
317,013,985 shares were voted for; 77,356 shares were voted against;
45,010 shares abstained from voting; and 90,533 broker non-votes were
received.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
1. Exhibit 10(ii)(D) -- Material Contracts
Master Leasing Agreement dated as of April 15, 1997, among
the financial institutions party thereto as Lessor Parties,
CBL Capital Corporation, as Agent for the Lessor Parties
and The Southland Corporation, as Lessee.
2. Exhibit (11) -- Statement re Computation of Per-Share
Earnings.
3. Exhibit (15) -- Letter re Unaudited Interim Financial
Information. Letter of Coopers & Lybrand L.L.P.,
Independent Accountants.
4. Exhibit (27) -- Financial Data Schedule.
Submitted in electronic format only.
(b) 8-K Reports:
During the second quarter of 1997, the Company filed no reports on
Form 8-K.
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SIGNATURES
Pursuant to the requirements 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)
Date: 8/5/97 /s/ Clark J. Matthews II
------------- ----------------------------
(Officer)
Clark J. Matthews, II
President and Chief Executive
Officer
Date: 8/5/97 /s/ Donald E. Thomas
------------- -----------------------------
(Principal Accounting Officer)
Donald E. Thomas
Vice President and Controller
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- ----------------------------------------------------------------------------
MASTER LEASING AGREEMENT
Dated as of April 15, 1997
Among
The financial institutions party hereto,
as Lessor Parties
CBL Capital Corporation,
as Agent for the Lessor Parties
and
The Southland Corporation,
as Lessee
- ----------------------------------------------------------------------------
Tab 1
<PAGE>
TABLE OF CONTENTS
(Master Leasing Agreement)
Section Page
- ------- ----
1. Definitions 1
2. Agreement for Lease of Equipment 6
3. Delivery 7
4. Lease Term 9
5. Rent 9
6. Use of Equipment 10
7. Improvements and Repair of Equipment 11
8. Insurance 13
9. Indemnity 14
10. Sale or Disposition of Equipment; Adjustment of Rent 15
11. Loss or Destruction of the Equipment 17
12. Surrender of Equipment 18
13. Events of Default 18
14. Rights of Lessor upon Default of Lessee; Allocation of Proceeds 19
15. Equipment To Be and Remain Personal Property 21
16. Purchase of Equipment; Extended Term 22
17. Finance Lease Status 22
18. Disclaimer of Warranties 23
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TABLE OF CONTENTS
(Continued)
Section Page
- ------- ----
19. Assignment by Lessor 23
20. Additional Representations and Covenants of Lessee 24
21. Facility Fees 25
22. Agent 25
23. Miscellaneous 27
- Signature Lines 29
- Exhibit A
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<PAGE>
MASTER LEASING AGREEMENT
Master Leasing Agreement, dated as of April 15, 1997 by and among The
Southland Corporation (herein called "Lessee"), the financial institutions
from time to time party hereto as "Lessor Parties" (as defined herein) and
CBL Capital Corporation of Foster City, California ("CBL") as Agent for the
Lessor Parties.
In consideration of the mutual covenants hereinafter contained, Lessor
Parties, Agent and Lessee agree as follows:
1. DEFINITIONS. As herein used:
(a) "ACQUISITION COST" of Equipment is an amount equal to the sum of
the vendor's delivered price, dealer's delivery and handling charges, the
cost of any original equipment which may be added, excise tax on the
Equipment, any applicable sales and use taxes, expenses of installation and
freight, and other expenses required to effect delivery of the Equipment to
Lessee which amount may include research and development costs, software
development costs, engineering, training, installation and any labor costs
associated therewith subject to capitalization for the Software Equipment,
less purchase discounts obtained.
(b) "AGENT" shall mean CBL Capital Corporation, in its separate
capacity as Agent for the Lessor Parties hereunder, together with any
successor agent appointed in accordance with the terms hereof.
(c) The "AGGREGATE AMORTIZATION" of any Equipment is an amount equal
to the sum total of the Quarterly Amortization Figures for each of the
quarters for which Rent for the Equipment has been paid.
(d) "AGGREGATE LEASE LINE" shall mean an amount equal to the Maximum
Tranche A Value plus the Maximum Tranche B Value provided, however, that
Lessee shall have the right to reduce the amount of the Aggregate Lease Line
any time during the Commitment Period upon prior written notice to Agent and
the Maximum Tranche A Value, the Maximum Tranche B Value and the Tranche A
Commitment and Tranche B Commitment of each Lessor Party shall be
proportionally reduced.
(e) "ASSIGNMENT CERTIFICATE" shall mean an Assignment Certificate in
substantially the form of Exhibit A attached hereto evidencing the sale and
assignment by a Lessor Party and the purchase and acceptance by its assignee
of the obligations under this Master Leasing Agreement specified therein.
(f) "BASE AMOUNT" means, as to any Equipment sold immediately upon
the expiration of the Non-Cancelable Term, the Acquisition Cost of such
Equipment, and as to any Equipment sold after the expiration of the Non-
Cancelable Term, the Unamortized Value of such Equipment at the termination
of its lease term.
(g) "BASIC TERM" shall mean as to any item of Equipment the
amortization period for such Equipment, selected by Lessee and approved by
Agent, as stated in the applicable Individual Leasing Record. Lessee shall
select amortization periods based on the following table:
TYPE OF EQUIPMENT NO. OF QUARTERS
----------------- ---------------
Equipment listed in Subsection 1(m) 20
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In determining the Basic Term of Equipment, the anticipated useful life
of such Equipment as it will be used by Lessee shall be considered, and upon
request, Lessee will furnish Agent with information with respect thereto.
(h) "COMMITMENT PERIOD" shall mean the period commencing on July 1,
1997 (the "COMMITMENT START DATE") and continuing through and including
January 4, 1999 provided, however, that Lessee may terminate the Commitment
Period on any earlier date upon prior written notice to Agent.
(i) (1) "CONTINGENT RENT" shall mean the amount by which the
proceeds of sale of the Equipment pursuant to Section 10 of this Master
Leasing Agreement are less than they would have been because of abuse,
damage, extraordinary wear and tear or excessive usage or because the
Equipment has not been maintained in accordance with the provisions of
Sections 6 and 7 hereof. In the event Agent and Lessee cannot agree on the
amount of Contingent Rent due, if any, they shall utilize the appraisal
procedure provided for in Section 10, with the consequences set forth
therein.
(2) If the sale proceeds of the Equipment transmitted to
Agent are less than the Unguaranteed Residual, Lessee shall, in addition, be
obligated to pay, and shall pay to Agent, the amount (if any) of Contingent
Rent with respect to the Equipment as is then determined in accordance with
Subsection 1(i)(1), provided, however, that the amount of any Contingent
Rent will not be greater than the amount by which the Unguaranteed Residual
exceeds such proceeds of sale.
(j) "CREDIT AGREEMENT" means the Credit Agreement, dated as of
February 27, 1997, among The Southland Corporation, Citibank N.A., as
Administrative Agent, The Sakura Bank Limited, New York Branch, as Co-Agent
and the financial institutions party thereto, as Senior Lenders, as the same
may be amended, renewed, or restated from time to time; PROVIDED, HOWEVER,
that if at any time the Credit Agreement is terminated or Lessee ceases to
have a right to borrow or maintain borrowings thereunder, "CREDIT AGREEMENT"
shall mean the Credit Agreement in effect at the time such agreement was
terminated or Lessee ceased to have such rights.
(k) "CREDIT AGREEMENT COVENANTS" means each of the covenants set
forth in Article IX of the Credit Agreement (or any successor and/or similar
provisions thereto contained in the Credit Agreement as amended or waived
from time to time); PROVIDED, HOWEVER, that the Lessee shall be obligated by
this Master Leasing Agreement to perform such covenants, for the periods
stated therein, until payment in full of the Unamortized Value and all other
amounts due and owing to Agent, on behalf of the Lessor Parties, hereunder;
and PROVIDED FURTHER that if, at any time, the Credit Agreement is
terminated or Lessee ceases to have a right to borrow or maintain borrowings
thereunder, "CREDIT AGREEMENT COVENANTS" shall mean such covenants, for the
periods stated therein, contained in the Credit Agreement in effect at the
time such agreement was terminated or Lessee ceased to have such rights.
(l) "EFFECTIVE DATE" shall have the meaning specified in Subsection
4(a) hereof.
(m) "EQUIPMENT" means the following types of property owned, co-
owned or licensed or to be owned, co-owned or licensed by Agent, on behalf
of the Lessor Parties, and leased by Agent, on behalf of the Lessor Parties,
to Lessee or ordered by Agent for lease to Lessee as provided herein:
(i) new and used inventory management systems including, but
not limited to, point-of-sale registers, cabinets, batteries, processors,
printers, display screens, cash drawers,
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<PAGE>
scanners, PAM controllers and hand-held terminals and related general
application software including installation and any other labor costs
associated therewith (the "HARDWARE EQUIPMENT"); and
(ii) related software development costs; all manuals, user
and technical documentation related to the software developed specifically
for the Lessee; engineering, installation and any and all labor costs
associated therewith (the "SOFTWARE EQUIPMENT").
(n) "EXTENDED TERM" shall have the meaning specified in Subsection
16(b) hereof.
(o) "FACILITY FEE" shall have the meaning specified in Subsection
21(a) hereof.
(p) "FEDERAL FUNDS RATE" shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal Funds transactions with
members of the Federal Reserve System arranged by Federal Funds brokers, as
published for such day (or, if such day is not a Business Day, for the
immediately preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for such day on such transactions received by
Agent from three Federal Funds brokers of recognized standing selected by
Agent.
(q) "INDIVIDUAL LEASING RECORD" is a record with respect to
Equipment setting forth a full description of the Equipment, its Acquisition
Cost, the location and such other details as the parties may desire and the
Individual Leasing Record shall be dated on the Effective Date. As among
Agent, the Lessor Parties and Lessee the signature of Lessee on an
Individual Leasing Record shall constitute acknowledgement by Lessee that
the Equipment has been delivered in good condition and accepted for lease by
Lessee. The Individual Leasing Record shall contain a short form of lease
to be executed by Agent and Lessee.
(r) "LESSOR PARTY" shall mean, at any particular time, any person or
entity who holds a Tranche A Commitment or a Tranche B Commitment at such
time, whether as a signatory to this Master Leasing Agreement or pursuant to
an Assignment Certificate.
(s) "LIBOR RATE" shall mean the rate per annum obtained by dividing
(i) the rate per annum at which deposits in U.S. dollars are offered by
Citibank, N.A. to prime banks in the London Interbank Market for a period
equal to three months, as quoted at 11:00 a.m. (London time) two Business
Days (as such term is defined in Section 5 hereof) prior to the first day of
the current calendar quarter, by (ii) a percentage equal to 100% minus the
Reserve Percentage for such one-quarter period.
(t) "MAXIMUM TRANCHE A VALUE" shall mean $103,800,000.
(u) "MAXIMUM TRANCHE B VALUE" shall mean $11,200,000.
(v) "NON-CANCELABLE TERM" shall mean the period beginning with the
Commitment Start Date and ending three (3) years after the Commitment Start
Date.
(w) "PERMITTED INVESTMENT" means any of the following:
(i) direct obligations of, and obligations fully guaranteed
by, the United States of America, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage
3
<PAGE>
Association, or any agency or instrumentality of the United States of
America the obligations of which are backed by the full faith and credit of
the United States of America;
(ii) book-entry securities, negotiable instruments or
securities represented by instruments in bearer or registered form
evidencing demand and time deposits in, certificates of deposits of,
bankers' acceptances issued by or federal funds sold by any depository
institution or trust company, incorporated or established under the laws of
the United States of America or any state thereof and subject to supervision
and examination by federal and/or state banking authorities, so long as at
the time of such investment or contractual commitment providing for such
investment (a) the commercial paper or other short-term unsecured debt
obligations of such depository institution or trust company have a rating of
A-1+ and P-1 from Standard & Poors Corporation ("S&P") and Moody's Investors
Service, Inc. ("Moody's) and, if rated by Fitch Investors Service, Inc.
("Fitch"), F-1+ or (b) such demand or time deposit or certificate of deposit
is fully insured by the Federal Deposit Insurance Corporation;
(iii) repurchase obligations with respect to (a) any security
described in clause (i) above or (b) any other security issued or guaranteed
by an agency or instrumentality of the United States of America, in either
case entered into with a depository institution or trust company (acting as
principal) described in clause (ii) (a) above;
(iv) securities bearing interest or sold at a discount issued
by any corporation incorporated under the laws of the United States of
America or any state thereof which have a short-term unsecured debt rating
of A-1+ and P-1 from S&P and Moody's and, if rated by Fitch, F-1+ at the
time of such investment;
(v) commercial paper having ratings of at least A-1+ from
S&P and P-1 from Moody's and, if rated by Fitch, F-1+ from Fitch, at the
time of such investment; and
(vi) a guaranteed investment contract issued by any insurance
company or other corporation, PROVIDED that such contract has been assigned
a rating of A-1+ and P-1 from S&P and Moody's and, if rated by Fitch, F-1+
or that the person issuing such contract has short-term unsecured debt
rating of A-1+ and P-1 from S&P and Moody's, respectively, and, if rated by
Fitch, F-1+.
(x) "QUARTERLY AMORTIZATION FIGURE" for any Equipment for each full
calendar quarter during the lease of such Equipment is an amount equal to
the Acquisition Cost of the Equipment divided by the number of quarters in
the Basic Term for such Equipment.
Quarterly amortization shall be taken at the close of business of the
last day of each full calendar quarter of the lease of the Equipment until
the Unamortized Value of the Equipment has reached zero.
(y) "RENT" for any Equipment for any full calendar quarter during
the term of the lease of such Equipment will be the sum of the Quarterly
Amortization Figure for such Equipment, plus Tranche A Rent plus Tranche B
Rent.
(z) "REQUISITE LESSOR PARTIES" shall mean Lessor Parties holding in
the aggregate more than 50% of the Tranche A Percentages and more than 50%
of the Tranche B Percentages.
(aa) "RESERVE PERCENTAGE" shall mean the reserve percentage
applicable during such calendar quarter under regulations issued from time
to time by the Board of Governors of the Federal
<PAGE>
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or
other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City that Citibank, N.A. is required to maintain with
respect to liabilities or assets consisting of or including Eurocurrency
liabilities, having a term equal to one (1) calendar quarter.
(bb) "TERMINATION NOTICE DATE" shall mean the date on which a notice
of termination is required to be delivered pursuant to Section 10 for a
termination which is to take place immediately upon the expiration of the
Non-Cancelable Term.
(cc) "TRANCHE A COMMITMENT" shall mean, with respect to a Lessor
Party, the obligation of the Lessor Party to fund purchases of Equipment
during the Commitment Period pursuant to Section 3 in an amount equal to the
amount set forth under the Lessor Party's name under the heading "Tranche A
Commitment" on the signature pages hereof or the signature page of the
Assignment Certificate by which the Lessor Party became a Lessor Party, as
applicable, in each case as modified from time to time pursuant to the terms
of this Master Leasing Agreement or to give effect to any applicable
Assignment Certificate, provided that the aggregate amounts of all Tranche A
Commitments of the Lessor Parties shall not exceed the Maximum Tranche A
Value.
(dd) "TRANCHE A PERCENTAGE" shall mean, with respect to a Lessor
Party, that percentage obtained by dividing the Tranche A Commitment of the
Lessor Party by the Maximum Tranche A Value or, if different, that
percentage obtained by dividing (a) the aggregate of all amounts actually
paid to Agent by a Lessor Party holding a Tranche A Commitment pursuant to
Section 3(c) hereof minus all amounts actually paid to such Lessor Party in
respect of amortization by (b) the Tranche A Value as of the date of such
calculation.
(dd) "TRANCHE A RENT" for any Equipment for any full calendar quarter
during the term of the lease of such Equipment will be an amount computed by
multiplying the following:
(1) the Tranche A Value at the end of the first day of such
calendar quarter, by
(2) a fraction having a numerator equal to the number of days
in such calendar quarter and a denominator of 360, by
(3) a percentage (the "TRANCHE A PERCENTAGE RENTAL FACTOR")
equal to the sum of
(ee) "TRANCHE A VALUE" shall mean an amount equal to 100% of the
Unamortized Value of the Software Equipment plus 86% of the Unamortized
Value of the Hardware Equipment.
(ff) "TRANCHE B COMMITMENT" shall mean, with respect to a Lessor
Party, the obligation of the Lessor Party to fund purchases of Equipment
during the Commitment Period pursuant to Section 3 in an amount equal to the
amount set forth under the Lessor Party's name under the heading "Tranche B
Commitment" on the signature pages hereof or the signature page of the
Assignment Certificate by which the Lessor Party became a Lessor Party, as
applicable, in each case as modified from time to time pursuant to the terms
of this Master Leasing Agreement or to give effect to any applicable
Assignment Certificate, provided that the aggregate amounts of all Tranche B
Commitments of the Lessor Parties shall not exceed the Maximum Tranche B
Value.
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(gg) "TRANCHE B ESCROW AMOUNT" shall mean that portion of Lessee
payments received by Agent in respect of Quarterly Amortization Figures to
be held in escrow by Agent in accordance with Subsection 5(b)(ii).
(hh) "TRANCHE B PERCENTAGE" of a Lessor Party shall be equal to that
percentage obtained by dividing the Tranche B Commitment of the Lessor Party
by the Maximum Tranche B Value or, if different, that percentage obtained by
dividing the aggregate of all amounts actually paid to Agent by a Lessor
Party holding a Tranche B Commitment pursuant to Section 3(c) hereof minus
all amounts actually paid to such Lessor Party in respect of amortization by
(b) the Tranche B Value as of the date of such calculation.
(ii) "TRANCHE B RENT" for any Hardware Equipment for any full
calendar quarter during the term of the lease of such Equipment will be the
sum of Contingent Rent for such Equipment (if any) plus an amount computed
by multiplying the following:
(1) the Tranche B Value at the end of the first day of such
calendar quarter, by
(2) a fraction having a numerator equal to the number of days
in such calendar quarter and a denominator of 360, by
(3) a percentage (the "TRANCHE B PERCENTAGE RENTAL FACTOR")
equal to the sum of
(jj) "TRANCHE B VALUE" shall mean an amount equal to 14% of the
Unamortized Value of the Hardware Equipment.
(kk) "UCC" shall mean the Uniform Commercial Code including the
provisions of the Uniform Personal Property Leasing Act as adopted in the
applicable state.
(ll) "UNAMORTIZED VALUE" of any or all Equipment is the Acquisition
Cost of such Equipment less its Aggregate Amortization.
(mm) "UNGUARANTEED RESIDUAL" shall mean (i) 14% of the Base Amount
for any or all units of Hardware Equipment and (ii) 0% of the Base Amount
for any or all units of Software Equipment.
For purposes of this Master Leasing Agreement, terms used in the Credit
Agreement and not otherwise defined herein shall have the meanings ascribed
to such terms in the Credit Agreement (and such defined terms are
incorporated herein by reference), except that (i) all references therein to
"Southland" (other than as a party to the Credit Agreement or an agreement,
instrument or document related thereto) shall be deemed to refer to Lessee,
and (ii) if at any time the Credit Agreement is terminated or Lessee ceases
to have a right to borrow or maintain borrowings thereunder, such
incorporated terms shall have the meanings ascribed to them in the Credit
Agreement in effect at the time such agreement was terminated or Lessee
ceased to have such rights.
2. AGREEMENT FOR LEASE OF EQUIPMENT. (a) During the Commitment
Period, subject to the terms and conditions of this Master Leasing
Agreement, upon execution and delivery by the Lessee of an Individual
Leasing Record to Agent, Agent, on behalf of the Lessor Parties, shall lease
(and, with respect to certain components of Software Equipment, sublicense)
to Lessee such specific units of Equipment as are set forth in such
Individual Leasing Record provided that such Individual Leasing Record is
provided in accordance with all of the terms and conditions of this Master
Leasing Agreement and no Event of Default has occurred and is continuing and
only to the extent of the funds
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received by the Agent from the Lessor Parties pursuant to Subsection 3(c)
hereof. No Individual Leasing Record shall be effective unless and until
executed by Agent and in no event shall Lessee execute and deliver to Agent
an Individual Leasing Record which, if executed and funded by the Lessor
Parties, would result in the Tranche B Value exceeding $11,200,000 during
the Commitment Period and in no event shall the aggregate Acquisition Cost
of the Equipment leased by Agent (on behalf of the Lessor Parties) to Lessee
during the Commitment Period exceed the Aggregate Lease Line. All items of
Equipment shall be acquired for lease hereunder prior to the expiration of
the Commitment Period. Upon, or prior to, the expiration of the Commitment
Period, Lessee shall furnish Agent with a certificate signed by an
authorized officer of Lessee representing that all Equipment is fully
operational and is acceptable to Lessee for Lessee's intended use. Agent,
the Lessor Parties and Lessee hereby declare that this Master Leasing
Agreement is, and is intended to be, an agreement to lease, and that every
Individual Leasing Record executed by the Agent (on behalf of the Lessor
Parties) and the Lessee pursuant to this Master Leasing Agreement shall be
combined and incorporated into this Master Leasing Agreement and shall be
treated as a single lease. Agent (on behalf of the Lessor Parties) has or
will have title to and will be the owner of the Equipment to be leased
(subject to the rights of the Lessee's licensors, contract vendors, co-
owners and developers of the Software Equipment as of the date such Software
Equipment is acquired for lease hereunder), and Lessee does not hereby
acquire any right, equity, title or interest in the Equipment, except the
right, as Lessee, to use the same under the terms hereof. If this Master
Leasing Agreement is deemed at any time to be one intended as security,
Lessee agrees that the Equipment shall secure all amounts owed by Lessee to
Agent and the Lessor Parties as set forth herein. The parties further agree
to treat this Master Leasing Agreement and any Individual Leasing Record
executed pursuant to this Master Leasing Agreement as a lease for accounting
and commercial law purposes and as a financing arrangement for income tax
purposes which allows Lessee to claim tax benefits as the owner of the
Equipment for income tax purposes.
(b) LESSEE HEREBY CONFIRMS THAT THIS MASTER LEASING AGREEMENT CANNOT
BE CANCELED OR TERMINATED, EXCEPT AS EXPRESSLY PROVIDED HEREIN AND THAT
LESSEE'S OBLIGATION TO PAY RENT, FACILITY FEES AND ANY OTHER AMOUNTS DUE
HEREUNDER ARE ABSOLUTE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES AND
SHALL BE PAID WITHOUT NOTICE OR DEMAND AND WITHOUT ANY ABATEMENT, REDUCTION,
DIMINUTION, SET OFF, DEFENSE, COUNTERCLAIM OR RECOUPMENT DUE OR ALLEGED TO
BE DUE TO, OR BY REASON OF, ANY PAST, PRESENT OR FUTURE CLAIMS WHICH LESSEE
MAY HAVE AGAINST AGENT OR ANY LESSOR PARTY OR ANY VENDOR OR MANUFACTURER OF
THE EQUIPMENT OR ANY PART THEREOF, OR ANY OTHER PERSON OR ANY REASON
WHATSOEVER.
(c) Agent and the Lessor Parties hereby covenant, on a several
basis, that, as long as Lessee is not in default hereunder, Lessee shall be
entitled to the uninterrupted use and quiet enjoyment of the Equipment on
the terms and conditions herein provided.
3. DELIVERY. (a) Neither Agent nor any Lessor Party shall be
liable to Lessee for any failure or delay in obtaining Equipment or making
delivery thereof. Upon delivery of Equipment to Lessee and receipt by Agent
of vendor's invoice (clearly designating Agent, on behalf the Lessor
Parties, as the owner) certified and approved by Lessee together with an
Individual Leasing Record with respect to the Equipment, duly executed by
Lessee and, if requested by Agent, appropriate title papers for such
Equipment, Agent shall, during the Commitment Period and subject to the
provisions of this Master Leasing Agreement and provided that no Event of
Default has occurred and is continuing, execute such Individual Leasing
Record. Each Individual Leasing Record for the
<PAGE>
Software Equipment shall be clearly designated as such on the form of such
Individual Leasing Record and shall not include any Hardware Equipment.
(b) With respect to those invoices for which Lessee shall require
payment on the first Business Day (as defined in Section 5 below) of a
calendar quarter, Lessee shall deliver to Agent all Individual Leasing
Records along with such certified invoices (clearly designating Agent, on
behalf of the Lessor Parties, as the owner) and a report, in a format
acceptable to Agent, summarizing the amounts to be funded by no later than
the 15th calendar day of the month immediately prior to the commencement of
such calendar quarter (the "CUT-OFF DATE"). Any Individual Leasing Records
and certified invoices (clearly designating Agent, on behalf of the Lessor
Parties, as the owner) received by Agent after the Cut-Off Date preceding
such quarter shall be paid in accordance with the terms and provisions of
this Section 3 on the first Business Day of the next calendar quarter
thereafter.
(c) Agent shall deliver to each Lessor Party a copy of each report
received from Lessee pursuant to Subsection 3(b). On the first Business Day
of the calendar quarter immediately following the Cut-Off Date for the
report occurring during the Commitment Period, provided that the conditions
specified herein (including that no Event of Default has occurred and is
continuing) have been satisfied or waived in accordance with the terms
hereof, each Lessor Party shall deposit with Agent, by wire transfer to
Agent's account number 3846-9701 at Citibank, N.A., 399 Park Avenue, New
York, New York 10043 (reference: Southland), the following amounts by 10:00
AM Eastern Time:
(i) the product of the Lessor Party's Tranche A Percentage
multiplied by all amounts then payable with respect to Software Equipment;
plus
(ii) the product of the Lessor Party's Tranche A Percentage
multiplied by 86% multiplied by all amounts then payable with respect to all
Hardware Equipment; plus
(iii) the product of the Lessor Party's Tranche B Percentage
multiplied by 14% multiplied by all amounts then payable with respect to all
Hardware Equipment.
After Agent's receipt of the funds described above from the Lessor Parties
and upon satisfaction of the conditions specified herein (including that no
Event of Default has occurred and is continuing), Agent shall remit to the
vendor or, at the request of Lessee, shall wire transfer directly to the
Lessee amounts payable with respect to the Equipment covered by the
Individual Leasing Records and Lessee's report. All wire payments to be
made by Agent to Lessee pursuant to this Section 3 shall be paid in
accordance with funding instructions received from Lessee which shall be
included with each Individual Leasing Record. Amounts payable with respect
to Equipment shall equal the vendor's invoice for such Equipment plus
delivery costs and cost of additions (in each case, as reflected in the
Individual Leasing Records and Lessee's report), provided that the total
amount paid by Agent on behalf of the Lessor Parties or reimbursed to the
Lessee shall not exceed the Acquisition Cost of the Equipment and provided
that Agent shall have no obligation to pay any amounts with respect to the
Equipment covered by the Individual Leasing Records which have not been
received from the Lessor Parties but all such Equipment shall be fully
subject to the terms and conditions of this Master Leasing Agreement.
(d) The failure of any Lessor Party to deposit with Agent the amount
described in Subsection 3(c) on the first Business Day of each calendar
quarter during the Commitment Period shall not relieve any other Lessor
Party of its obligations hereunder to make the amounts described in
Subsection 3(c) available to Agent on such date. In the event the
conditions precedent to disbursements to vendors (or reimbursements to
Lessee) are not fulfilled or duly waived in
<PAGE>
accordance with Subsection 23(j) as of the applicable funding date, Agent
shall promptly return, by wire transfer, the amount deposited under
Subsection 3(c) by each Lessor Party to such Lessor Party.
(e) Unless Agent has been notified by any Lessor Party prior to the
first Business Day of a calendar quarter during the Commitment Period that
such Lessor Party does not intend to make available to Agent the amount
described in Subsection 3(c) on such first Business Day, Agent may assume
that the Lessor Party has made such amount available to Agent on such
Business Day, and Agent in its sole discretion may, but shall not be
obligated to, make available to Lessee's vendors or to Lessee, as the case
may be, a corresponding amount on such Business Day. If the corresponding
amount is not in fact made available to Agent by the Lessor Party on or
prior to such Business Day, the Lessor Party agrees to pay and Lessee agrees
to repay severally to Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date the amount is
made available to Lessee or its vendors until the date the amount is paid or
repaid to Agent, at (i) in the case of Lessee, the interest rate applicable
to Tranche A Rent or Tranche B Rent as applicable on such Business Day and
(ii) in the case of the Lessor Party, the Federal Funds Rate. If the Lessor
Party shall pay to Agent such corresponding amount, such amount so paid
shall constitute the Lessor Party's advances to be made on such first
Business Day, and if both the Lessor Party and Lessee shall have paid and
repaid such corresponding amount, Agent shall promptly return to Lessee such
corresponding amount in same day funds. Nothing in this Subsection 3(e)
shall be deemed to relieve any Lessor Party of its obligation hereunder to
advance funds to Agent on the first Business Day of each calendar quarter
during the Commitment Period in accordance with Subsection 3(c).
4. LEASE TERM. The lease hereunder of Equipment shall be effective
from the first day of the calendar quarter after which the Equipment was
delivered to and accepted by Lessee and the Individual Leasing Record shall
be dated such date (the "EFFECTIVE DATE"). The lease term for each unit of
Equipment shall be for a period beginning with the Effective Date and ending
upon the expiration of the Non-Cancelable Term. At the end of the Non-
Cancelable Term and thereafter, the lease term shall be extended from semi-
annual period to semi-annual period thereafter until terminated, solely as
provided in Sections 10, 11, 14, 15 or 16 hereof. Notwithstanding the
foregoing, the provisions of Section 9 and the first sentence of Section 11
of this Master Leasing Agreement shall apply as among Agent, the Lessor
Parties and Lessee with respect to any Equipment from the time the Equipment
is ordered by Agent pursuant to a request from Lessee.
5. RENT. (a) Lessee shall pay to Agent Rent and the Facility Fee
quarterly in arrears on the 25th day of the third month in the current
calendar quarter. If Agent shall not receive payment of Rent or the
Facility Fee when due hereunder, Lessee shall pay a late payment charge to
Agent, on behalf of the Lessor Parties, on such late payment at a rate equal
to the Tranche B Percentage Rental Factor (as provided in Subsection
1(ii)(3)) plus 2% per annum (but in no event shall such rate be greater than
that rate permitted by applicable law) for the period during which such late
payment remains due and unpaid. Lessee shall pay all amounts due to Agent,
on behalf of the Lessor Parties, hereunder as one payment each quarter.
Invoices from Agent shall be rendered within a reasonable period of time
after the Rent and the Facility Fee can be determined. Such invoices shall
cover the computation of Rent and the Facility Fee and other payments due
hereunder for the calendar quarter, adjustments to the preceding calendar
quarter's Rent resulting from commencement or termination of the lease of
any Equipment during such calendar quarter and other appropriate items, if
any. All payments of Rent and the Facility Fee and all other payments made
by Lessee to Agent pursuant to this Master Leasing Agreement shall be paid
to Agent, on behalf of the Lessor Parties, in lawful money of the United
States in immediately available funds by wire transfer to Agent's Account
No. 3846-9701 at Citibank, N.A., 399 Park Avenue, New York, New York 10043.
If the date for the payment or determination of Rent and the Facility Fee
shall not occur on a day when banks in New
<PAGE>
York, New York are generally open for business ("BUSINESS DAY"), such
payment shall be due and such determination shall be made on the immediately
preceding Business Day.
(b) All payments in respect of Rent and Facility Fees payable
pursuant to this Section 5 shall be paid by Agent to the Lessor Parties one
(1) Business Day after receipt of such amounts from Lessee and shall be
allocated among the Lessor Parties entitled thereto as follows:
(i) an amount equal to the sum of (A) 86% of that portion of
the Rent payment which is paid in respect of the Facility Fee and the
Quarterly Amortization Figures for Hardware Equipment and 100% of that
portion of the Rent payment which is paid in respect of the Quarterly
Amortization Figures for Software Equipment plus (B) all Tranche A Rent
included in the Rent payment and all late fees or charges in respect of
Tranche A Rent shall be allocated among the Lessor Parties as are entitled
thereto, in proportion to their respective Tranche A Percentages; and
(ii) an amount equal to the sum of (A) 14% of that portion of
the Rent payment which is paid in respect of Quarterly Amortization Figures
for Hardware Equipment and the Facility Fee plus (B) all Tranche B Rent
included in the Rent payment and all late fees or charges in respect of
Tranche B Rent shall be allocated among the Lessor Parties as are entitled
thereto, in proportion to their respective Tranche B Percentages, provided
that (1) until the Termination Notice Date (or, if notice of termination is
delivered on the Termination Notice Date in accordance with Section 10,
until the expiration of the Non-Cancelable Term and the application by Agent
of the sale proceeds of the Equipment), all Lessee payments received by
Agent in respect of Quarterly Amortization Figures which are otherwise
allocable under this Section 5(b)(ii) to Lessor Parties in accordance with
their Tranche B Percentages shall be retained by Agent in escrow in a
separate account at Citibank, N.A. designated for that purpose and (2) if no
notice of termination is delivered on the Termination Notice Date, the
Tranche B Escrow Amount then held by Agent shall be allocated among the
Lessor Parties in proportion to their respective Tranche B Percentages.
(c) The Lessor Parties hereby agree that Agent shall have the right
to invest the Tranche B Escrow Amount in Permitted Investments. Agent shall
pay all interest earned by the Tranche B Escrow Amount to CBL quarterly to
reimburse CBL for amounts paid to the other Lessor Parties holding Tranche B
Commitments pursuant to any letter agreement related thereto.
(d) All payments due to Agent from Lessee under this Master Leasing
Agreement shall be paid to Agent by 11:00 AM Eastern Time via wire transfer
on the date due. Any such payments received by Agent after 11:00 AM Eastern
Time shall be treated as having been received by Agent on the next
succeeding Business Day.
6. USE OF EQUIPMENT. (a) Agent, the Lessor Parties and Lessee
hereby acknowledge and agree that the Equipment leased hereunder shall at
all times be the sole and exclusive property of Agent as agent for the
Lessor Parties (subject to the rights of the Lessee's licensors, contract
vendors, co-owners and developers of the Software Equipment as of the date
such Software Equipment is acquired for lease hereunder), and Lessee shall
have no right, title or property therein but only the right to use the same
as Lessee as herein provided. So long as Lessee is not in default in any
obligation to Agent or any Lessor Party relating to this Master Leasing
Agreement, Lessee may use the Equipment in the regular course of its
business or the business of any subsidiary, affiliate, franchisee or
licensee of Lessee and may permit others to use same for any lawful purpose.
Such use shall be confined to the United States. Lessee shall promptly and
duly execute, deliver, file and record all such documents, statements,
filings and registrations, and take such further action as Agent
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<PAGE>
shall from time to time reasonably request in order to establish, perfect
and maintain Agent's title to and interest in the Equipment as against
Lessee or any third party. Lessee shall provide Agent with notice in
writing of any change in the principal location of any unit of Equipment
from one taxing jurisdiction to another within fifteen (15) days of any such
change, of any change in the primary business address of Lessee in any
particular jurisdiction or of any change in the legal name or business
structure of the Lessee. Notwithstanding the foregoing, no such changes of
location shall be undertaken unless and until all legal requirements shall
have been met or obtained. Upon Agent's request, Lessee shall advise Agent
in writing where all Equipment leased hereunder as of such date is
principally located, or with respect to Software Equipment, in use. Lessee
shall not use any Equipment or allow the same to be used for any unlawful
purpose. Lessee shall use every reasonable precaution to prevent loss or
damage to Equipment and to prevent injury to third persons or property of
third persons. Lessee shall cooperate fully with Agent and all insurance
companies providing insurance under Section 8 hereof in the investigation
and defense of any claims and suits. Lessee shall substantially comply and
shall cause all persons operating Equipment to substantially comply with all
insurance policy conditions and shall comply with all applicable statutes,
decrees, ordinances and regulations regarding acquiring, titling,
registering, leasing, insuring, using, operating, and disposing of
Equipment, including all local, state and federal environmental laws and
regulations of whatever kind which relate in any way to the use of the
Equipment, and the licensing of operators thereof except where the failure
to so comply would not have a material adverse impact on Agent or any Lessor
Party. Agent, upon direction from the Requisite Lessor Parties, or any
authorized representative of Agent, upon direction from the Requisite Lessor
Parties, may during reasonable business hours from time to time inspect
Equipment wherever the same be located. If necessary or advisable under
applicable law, Lessee shall attach to each unit of Hardware Equipment in a
place designated by Agent (or if no such place has been designated, in a
prominent place), a sign, stencil, plaque, or legend disclosing the
ownership of Agent on behalf of the Lessor Parties and the interest of any
mortgagee or assignee in such Equipment.
(b) Agent shall have the right to make any security filings
necessary or desirable to protect the interests of Agent and the Lessor
Parties in the Equipment, including, but not limited to, UCC personal
property filings, and shall have the right to make UCC personal property
filings without the Lessee's signature where authorized by law. Lessee
shall cooperate with Agent and shall pay all costs and expenses incurred by
Agent in completing and making all such filings.
(c) LESSEE SHALL NOT, WITHOUT PRIOR WRITTEN CONSENT OF AGENT ,
SUBLEASE ANY EQUIPMENT NOR PERMIT, OR SUFFER TO EXIST, ANY LIEN OR
ENCUMBRANCE OTHER THAN THE RIGHTS OF THE LESSEE'S LICENSORS, CONTRACT
VENDORS, CO-OWNERS AND DEVELOPERS OF THE SOFTWARE EQUIPMENT AS OF THE DATE
SUCH SOFTWARE EQUIPMENT IS ACQUIRED FOR LEASE HEREUNDER AND THOSE PLACED
THEREON BY AGENT OR BY PERSONS CLAIMING ONLY AGAINST AGENT AND NOT AGAINST
LESSEE, NOR SHALL LESSEE ASSIGN ANY RIGHT OR INTEREST HEREIN OR IN ANY
EQUIPMENT, PROVIDED, HOWEVER, THAT LESSEE MAY SUBLET EQUIPMENT TO ANY
SUBSIDIARY, AFFILIATE, FRANCHISEE, LICENSEE, OFFICER OR EMPLOYEE OF LESSEE,
OR TO ANY CONTRACTOR FOR USE IN PERFORMING WORK FOR LESSEE, PROVIDED THAT
SUCH SUBLETTING SHALL IN NO WAY AFFECT THE OBLIGATIONS OF LESSEE HEREUNDER,
OR THE RIGHTS OF AGENT OR ANY LESSOR PARTY HEREUNDER. THE RIGHTS OF THE
LESSEE TO ASSIGN ITS INTEREST AS LESSEE HEREUNDER, AS DESCRIBED IN SECTION
303 OF THE LEASING ARTICLE OF THE UCC, ARE HEREBY WAIVED BY LESSEE.
7. IMPROVEMENTS AND REPAIR OF EQUIPMENT. (a) Lessee shall pay all
costs, expenses, fees and charges incurred in connection with the use and
operation of Equipment during the lease thereof.
1
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Lessee shall at all times, at its own expense, keep Equipment in good
condition and repair, and in good and efficient working order, consistent
with prudent industry practice (but in any event to the same extent that the
Lessee would, in the prudent management of its properties, maintain similar
equipment if owned or leased by the Lessee if such standard is a higher
standard than prudent industry practice) reasonable wear and tear only
excepted. This provision shall apply regardless of the cause of damage and
all risks with respect thereto are assumed by Lessee. At its own expense,
Lessee shall supply and replace all parts to the Hardware Equipment and
shall supply the necessary power and other items required in the operation
of the Equipment. At its own expense, Lessee shall make all additions,
modifications and improvements to each unit of Equipment required by
applicable law, ordinance or regulation and, upon termination, Lessee shall
correct or cause to be corrected, all known errors or defects (other than
those defects which are inherently characteristic and common to all such
Equipment and which cannot reasonably be corrected by Lessee) in the
Equipment. In addition, all user and technical documentation, operating
logs, error records, and other materials reasonably necessary to maintain
the integrity and performance of the Equipment shall be kept current by
Lessee. Updated backup copies of the Software Equipment shall be made by
Lessee on a regular basis and stored in a secure manner in accordance with
prudent industry practices. The Lessee, upon request by Agent, shall
provide Agent with a written description of such backup procedures and a
list of all storage locations. The Lessee shall replace all parts of the
Hardware Equipment that become worn out, lost, stolen, destroyed, damaged
beyond repair or otherwise rendered permanently unfit for use with
replacement parts each of which shall meet the original performance
specifications and maintain the functionality of the part being replaced.
In addition, Lessee shall, at its sole expense, be responsible for the
removal, de-installation, crating, wrapping, labeling, transportation,
storage, insurance, shipping and all other expenses of conveyance including,
but not limited to, licensing fees and/or patent fees, to a third party in
accordance with any recommendations of any manufacturer or vendor with
respect to similar new equipment if any lease of Equipment is terminated and
the Equipment is not thereupon purchased by the Lessee. Such removal and
de-installation of the Hardware Equipment from a facility shall occur
without liability to Agent, to any Lessor Party or to a third party owner or
mortgagee of such facility, or to any person claiming through or under
Lessee, for damage or loss caused by such removal or de-installation. If the
lease of Hardware Equipment is terminated and such Equipment is not
thereupon purchased by the Lessee, the Hardware Equipment shall be
completely operational and fully functional. Upon termination, the Hardware
Equipment shall be free of any marks, scratches or dents and shall be
repainted, refurbished and refinished to a like new condition, reasonable
wear and tear only excepted. Lessee shall be responsible for the delivery
of such Equipment to any location in the continental United States, as
directed by Agent. If the lease of such Equipment is terminated and such
Equipment is not thereupon purchased by the Lessee, Lessee shall also be
responsible for the re-installation of such Equipment, in a manner
consistent with the original installation by Lessee at Lessee's premises, at
the premises of a third party purchaser which shall include, but not be
limited to, the reasonable cabling, wiring and restoring of such Equipment
and all components thereof to a condition such that such Equipment will meet
all performance specifications and have a level of functionality so as to be
a reasonable substitute for a new unit of the same type of equipment. All
operating manuals, plans, specifications, operating logs, maintenance and
error records, warranties, user and technical documentation shall be
provided (in English) in the event of any termination and sale to a third
party, and the Equipment must be provided to such third party in its
original packaging or its equivalent, with instructions and warranties (in
English). All improvements and additions to any of the Equipment shall
become and remain the property of Agent (except for the rights of the
Lessee's licensors, contract vendors, co-owners and developers of the
Software Equipment), except that any improvements or additions for which the
Lessor Parties have not made a payment under Section 3 of this Master
Leasing Agreement, which constitute severable improvements and which when
1
<PAGE>
attached to or removed from the Equipment will not diminish the value or
usefulness of such Equipment, shall become and remain the property of
Lessee.
(b) In addition, with respect to the Software Equipment, if the
lease of such Equipment is terminated and such Equipment is not thereupon
purchased by Lessee, the following conditions, to be met at the sole cost
and expense of the Lessee, shall also apply to such Equipment:
(i) The Software Equipment shall be completely operational
and fully functional, and capable of working on then available computer
hardware without degradation of performance;
(ii) The Software Equipment shall be certified free of
latent, embedded or consistent errors and shall have been tested for the
absence of software viruses no earlier than thirty (30) days prior to
termination;
(iii) The Software Equipment shall be upgraded to the latest
generation of its product line;
(iv) The sale of the Software Equipment shall be to a
qualified independent third party end user utilizing the Software Equipment
for its intended use and not to the co-developer of the Software Equipment
or an affiliate thereof unless such co-developer shall agree to pay fair
market value, as determined by an independent appraiser approved by the
Agent and Lessee, assuming an arm's length transaction with sale to a bona
fide third party end user. All fees and expenses of the appraiser shall be
borne by Lessee;
(v) Lessee shall be responsible for testing and end user
training;
(vi) The completeness of documentation, the integrity of the
Software Equipment and the requirement of meeting performance specifications
shall be certified by an independent Software Equipment consultant
satisfactory to the Agent, at Lessee's expense; and
(vii) Such other terms and conditions as may be necessary and
advisable to render the Software Equipment serviceable on a commercially
reasonable basis to an end user, as advised by Agent's equipment management
group, and subject to the mutual agreement of the Requisite Lessor Parties.
8. INSURANCE. Lessee shall, at its own expense, with respect to
Equipment maintain insurance insuring the respective interests of Agent, the
Lessor Parties and Lessee and covering (i) physical damage to Equipment and
(ii) liability for personal injury, death and property damage resulting from
the operation, ownership, use and possession of Equipment. Policies
covering physical damage risks shall be in an amount equal to the
Unamortized Value of the Hardware Equipment or in an amount equal to
$50,000,000, whichever is less. Lessee shall maintain third-party liability
insurance covering personal injury, death and property damage liability as a
result of one accident in the same amount as that insurance coverage
maintained by Lessee with respect to Lessee's owned equipment of the same
types as the Equipment leased hereunder, but in no event shall such coverage
be less than $25,000,000. All policies covering physical damages risks and
all third party liability insurance required hereunder shall be subject to
the same self-insured retention or deductible amounts as are applicable to
Lessee's owned equipment of the same types as the Equipment leased
hereunder; provided, however, that if any such self-insured retention amount
is greater than $1,000,000 (or $2,000,000 with respect to earthquake and
coastal winds damage coverage only), Lessee may self-insure only such
portions of the foregoing coverage as Agent and the Requisite Lessor Parties
may
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approve in writing. Agent, on behalf of the Lessor Parties, shall be named
as an additional insured as its interest may appear and loss payee in all
insurance policies required under this Section. All such policies shall
provide for at least thirty (30) days' written notice to Agent of any
cancellation or material alteration of such policies. Lessee shall furnish
Agent certificates or other evidence satisfactory to Agent of compliance by
Lessee with the provisions hereof, but neither Agent nor any Lessor Party
shall be under any duty to examine such certificates or to advise Lessee in
the event its insurance is not in compliance herewith. Lessee covenants that
it will not use or operate or permit the use or operation of any Equipment
at any time when the insurance required by this Section is not in force with
respect to such Equipment. Lessee's obligation to maintain insurance with
respect to any Equipment shall commence on the actual day of delivery of the
Equipment and shall continue until the Equipment is sold or the lease of the
Equipment terminates, whichever is sooner.
9. INDEMNITY.
(a) Lessee agrees to indemnify and hold harmless Agent, each Lessor
Party, any employee of Agent or any Lessor Party and any parent, subsidiary
or affiliate of Agent or any Lessor Party (each an "INDEMNITEE") against any
and all claims, demands and liabilities of whatsoever nature (including all
negligence, tort and strict liability claims), judgments, suits and all
legal proceedings, and all costs and expenses (including litigation expenses
and attorney's fees) relating to or in any way arising out of:
(i) the selection, manufacture, purchase, acceptance,
ownership, ordering, delivery, non-delivery, acquisition, making of payments
(by electronic transfer, check or other means), rejection, installation,
possession, leasing, titling, registration, re-registration, custody by
Lessee of title and registration documents, use, non-use, misuse, operation,
condition, servicing, maintenance, transportation, repair, improvement,
alteration, replacement, storage, control or disposition of Equipment leased
or requested by Lessee to be leased hereunder, except to the extent that
such costs are included in the Acquisition Cost of such Equipment within the
dollar limit provided in Section 2 hereof (or within any change of such
limit agreed to in writing by Agent, each Lessor Party and Lessee) and
except for any general administrative or overhead expenses of Agent;
(ii) all recording and filing fees, stamp taxes and like
expenses with respect to security filings on the Equipment incurred by Agent
or any Lessor Party;
(iii) all costs, charges, damages or expenses for royalties
and claims and expenses arising out of or necessitated by the assertion of
any claim or demand based upon any infringement or alleged infringement of
any patent or other right, by or in respect of any Equipment provided,
however, that Agent will to the extent permissible make available to Lessee,
Agent's rights under any similar indemnification arising by contract or
operation of law from the manufacturer of Equipment;
(iv) all federal, state, county, municipal, foreign or other
fees and taxes of whatsoever nature, including but not limited to license,
qualification, franchise, sales, use, gross receipts, ad valorem, business,
property (real or personal), excise and occupation fees and taxes, and
penalties and interest thereon, whether assessed, levied against or payable
by Agent or any Lessor Party or otherwise (unless such penalties or interest
are due solely to the gross negligence or willful misconduct of Agent or
any Lessor Party in failing to make certain tax filings and payments for
which Agent or the Lessor Party has reasonable notice and sufficient
information from Lessee), with respect to Equipment or the acquisition,
purchase, sale, rental, use, operation, control, ownership or disposition of
Equipment or
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measured in any way by the value thereof or by the business of, investment
in, or ownership by Agent or any Lessor Party with respect thereto,
excepting only net income taxes on the net income of Agent or a Lessor Party
determined substantially in the same manner as net income is presently
determined under the Federal Internal Revenue Code, and any excise, sales or
use taxes included in the Acquisition Cost of the Equipment;
(v) any action or suit for collection or enforcement of this
Master Leasing Agreement by Agent or a Lessor Party, any violation, or
alleged violation, by Lessee of this Master Leasing Agreement or of any
contracts or agreements to which Lessee is a party or by which it is bound,
or any laws, rules, regulations, orders, writs, injunctions, decrees,
consents, approvals, exemptions, authorizations, licenses and withholdings
of objection, of any governmental or public body or authority and all other
requirements having the force of law applicable at any time to Equipment or
any action or transaction by Lessee with respect thereto or pursuant to this
Master Leasing Agreement, including, but not limited to, any costs, expenses
or liabilities arising from the violation of any local, state or federal
environmental laws or regulations of whatever kind which relate in any way
to the use of the Equipment;
(vi) tort claims of any kind (whether based on strict
liability or otherwise) including claims for injury to or death of persons
(including Lessee's employees) and for damage to property related directly
or indirectly in any way to the ownership, maintenance, use and operation of
any Equipment; or
(vii) claims related in any way to the acknowledgment by Agent
and the Lessor Parties of the rights of Lessee's licensors, contract
vendors, co-owners and developers of the Software Equipment.
(b) Lessee shall forthwith upon demand reimburse each Indemnitee for
any sum or sums expended with respect to any of the foregoing, or shall pay
such amounts directly upon request from Agent. Upon satisfaction of
Lessee's obligations to indemnify an Indemnitee pursuant to Section 9(a),
Lessee shall be subrogated to the rights of the Indemnitee in the affected
transaction and shall have a right to determine the settlement of claims
therein so long as such settlement does not conflict with the interests of
any Indemnitee. The foregoing indemnity in this Section shall survive the
expiration or earlier termination of this Master Leasing Agreement or any
lease of Equipment hereunder.
(c) If any claim is made or action commenced against Agent or any
Lessor Party for death, personal injury or property damage resulting from
the ownership, maintenance, use or operation of any Equipment, the
applicable Lessor Party shall promptly notify Agent (and thereupon, Agent
shall promptly notify Lessee thereof) and forward to Agent and Lessee a copy
of every demand, notice, summons or other process received in connection
therewith. Lessee hereby agrees that it shall fully defend and indemnify
each Indemnitee and handle all aspects of any such claim or action. Lessee
further agrees to keep Agent reasonably informed as to the progress of any
such claim or action. Agent, on behalf of the Agent and the Lessor Parties,
and at Lessee's expense, shall have the right to arrange for a separate
defense against any such claim or action if, in Agent's or the Requisite
Lessor Parties' reasonable discretion, the Agent or the Requisite Lessor
Parties believe that a separate defense would be in their best interests.
In addition, each Indemnitee shall have the right to arrange for its own
defense against any such claim or action if, in such Indemnitee's reasonable
discretion, such Indemnitee believes a separate defense would be in its best
interests provided, however, that any such defense shall be at such
Indemnitee's sole expense.
10. SALE OR DISPOSITION OF EQUIPMENT; ADJUSTMENT OF RENT. (a)
After the expiration of the Non-Cancelable Term and on each semi-annual
anniversary date thereafter, if the Equipment has
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become no longer useful in Lessee's business, and provided that Lessee is
not in default hereunder, Lessee may arrange for the termination of the
lease of the Equipment in the manner and with the consequences hereinafter
set forth. Lessee shall deliver written notice to Agent one (1) year and
one (1) day prior to any termination which is to take place immediately upon
the expiration of the Non-Cancelable Term and shall deliver written notice
to Agent six (6) months prior to any other termination under this Section
10, signed by an authorized officer of Lessee, identifying the proposed sale
price and the terms of the proposed sale. Any such notice shall constitute
a certificate of Lessee that the Equipment has become no longer useful in
Lessee's business. After delivery of any such notice, Lessee, on behalf of
and in cooperation with Agent, shall proceed directly with negotiating the
sale or disposition of the Equipment to a third party unrelated to Agent,
any Lessor Party or Lessee and Agent shall execute and transmit to Lessee
all papers needed to effectuate such sale or disposition. In arranging such
sale or disposition of the Equipment pursuant to this Section 10, Lessee
shall use its best efforts to obtain sale proceeds not less than the
Equipment's retail fair market value, delivered to a single, bonafide
purchaser/user unrelated to Lessee, intending to use the Equipment for its
original function. If the Lessee and the Agent cannot agree upon such fair
market value or values, they shall appoint a qualified independent appraiser
to determine the amount and his decision shall be final; and, if the Lessee
and the Agent are unable to agree on a single qualified independent
appraiser, each shall appoint one qualified independent appraiser and the
two so appointed shall, if they are unable to agree on the fair market
value, jointly name a third, in which event the decisions of a majority of
the appraisers as to the fair market value shall be final. All fees and
expenses of the appraiser(s) shall be borne by Lessee. If the proposed sale
price specified in such notice is less than the Unguaranteed Residual of the
Equipment, Lessee shall not proceed to sell the Equipment until it has
received the consent of Agent and each Lessor Party holding a Tranche B
Commitment, which consent shall not be unreasonably withheld.
Lessee shall cause the sale proceeds of the Equipment to be transmitted
promptly to Agent on behalf of the Lessor Parties. The lease of the
Equipment and Lessee's obligation to pay Rent shall continue until such sale
proceeds and additional Rent, if any, are received by Agent and shall
thereupon terminate. If the sale proceeds of the Equipment are less than
the Unamortized Value of the Equipment at the time of the termination of the
lease of the Equipment hereunder, Lessee shall forthwith pay as additional
Rent an amount equal to such deficiency. If the sale proceeds of the
Equipment received by Agent are more than the Unamortized Value of the
Equipment at the time of the termination of the lease of the Equipment
hereunder, Agent, in consideration of Lessee's agreement hereunder to
repair, maintain and insure the Equipment, shall forthwith pay to Lessee or,
at the option of Lessee, credit Lessee's account in an amount equal to the
difference between said sale proceeds and said Unamortized Value. If for
any calendar quarter funds are payable by Agent to Lessee under this
Section, the amount so payable may be deducted by Lessee from funds payable
during the same calendar quarter by Lessee for Rent of Equipment.
Notwithstanding the foregoing, if the sale proceeds of the Equipment
are less than the Unamortized Value of the Equipment but equal to or greater
than the Unguaranteed Residual of the Equipment, Lessee shall at the same
time pay Agent, on behalf of the Lessor Parties, a sum equal to the
difference between the amount of the sale proceeds and the Unamortized
Value. If the sale proceeds of the Equipment plus Contingent Rent are less
than the Unguaranteed Residual of the Equipment Lessee shall at the same
time pay Agent, on behalf of the Lessor Parties, a sum equal to the
Unamortized Value of the Equipment less the Unguaranteed Residual of the
Equipment. Any sale proceeds of Equipment in excess of the Unamortized
Value of the Equipment after the expiration of the lease terms of all
Equipment will be for the account of Lessee.
The term "sale proceeds" for purposes of this Master Leasing Agreement
shall mean the gross purchase price paid by the purchaser, without charge or
reduction in any manner on account of any
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costs or expenses of sale, removal, transportation, repair, storage,
delivery or similar costs or expenses, and all of such costs and expenses
(if any) shall be borne by Lessee.
(b) If Lessee shall, pursuant to the provisions of Section 16(a)
hereof, exercise an option to purchase the Equipment, such purchase shall be
subject to the specific terms and conditions set forth in the second
paragraph of Subsection 10(a) above and the term "sale proceeds" used in
that paragraph shall be deemed to refer to the purchase price of the
Equipment paid by Lessee.
(c) If Lessee chooses to terminate the lease of the Equipment
pursuant to this Section 10, the Lessee shall terminate the lease of all
Equipment and shall dispose of the Equipment and all related equipment
constituting an integrated system at each of the locations at which the
Equipment has been installed. In addition, if Lessee shall terminate the
lease of any Software Equipment pursuant to the terms and provisions of
Section 10 hereof, Lessee shall be responsible to obtain the prior written
consent of the appropriate licensors, contract vendors, co-owners and
developers of the Software Equipment.
(d) All sale proceeds or Contingent Rent received by Agent pursuant
to this Section 10 (in an amount no greater than the Unamortized Value of
all Equipment leased hereunder) shall be paid by Agent to the Lessor Parties
one (1) Business Day after receipt of such amounts, and shall be allocated
as follows:
(i) FIRST, to pay the Unamortized Value of the Equipment in
an amount up to the Tranche B Value, which payment shall be allocated among
the Lessor Parties in accordance with their respective Tranche B
Percentages; and
(ii) SECOND, to pay the remaining Unamortized Value of the
Equipment, which payment shall be allocated among the Lessor Parties in
accordance with their respective Tranche A Percentages.
Any amounts received by Agent from Lessee as additional Rent pursuant
to the second and third paragraphs of Subsection 10(a) shall be allocated
among the Lessor Parties in accordance with their respective Tranche A
Percentages.
(e) In the event the lease of the Equipment is terminated
immediately upon expiration of the Non-Cancelable Term in accordance with
this Section 10 and the payments received by Agent from Lessee when added to
the sales proceeds due to the Lessor Parties pursuant to Subsection
10(d)(ii) above are not sufficient to pay in full the Tranche A Value, Agent
shall pay the Tranche B Escrow Amount to the Lessor Parties in accordance
with their respective Tranche A Percentages until the Tranche A Value is
paid in full. In the event Lessee does not deliver a notice of termination
on the Termination Notice Date, Agent shall, on the first Business Day
following the Termination Notice Date, pay the Tranche B Escrow Amount to
the Lessor Parties in accordance with their respective Tranche B
Percentages.
11. LOSS OR DESTRUCTION OF THE EQUIPMENT. Lessee hereby assumes all
risks of loss or damage to the Equipment howsoever the same may be caused.
Lessee shall notify Agent immediately of any loss or of any damage to any
Equipment in an amount in excess of $20,000 for any single occurrence and
shall keep Agent informed of all developments and correspondence regarding
insurance rights and other rights and liabilities arising out of the loss or
damage. In the event of total destruction of any of the Equipment or damage
beyond repair or the commandeering, conversion or other such loss of any of
the Equipment, or if the use thereof by Lessee in its regular course of
business is prevented by the act of any third person or persons, or any
governmental instrumentality,
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for a period exceeding ninety (90) days, or if any of the Equipment is
attached (other than on a claim against Agent or any Lessor Party but not
Lessee) or is seriously damaged and the attachment is not removed or the
Equipment not repaired, as the case may be, in a period of ninety (90) days,
or if the Equipment is terminated in any manner other than pursuant to the
terms and conditions set forth Sections 7 and 10 hereof, or, if the lease of
any unit of Equipment is terminated without terminating the lease of all
Equipment, or if Lessee does not lease complete integrated systems of
Equipment hereunder which are located and installed at a minimum of 4,000
locations in the United States, then in any such event:
(a) Lessee shall promptly notify Agent in writing of such fact;
(b) Within ten (10) days thereafter Lessee shall pay to Agent an
amount equal to the Unamortized Value of such Equipment at the time of
payment, and such payment shall be allocated by Agent among the Lessor
Parties in accordance with Subsection 10(d);
(c) The lease of such Equipment shall continue until such payment
has been received by Agent and shall thereupon terminate; and
(d) Upon such payment all of Agent's and the Lessor Parties' title
to and rights in such Equipment and any insurance thereon shall
automatically pass to Lessee or its designee.
Notwithstanding the foregoing, only in the event of total destruction or
damage beyond repair of some or all of the Equipment at a particular store
location, Lessee may, at its option and upon notice to Agent within thirty
(30) days (or, if the store location at which such unit of Equipment is
installed suffers material damage or destruction, within one hundred twenty
(120) days) of such destruction or damage, substitute a unit of equipment
for the destroyed or damaged Equipment provided that such substitute
equipment is the same kind of equipment and is functionally equivalent to or
better than the damaged or destroyed Equipment and has a fair market value
equal to or greater than either the Unamortized Value or the fair market
value of the damaged or destroyed unit of Equipment immediately prior to its
damage or destruction, whichever is greater. Thereafter, such substituted
unit of equipment shall be subject to the terms and conditions of this
Master Leasing Agreement to the same extent as the damaged or destroyed unit
immediately prior to its damage or destruction. Lessee shall provide Agent
with information regarding the substituted unit of Equipment as requested by
Agent.
12. SURRENDER OF EQUIPMENT. Upon the final termination of the lease
as to any Equipment (other than a termination as provided for in Section 10,
11, 14, 15, or 16), Lessee shall surrender such Equipment to Agent at
Lessee's property where the Equipment is then located or at such other place
as may be agreed upon. Following such surrender, Agent shall effect, or
cause to be effected, a sale of such Equipment to a third party. The sales
proceeds from any such sale shall be treated in the same manner as the sale
proceeds from a sale made pursuant to the terms and provisions of Section 10
hereof. Lessee shall cooperate with Agent in effecting removal of the
Equipment from Lessee's property.
13. EVENTS OF DEFAULT. The following events of default by Lessee
("EVENTS OF DEFAULT") shall give rise to rights on the part of Agent and the
Lessor Parties described in Section 14:
(a) Default in the payment of Rent, Facility Fees or any other
payment due from Lessee hereunder beyond ten (10) days from the date the
Rent, Facility Fees or any other payment is due; or
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(b) Default in the covenant of Lessee in Section 8 hereof as to non-
use of any Equipment as to which the required liability insurance is not in
force; or
(c) Default in the payment or performance of any other liability,
obligation, or covenant, condition or agreement to be performed or observed
by Lessee hereunder or breaches of any representation or provision contained
herein or in any other document furnished to Agent or any Lessor Party in
connection herewith, and, if such default is curable, such failure or breach
shall continue unremedied for thirty (30) days after written notice to
Lessee sent by registered or certified mail by Agent or the Requisite Lessor
Parties; or
(d) The termination of existence, the termination of the business
of, or the making of an assignment for the benefit of creditors by, Lessee;
or
(e) The institution of bankruptcy, reorganization, liquidation or
receivership proceedings by or against Lessee and, if instituted against
Lessee, its consent thereto or the pendency of such proceedings for at least
sixty (60) days; or
(f) Lessee shall admit in writing its inability to pay its debts
generally when due; or
(g) Lessee shall create, incur, assume or suffer to exist any
mortgage, lien, pledge or other encumbrance or attachment of any kind
whatsoever (except for the rights of the Lessee's licensors, contract
vendors, co-owners or developers of the Software Equipment as of the date
such Software Equipment is acquired for lease hereunder) upon, affecting or
with respect to the Equipment with an Acquisition Cost of $100,000 or more
or this Master Leasing Agreement or any interests of Agent or any Lessor
Party hereunder; or
(h) Lessee shall violate any of the covenants set forth in Section
8.02(a) or Section 8.08 of the Credit Agreement; or
(i) There shall occur an Event of Default by Lessee under or in
connection with (and as defined in) the Credit Agreement, or any credit
facility that is a replacement or substitution for such facility, or there
shall occur a violation by Lessee of any of the Credit Agreement Covenants;
or
(j) Lessee shall suffer a material adverse change in its financial
or operating condition; or
(k) Any money judgment, arbitration award, writ or warrant of
attachment, or similar process involving in any case an amount in excess of
$5,000,000 shall be entered or filed against Lessee or any of its
subsidiaries or affiliates or any of their respective assets and shall
remain undischarged, unvacated, unbonded, or unstayed for a period of sixty
(60) days.
Lessee shall be obligated to provide Agent with written notice of any
Event of Default and of any event which, with notice, or the lapse of time,
or both, would constitute an Event of Default promptly upon Lessee becoming
aware of any such event.
14. RIGHTS UPON DEFAULT OF LESSEE; ALLOCATION OF PROCEEDS. (a)
Upon the occurrence of any of the Events of Default which have not been
waived by Agent pursuant to the provisions of Subsection 23(j) hereof, and
at any time thereafter, Agent shall at the request, or may with the consent,
of the Requisite Lessor Parties, with or without terminating the Master
Leasing Agreement, do one or more of the following:
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(i) Terminate the lease of any or all Equipment upon five (5) days'
written notice to Lessee sent by certified mail;
(ii) Whether or not any lease is terminated, take immediate
possession of any or all of the Equipment, including substituted parts,
accessories or equipment and/or other equipment or property of Agent or any
Lessor Party in the possession of Lessee, wherever situated and for such
purpose, enter upon any premises without liability for doing so;
(iii) Whether or not any action has been taken under Subsections 14
(i) or (ii) above, Agent may sell any Hardware Equipment (with or without
the concurrence or request of Lessee) and Agent shall retain all proceeds
from such sale for the benefit of the Lessor Parties. In addition, if the
sales proceeds (reduced by any legal costs or any costs or expenses of sale,
removal, transportation, repair, storage, delivery, or similar costs and
expenses) are less than the Unamortized Value of the Hardware Equipment
sold, Lessee shall pay to Agent any such shortfall;
(iv) Hold Lessee liable for the Unamortized Value of the Software
Equipment;
(v) Hold, use or lease any Hardware Equipment as Agent or the
Requisite Lessor Parties in their sole discretion may decide, and continue
to hold Lessee liable for any deficiency between the rent received by Agent
from others and the Rent payable hereunder for the balance of the term of
the lease of such Equipment;
(vi) After notice to Lessee of a default hereunder, hold, or
otherwise prohibit the use by Lessee, of any Software Equipment, as Agent or
the Requisite Lessor Parties in their sole discretion may decide, and
continue to hold Lessee liable for the Rent payable hereunder for the
balance of the term of the lease of such Software Equipment;
(vii) Require the Lessee to purchase, and the Lessee shall purchase,
all of the Equipment for a purchase price equal to the Unamortized Value of
such Equipment, plus all accrued and unpaid Rent and all other amounts due
hereunder;
(viii) Invoke and exercise any other remedy or remedies available to
Agent or any Lessor Party by law or in equity.
(b) No remedy referred to in this Section is intended to be
exclusive, but shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Agent or any Lessor Party at law
or in equity. No express or implied waiver by Agent or any Lessor Party of
any default shall constitute a waiver of any other default by Lessee or a
waiver of any rights of Agent or any Lessor Party.
(c) If after an Event of Default Lessee fails to deliver or converts
the Equipment or the Equipment is destroyed, Lessee shall be liable to
Agent, on behalf of the Lessor Parties, for all unpaid Rent to the date of
such failure to deliver, conversion or destruction of such Equipment plus
its Unamortized Value at the time and all loss and damages sustained and all
costs and expenses incurred by reason of the default. If after default
Lessee delivers Equipment to Agent or if Agent repossesses Equipment, Lessee
shall be liable for and Agent, on behalf of the Lessor Parties, may recover
from Lessee all unpaid Rent to the date of such delivery or repossession
plus all loss and damages sustained and all costs and expenses incurred by
reason of the default.
(d) After the occurrence and during the continuance of an Event of
Default and while the same is continuing, Agent shall apply all payments in
respect of Lessee's obligations under this Master
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Leasing Agreement (including without limitation sale proceeds) one (1)
Business Day after receipt in the following order:
(i) FIRST, to pay any reasonable expense reimbursements,
fees or indemnities then due to Agent from Lessee;
(ii) SECOND, to pay any indemnities then due to a Lessor
Party from Lessee or, if due to Agent on behalf of all Lessor Parties, on a
pro rata basis to the Lessor Parties;
(iii) THIRD, out of sales proceeds only, to pay Tranche B Rent
then due, provided that if sufficient funds are not available to fund all
payments then due in respect of Tranche B Rent, the then available funds
shall be allocated among the Lessor Parties in accordance with their Tranche
B Percentages;
(iv) FOURTH, out of sales proceeds only, to pay the
Unamortized Value of the Equipment in an amount up to the Tranche B Value,
which payment shall be allocated among the Lessor Parties in accordance with
their respective Tranche B Percentages;
(v) FIFTH, to pay Tranche A Rent then due, provided that if
sufficient funds are not available to fund all payments then due in respect
of Tranche A Rent, the then available funds shall be allocated among the
Lessor Parties in accordance with their Tranche A Percentages;
(vi) SIXTH, to pay the remaining Unamortized Value of the
Equipment, which payment shall be allocated among the Lessor Parties in
accordance with their respective Tranche A Percentages; and
(vii) SEVENTH, to the ratable payment of all Facility Fees and
other obligations of Lessee then due and payable hereunder.
15. EQUIPMENT TO BE AND REMAIN PERSONAL PROPERTY. (a) It is the
intention and understanding of Agent, the Lessor Parties and Lessee that all
Equipment shall be and at all times remain personal property. Lessee will
obtain and record such instruments and take such steps as may be necessary
to prevent any person from acquiring any rights in the Equipment paramount
to the rights of Agent and the Lessor Parties, by reason of such Equipment
being deemed to be real property. If, notwithstanding the intention of the
parties and the provisions of this Section 15, any person acquires or claims
to have acquired any rights in any Equipment paramount to the rights of
Agent or the Lessor Parties, by reason of such Equipment being deemed to be
real property, and such person seeks in any manner to interfere with the
continued quiet enjoyment of the Equipment by Lessee as contemplated by this
Master Leasing Agreement, then Lessee shall promptly notify Agent in writing
of such fact (unless the basis for such interference is waived or eliminated
to the satisfaction of the Agent within a period of ninety (90) days from
the date it is asserted) and Lessee shall within ninety (90) days after such
notice pay to Agent, on behalf of the Lessor Parties, an amount equal to the
Unamortized Value of such Equipment at the time of payment. The lease of
such Equipment shall continue until such payment has been received and shall
thereupon terminate; and upon such payment all of Agent's and the Lessor
Parties' title to and rights in such Equipment shall automatically pass to
Lessee or its designee.
(b) If Lessee chooses to terminate the lease of any Equipment
pursuant to this Section 15, the Lessee shall terminate the lease of all
Equipment and shall sell or purchase the Equipment and all related equipment
constituting an integrated system at each of the locations at which the
Equipment has been installed pursuant to the applicable provisions hereof.
In addition, if Lessee shall terminate
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the lease of any Software Equipment pursuant to this Section 15, the Lessee
shall be responsible to obtain the prior written consent of the appropriate
licensors, contract vendors, co-owners and developers of the Software
Equipment.
16. PURCHASE OF EQUIPMENT; EXTENDED TERM. (a) Upon the expiration
of the Non-Cancelable Term and semi-annually thereafter, upon sixty (60)
days' prior written notice to Agent, and provided that an Event of Default
has not occurred (and has not been waived pursuant to the provisions of
Subsection 23(j) hereof), Lessee may purchase all Equipment for its then
fair market value. The lease of such Equipment and Lessee's obligation to
pay Rent therefor shall continue until the purchase price and any other
amounts due from Lessee hereunder with respect to such Equipment have been
transmitted to Agent and shall thereupon terminate. If the Lessee and the
Agent cannot agree on the fair market value of any such Equipment, they
shall follow the appraisal procedures provided in Section 10. Any such
purchase of the Equipment shall be made pursuant to the specific terms and
conditions set forth in the second paragraph of Subsection 10(a) and of
Subsection 10(d) and the term "sales proceeds" used in the second paragraph
of Subsection 10(a) shall be deemed to refer to the purchase price of the
Equipment paid by Lessee. If Lessee chooses to purchase any Equipment
pursuant to this Subsection 16(a), the Lessee shall purchase all of the
Equipment. In addition, if Lessee shall purchase any Software Equipment
pursuant to the terms and provisions of this Subsection 16(a), Lessee shall
obtain the prior written consent of the appropriate licensors, contract
vendors, co-owners and developers of the Software Equipment. In the event
of any such purchase of the Equipment by Lessee, Agent shall convey all of
Agent's and the Lessor Parties' right, title and interest in the Equipment
to Lessee in the manner reasonably requested by Lessee, without
representation or warranty, and each Lessor Party hereby agrees to provide
Agent with such assistance, and to execute and deliver to Agent such
documents and certificates, as are necessary or appropriate to effect such
conveyance, all at Lessee's expense.
(b) Upon expiration of the Basic Term for any Equipment leased
hereunder, and provided that an Event of Default has not occurred and is not
continuing, if Lessee desires to extend the term of this Master Leasing
Agreement for any Equipment for an additional term (the "EXTENDED TERM"),
the Lessee shall request such an extension by providing Agent with such
written request at least thirty (30) days prior to the expiration of the
Basic Term for such Equipment. If Agent agrees to any such request for
extension, the lease of such Equipment shall be terminated with respect to
the Lessor Parties and the Lessor Parties shall have no further interest
therein during any such Extended Term. Any such Extended Term shall be
governed by the terms and provisions of the separate Extended Rental
Agreement entered into by and between CBL and Lessee on the date hereof.
(c) If, on or prior to the expiration of the Basic Term for any
Equipment, Lessee shall fail to elect to purchase such Equipment pursuant to
Subsection 16(a), sell such Equipment to an unrelated third party pursuant
to Section 10, or extend the term of the lease of such Equipment pursuant to
Subsection 16(b), it shall be assumed that Lessee elected to extend the term
of the lease of such Equipment pursuant to the separate Extended Rental
Agreement referenced in Subsection 16(b) above.
17. FINANCE LEASE STATUS. The parties agree that this lease and
each Individual Leasing Record hereunder is a "Finance Lease" as defined by
the UCC. Lessee acknowledges that Lessee has reviewed and approved any
written "Supply Contract" (as such term is defined in the UCC), covering the
Equipment purchased from the "Supplier" (as such term is defined in the UCC)
thereof for lease to Lessee. Lessee also acknowledges the following:
(a) neither Agent nor any Lessor Party has selected, manufactured,
or supplied the Equipment;
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<PAGE>
(b) Agent acquired or will acquire the Equipment or the right to
possession and use of the Equipment on behalf of the Lessor Parties in
connection with the Individual Leasing Record; and
(c) Agent and the Lessor Parties provide no warranties or other
rights with respect to the purchase of the Equipment and any and all rights
Lessee has with respect to the purchase of the Equipment are solely against
Supplier.
18. DISCLAIMER OF WARRANTIES. LESSEE AGREES AND ACKNOWLEDGES THAT
ACCEPTANCE OF THE EQUIPMENT FOR LEASE SHALL CONSTITUTE LESSEE'S
ACKNOWLEDGEMENT AND AGREEMENT THAT LESSEE HAS FULLY INSPECTED SUCH
EQUIPMENT, AND THAT THE EQUIPMENT IS IN GOOD ORDER AND CONDITION AND IS OF
THE MANUFACTURE, DESIGN, SPECIFICATIONS AND CAPACITY SELECTED BY LESSEE,
THAT LESSEE IS SATISFIED THAT THE SAME IS SUITABLE FOR ITS PURPOSE, THAT
NEITHER AGENT NOR ANY LESSOR PARTY IS ENGAGED IN THE SALE OR DISTRIBUTION OF
EQUIPMENT, THAT NEITHER AGENT NOR ANY LESSOR PARTY HAS SELECTED,
MANUFACTURED OR SUPPLIED SUCH EQUIPMENT, THAT AGENT HAS PURCHASED THE
EQUIPMENT FROM VENDORS OF LESSEE'S CHOICE, AND THAT NEITHER AGENT NOR ANY
LESSOR PARTY HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION, EXPRESS
WARRANTY, IMPLIED WARRANTY, OR COVENANT WHATSOEVER WITH RESPECT TO TITLE,
MERCHANTABILITY, CONDITION, QUALITY, DURABILITY, SUITABILITY, OPERATION OR
FITNESS OF THE EQUIPMENT IN ANY RESPECT OR IN CONNECTION WITH, OR FOR ANY
PURPOSE OR USE OF LESSEE, OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT
OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT THERETO. Agent
shall, at Lessee's sole expense take all action reasonably requested by
Lessee to make available to Lessee any rights of Agent under any express or
implied warranties of any manufacturer or vendor of the Equipment. The
Lessee acknowledges and agrees that neither the manufacturer, the supplier,
nor any salesman, representative or other agent of the manufacturer or
supplier, is an agent of Agent or any Lessor Party. No salesman,
representative or agent of the manufacturer or supplier is authorized to
waive or alter any term or condition of this Master Leasing Agreement and no
representation as to the Equipment or any other matter by the manufacturer
or supplier shall in any way affect Lessee's duty to pay Rent and perform
its other obligations as set forth in this Master Leasing Agreement.
19. ASSIGNMENT BY LESSOR PARTIES. (a) Each Lessor Party shall have
the right at any time, upon written notice to Agent of its intent to do so,
to assign all or any part of its Tranche A Commitment, Tranche B Commitment
or interest in Lessee's obligations hereunder to one or more Lessor Parties
or its affiliates. Each Lessor Party shall have the right at any time, with
the prior written consent of Lessee and Agent (which consent shall not be
unreasonably withheld) to assign all or any part of its Tranche A
Commitment, Tranche B Commitment or interest in Lessee's obligations
hereunder to one or more commercial banks or other financial institutions
provided, however, that each such assignment to any single assignee (other
than an assignment of all of a Lessor Party's interest hereunder) shall be
in an amount no less than $5,000,000. Each assignment of (i) an interest in
the Tranche A Value, rights to receive Tranche A Rent, a Lessor Party's
Tranche A Commitment and related rights and obligations or (ii) an interest
in the Tranche B Value, rights to receive Tranche B Rent, a Lessor Party's
Tranche B Commitment and related rights and obligations shall be in the form
of units consisting of pro rata interests in such rights and obligations.
In the case of any assignment authorized under this Section 19, the assignee
shall have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were a Lessor Party hereunder, including
without limitation the right to approve or disapprove actions which, in
accordance with the terms hereof, require the approval of the Requisite
Lessor Parties or each Lessor Party and the obligation to make funds
available to Agent pursuant to Section 3. All assignments under this
Section
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<PAGE>
19 shall be evidenced by an Assignment Certificate. The Lessor Party
assigning its interests pursuant to the provisions of this Subsection 19(a)
shall provide Agent with the executed Assignment Certificates and shall be
obligated to pay, at the same time, a processing and recordation fee to the
Agent equal to $2,500 per Assignment Certificate. Upon such Lessor Party's
compliance with all of the terms of this Subsection 19(a) and upon Agent's
receipt of such Assignment Certificates along with the processing and
recordation fee, the Agent shall accept such Assignment Certificates and
record the information contained therein.
(b) Each Lessor Party may, with the prior written consent of Lessee
and Agent (which consent shall not be unreasonably withheld), sell
participations to one or more banks or other financial institutions in all
or a portion of its rights and obligations under this Master Leasing
Agreement, provided that (i) the Lessor Party's obligations under this
Master Leasing Agreement shall remain unchanged, (ii) the Lessor Party shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) Lessee, Agent and the other Lessor Parties shall
continue to deal solely and directly with such Lessor Party in connection
with the Lessor Party's rights and obligations under this Master Leasing
Agreement, and the holder of any such participation shall not be entitled to
require the Lessor Party to take or omit to take any action hereunder except
action directly affecting the extension of any date fixed for payment of, or
the reduction in amount of, any amounts allocated to the participation
(except as otherwise permitted under this Master Leasing Agreement) and (iv)
all costs and consequences incurred or sustained by any holder of a
participation shall be added to those incurred or sustained by the Lessor
Party for purposes of Section 9, limited to the amounts that would have been
incurred or sustained by the Lessor Party granting the participation to such
holder, had such participation not been granted.
(c) Notwithstanding the foregoing, each Lessor Party agrees that it
shall not, either prior to, upon or after the occurrence of an Event of
Default, use or grant to any third party assignee the right to use the
Software Equipment. Upon or prior to the execution of this Master Leasing
Agreement, Lessee shall obtain the prior written consent of the appropriate
licensors, contract vendors, co-owners and developers to the assignment by
Lessee and by the Lessor Parties of all of their respective interests in the
Software Equipment. Each Lessor Party and each assignee under this Section
19 acknowledges that as long as Lessee is not in default hereunder or under
any lease executed pursuant hereto, it shall be entitled to uninterrupted
use and quiet enjoyment of the Equipment on the terms herein provided.
(d) Lessee agrees to permit Agent to record this Master Leasing
Agreement if necessary to perfect Agent's or the Lessor Parties' security
interests hereunder. Lessee hereby confirms that this Master Leasing
Agreement cannot be canceled or terminated, except as expressly provided
herein and that Lessee's obligation to pay Rent, Facility Fees and any other
amounts due hereunder are absolute and unconditional. Lessee shall make
payment of all Rent, Facility Fees and other payments due hereunder to
Agent, on behalf of the Lessor Parties, without abatement, deduction or
setoff of any kind. Lessee further covenants and agrees that it will not
assert against Agent or any Lessor Party any defense, counterclaim or setoff
due to a breach of warranty or otherwise in any action for Rent, Facility
Fees or any other amounts due hereunder or for possession of the Equipment
which is brought by Agent or any Lessor Party.
20. ADDITIONAL REPRESENTATIONS AND COVENANT OF LESSEE. (a) By its
execution and delivery of this Master Leasing Agreement and each Individual
Leasing Record, Lessee shall be deemed to have represented and warranted to
Agent and each Lessor Party with respect to this Master Leasing Agreement,
the applicable Individual Leasing Record and the Equipment covered thereby
that Lessee has the unqualified right to enter into this Master Leasing
Agreement and any Individual Leasing Record and to perform their respective
terms, and the execution and delivery of such documents and
2
<PAGE>
the terms thereof are not in variance with and will not result in a breach
of any contract or agreement to which Lessee is a party or by which it is
bound, including without limitation, any contracts or agreements with the
Lessee's licensors, contract vendors, co-owners or developers of the
Software Equipment.
(b) Lessee hereby covenants and agrees that from and after the date
hereof and so long as any Equipment is leased hereunder, it shall take no
action under this Master Leasing Agreement, or request that Agent or any
Lessor Party take any action under this Master Leasing Agreement, that will
in any way violate any contract or agreement to which Lessee is a party or
by which it is bound, with any vendor or other third party, including
without limitation contracts or agreements with the Lessee's licensees of
the Software Equipment.
21. FACILITY FEES. Beginning on April 15, 1997 and continuing until
the expiration of the Basic Term of the last unit of Equipment leased
hereunder, Lessee shall pay to Agent, on behalf of the Lessor Parties, a
facility fee in an amount equal to multiplied by (a) from April 15, 1997
until the expiration or earlier termination of the Commitment Period, the
Aggregate Lease Line minus the Aggregate Amortization and (b) the
Unamortized Value from the expiration of the Commitment Period until the
expiration of the Basic Term of the last unit of Equipment leased hereunder
(the "FACILITY FEE"). Such facility fee shall be payable quarterly in
arrears, based on a 360 day year, on the 25th day of the third month of the
current calendar quarter.
22. AGENT. (a) Each Lessor Party hereby designates and appoints
CBL as Agent of such Lessor Party under this Master Leasing Agreement, and
each Lessor Party hereby irrevocably authorizes Agent to take such action on
its behalf under the provisions of this Master Leasing Agreement and to
exercise such powers as are expressly set forth herein, together with such
other powers as are reasonably incidental thereto. Agent agrees to act as
such on the express conditions contained in this Section 22. The provisions
of this Section 22 are solely for the benefit of Agent and the Lessor
Parties, and Lessee shall not have any rights to rely on or enforce any of
the provisions hereof (other than as expressly set forth in Subsection
22(f)). In performing its functions and duties under this Master Leasing
Agreement, Agent shall act solely as agent of the Lessor Parties and does
not assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Lessee.
(b) Agent shall not have any duties or responsibilities except those
expressly set forth in this Master Leasing Agreement. The duties of Agent
shall be mechanical and administrative in nature. Agent shall not have by
reason of this Master Leasing Agreement a fiduciary relationship in respect
of any Lessor Party. Nothing in this Master Leasing Agreement, expressed or
implied, is intended to or shall be construed to impose upon Agent any
obligations in respect of this Master Leasing Agreement except as expressly
set forth herein. Each Lessor Party shall make its own independent
investigation of the financial condition and affairs of Lessee in connection
with the making and the continuance of the lease facility hereunder and
shall make its own appraisal of the creditworthiness of Lessee, and Agent
shall not have any duty or responsibility, either initially or on a
continuing basis, to provide any Lessor Party with any credit or other
information with respect thereto. If Agent seeks the consent or approval of
the Requisite Lessor Parties to the taking or refraining from taking any
action hereunder, Agent shall provide written notice thereof to each Lessor
Party. Agent shall promptly notify each Lessor Party at any time that the
Requisite Lessor Parties have instructed Agent to act or refrain from acting
pursuant hereto. Agent shall promptly provide each Lessor Party with notice
of any Event of Default known to Agent.
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<PAGE>
(c) Neither Agent nor any of its officers, directors, employees or
agents shall be liable to any Lessor Party for any action taken or omitted
by them hereunder or in connection herewith, except that Agent shall be
obligated on the terms set forth herein for performance of its express
obligations hereunder and except that no such person shall be relieved of
any liability imposed by law for gross negligence or intentional tort.
Agent shall not be liable for any losses to a Lessor Party resulting from
the investment of the Tranche B Escrow Amount in Permitted Investments made
by it in good faith pursuant to this Master Leasing Agreement. Agent shall
not be liable for any apportionment or distribution of payments made by it
in good faith pursuant to this Master Leasing Agreement, and if any such
apportionment or distribution is subsequently determined to have been made
in error the sole recourse of any Lessor Party to whom payment was due, but
not made, shall be to recover from other Lessor Parties (or former Lessor
Parties) any payment in excess of the amount to which they are determined to
have been entitled. Agent shall not be responsible to any Lessor Party for
any recitals, statements, representations or warranties herein or for the
execution, effectiveness, genuineness, validity, enforceability,
collectability, or sufficiency of this Master Leasing Agreement or for the
financial condition of Lessee. Agent shall not be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Master Leasing Agreement or the financial
condition of Lessee or the existence or possible existence of any Event of
Default. Agent may at any time request instructions from the Lessor Parties
with respect to any actions or approvals which by the terms of this Master
Leasing Agreement Agent is permitted or required to take or to grant, and if
such instructions are promptly requested, Agent shall be absolutely entitled
to refrain from taking any action or to withhold any approval and shall not
be under any liability whatsoever to any person for refraining from any
action or withholding any approval under this Master Leasing Agreement until
it shall have received such instructions from the Requisite Lessor Parties
(or all Lessor Parties if required by Subsection 23(j) hereof). Without
limiting the foregoing, no Lessor Party shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from
acting under this Master Leasing Agreement in accordance with the
instructions of the Requisite Lessor Parties (or all Lessor Parties if
required by Subsection 23(j) hereof). Agent shall be entitled to rely upon
any written notices, statements, certificates, orders or other documents or
any telephone message believed by it in good faith to be genuine and correct
and to have been signed, sent or made by the proper person, and with respect
to all matters pertaining to this Master Leasing Agreement and its duties
hereunder or thereunder, upon advice of counsel selected by it.
(d) To the extent that Agent is not reimbursed and indemnified by
Lessee, the Lessor Parties will reimburse and indemnify Agent for and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
it in any way relating to or arising out of this Master Leasing Agreement or
any action taken or omitted by Agent under this Master Leasing Agreement,
proportionately based upon a fraction, the numerator of which is the sum of
such Lessor Party's Tranche A Commitment and Tranche B Commitment, and the
denominator of which is the sum of the Maximum Tranche A Value and the
Maximum Tranche B Value, provided that no Lessor Party shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
Agent's gross negligence or willful misconduct. The obligations of the
Lessor Parties under this Subsection 22(d) shall survive the payment in full
of Lessee's obligations hereunder and the termination of this Master Leasing
Agreement.
(e) In the event Agent at any time has a Tranche A Commitment or
Tranche B Commitment hereunder (i) Agent shall have and may exercise the
same rights and powers
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<PAGE>
hereunder and is subject to the same obligations and liabilities as and to
the extent set forth herein for any other Lessor Party and (ii) the terms
"Lessor Parties" or "Requisite Lessor Parties" or any similar terms shall,
unless the context clearly otherwise indicates, include Agent as a Lessor
Party or one of the Requisite Lessor Parties. Agent may lend money to and
generally engage in any other business with Lessee as if it were not acting
as Agent pursuant hereto.
(f) Agent may resign from the performance of all its functions and
duties hereunder at any time by giving at least thirty (30) Business Days'
prior written notice to the Lessor Parties and Lessee. Such resignation
shall take effect upon the acceptance by a successor Agent of appointment as
provided in this Subsection 22(f). Upon any such notice of resignation by
Agent, the Requisite Lessor Parties shall appoint a successor Agent who
shall be reasonably satisfactory to Lessee. If a successor Agent shall not
have been so appointed within said thirty (30) Business Day period, the
retiring Agent, with the consent of Lessee (which may not be withheld
unreasonably), shall then appoint a successor Agent who shall serve as Agent
until such time, if any, as the Requisite Lessor Parties, with the consent
of Lessee, appoint a successor Agent as provided above.
(g) All payments to be made by Agent to a Lessor Party hereunder
shall be distributed to the Lessor Party at its address set forth on the
appropriate signature page hereof, the signature page of the Assignment
Certificate by which such person became a Lessor Party or at such other
address as the Lessor Party may request by written notice to Agent, subject
to the provisions of this Section 22. Agent shall not be bound to inquire
into or determine the validity, scope or priority of any interest or
entitlement of any Lessor Party and may suspend all payments or seek
appropriate relief (including without limitation instructions from the
Requisite Lessor Parties or an action in the nature of interpleader) in the
event of any doubt or dispute as to any apportionment or distribution
contemplated hereby. The order of priority of payments in Subsections 5(b),
10(d) and 14(d) of this Master Leasing Agreement is set forth solely to
determine the rights and priorities of Agent and the Lessor Parties as among
themselves and may at any time be changed by Agent and the Lessor Parties as
they may elect, in writing in accordance with Subsection 23(j), without
necessity of notice or consent to or approval by Lessee or any other person.
23. MISCELLANEOUS. (a) THIS MASTER LEASING AGREEMENT AND ALL
RIGHTS HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
(b) Each of the parties hereto acknowledges that the other parties
shall not by act, delay, omission or otherwise be deemed to have waived any
of their rights or remedies hereunder or under any other instrument given
hereunder unless such waiver is given in writing in accordance with the
provisions of Subsection 23(j). A waiver or consent on any one occasion
shall not be construed as a waiver or consent on any future occasion, and
such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which it was given. No notice to or demand on
Lessee in any case shall entitle Lessee to any other or further notice or
demand in similar or other circumstances.
(c) This Master Leasing Agreement shall be binding upon and inure to
the benefit of the parties hereto, their permitted successors and assignees.
(d) All rights, remedies and powers granted herein, or in any other
instrument given in connection herewith, shall be cumulative and may be
exercised singularly or cumulatively.
2
<PAGE>
(e) This Master Leasing Agreement constitutes the entire
understanding or agreement among Agent, the Lessor Parties and Lessee with
respect to the subject matter hereof, and there is no understanding or
agreement, oral or written, which is not set forth herein. The Lessee
agrees to do such further acts and things and to execute and deliver to
Agent such additional agreements, powers and instruments as Agent or the
Requisite Lessor Parties may reasonably require or deem advisable to carry
into effect the purposes of this Master Leasing Agreement or to better
assure and confirm to Agent and the Lessor Parties their respective rights,
powers and remedies under this Master Leasing Agreement.
(f) Notices to Lessee required pursuant to this Master Leasing
Agreement shall be delivered to The Southland Corporation at 2711 North
Haskell Avenue, Dallas, Texas 75204-2910, Attention: Legal Department, or
at such other location as Lessee may direct in writing. Notices to Agent
required pursuant to this Master Leasing Agreement shall be delivered to CBL
Capital Corporation at 989 East Hillsdale Boulevard, Suite 300, Foster City,
CA 94404, Attention: Contract Services Department, or at such other
location as Agent may direct in writing. Notices to a Lessor Party pursuant
to this Master Leasing Agreement shall be delivered to the address set forth
below the Lessor Party's name on the signature pages of this Master Leasing
Agreement or of the Assignment Certificate by which such person became a
Lessor Party hereunder, or at such other location as the Lessor Party may
direct by notice to Agent and Lessee.
(g) This Master Leasing Agreement may be executed in two or more
counterparts, each of which, when taken together, shall constitute a single
agreement binding upon all the parties hereto.
(h) If any provision of this Master Leasing Agreement is in conflict
with any statute or rule of law in the jurisdiction where it is sought to be
enforced, then such provision shall be deemed null and void to the extent
that it may be in conflict therewith, but without invalidating the remaining
provisions hereof.
(i) AGENT, THE LESSOR PARTIES AND LESSEE HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS MASTER LEASING AGREEMENT. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR AGENT, THE LESSOR PARTIES AND LESSEE TO ENTER INTO
THIS MASTER LEASING AGREEMENT.
(j) No amendment or modification of any provision of this Master
Leasing Agreement shall be effective without the written agreement of the
Requisite Lessor Parties and Lessee, and no termination or waiver of any
provision of this Master Leasing Agreement, or consent to any departure by
Lessee therefrom, shall in any event be effective without the written
concurrence of the Requisite Lessor Parties, provided that any amendment,
modification or waiver of any provision of this Master Leasing Agreement
relating to (i) the amount of the Facility Fee, the Tranche A Commitments,
the Tranche B Commitments, the Maximum Tranche A Value or the Maximum
Tranche B Value, (ii) any reduction in amount, change in order of priority
of payments, or extension of time fixed for any payment to the Lessor
Parties (or to Agent on behalf of the Lessor Parties) hereunder, (iii) the
definitions of "Aggregate Lease Line", "Base Amount", "Commitment Period",
"Libor Rate", "Non-Cancelable Term", "Quarterly Amortization Figure",
"Rent", "Requisite Lessor Parties", "Tranche A Percentage", "Tranche A
Rent", "Tranche A Value", Tranche B Escrow Amount", "Tranche B Percentage",
"Tranche B Rent", "Tranche B Value", "Unamortized Value" or "Unguaranteed
Residual" or (iv) the provisions of this Subsection 23(j) or any other
provision hereof expressly requiring the consent or approval of all Lessor
Parties shall be effective only if evidenced by a writing signed by or on
behalf of all Lessor Parties. No amendment, modification, termination or
waiver of
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<PAGE>
any provision of Section 22 or any other provision referring to or affecting
Agent shall be effective without the written concurrence of Agent. Agent
may, but shall have no obligation to, with the concurrence of any Lessor
Party, execute amendments, modifications, waivers or consents on behalf of
that Lessor Party. Any amendment, modification, termination, waiver or
consent effected in accordance with this Subsection 23(j) shall be binding
on Agent, each Lessor Party and, if signed by Lessee, Lessee.
(k) Each Lessor Party that is not created or organized under the
laws of the United States of America or a political subdivision thereof
shall deliver to Lessee and the Agent all forms, certificates and additional
documentation required from the Senior Lenders as set forth in Section 12.21
of the Credit Agreement.
IN WITNESS WHEREOF, Agent, the Lessor Parties and Lessee have duly
executed this Master Leasing Agreement as of the day and year first above
written.
CBL CAPITAL CORPORATION, as
Agent for the Lessor Parties
Attest:
By By
------------------------------- ----------------------------
Secretary
Title
-------------------------
Date
----------------------------
THE SOUTHLAND CORPORATION, Lessee
Attest:
By By
------------------------------ -----------------------------
Secretary
Title
--------------------------
LESSOR PARTIES:
CBL CAPITAL CORPORATION
By
-----------------------------
Title
-------------------------
Notice Address:
989 East Hillsdale Boulevard,
Suite 300
Foster City, CA 94404
Attention: Contract Services
Department
Tranche A Commitment: $0
Tranche B Commitment: $7,200,000.00
2
<PAGE>
CITIBANK, N.A.
By
--------------------------------
Name:
Title:
Notice Address:
Citibank, N.A.
399 Park Avenue, 12th Floor,
Zone 19
New York, NY 10043
Attn: Robert Snell
Telecopier No. (212) 793-7585
Tranche A Commitment:
$17,717,782.66
Tranche B Commitment: $0
THE SAKURA BANK, LIMITED, NEW YORK
BRANCH
By
-------------------------------
Name:
Title:
Notice Address:
The Sakura Bank, Limited, New York
Branch
277 Park Avenue
New York, New York 10172-0121
Attn: Toshihiro Funatsu
Telecopier No. (212) 888-7651
Tranche A Commitment:$17,717,782.66
Tranche B Commitment: $2,000,000.00
3
<PAGE>
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED, NEW YORK
BRANCH
By
---------------------------------
Name:
Title:
Notice Address:
The Mitsui Trust and Banking
Company,
Limited, New York Branch
1251 Avenue of the Americas,
39th Floor
New York, New York 10020-1104
Attn: Edward Simnor
Telecopier No. (212) 768-9044
Tranche A Commitment:$12,248,627.88
Tranche B Commitment: $0
BANK OF TOKYO - MITSUBISHI TRUST
COMPANY
By
-------------------------------
Name:
Title:
Notice Address:
Bank of Tokyo - Mitsubishi Trust
Company
1251 Avenue of the Americas
New York, New York 10020-1104
Attn: Hideki Kinumatsu/Japanese
Corporate
Dept. - II
Telecopier No. (212) 782-6436
Tranche A Commitment:$12,248.627.88
Tranche B Commitment: $0
31
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE
By: CIBC WOOD GUNDY SECURITIES
CORP.
By
--------------------------------
Name:
Title:
Notice Address:
Canadian Imperial Bank of Commerce
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
Attn: Kelli Jones
Telecopier No. (770) 319-4817
Tranche A Commitment: $3,560,647.64
Tranche B Commitment: $0
THE FUJI BANK, LIMITED, HOUSTON
AGENCY
By
----------------------------
Name:
Title:
Notice Address:
The Fuji Bank, Limited, Houston
Agency
1 Houston Center, Suite 4100
1221 McKinney Street
Houston, Texas 77010
Attn: Philip C. Lauinger, III
(Credit Matters)
Jenny Lin
(Administrative Matters)
Telecopier No. (713) 759-0048
Tranche A Commitment:$12,248,627.88
Tranche B Commitment: $0
32
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By
---------------------------------
Name:
Title:
Notice Address:
NationsBank of Texas, N.A.
901 Main Street, 14th Floor
Dallas, Texas 75202-3714
Attn: Cynthia Amador
Telecopier No. (214) 508-0944
Tranche A Commitment: $6,124,313.94
Tranche B Commitment: $0
BANKERS TRUST COMPANY
By
---------------------------------
Name:
Title:
Notice Address:
Bankers Trust Company
130 Liberty Street, 30th Floor
New York, New York 10006
Attn: Frank Russo
Telecopier No. (212) 250-7351
Tranche A Commitment: $3,560,647.64
Tranche B Commitment: $0
33
<PAGE>
THE ASAHI BANK, LTD., NEW YORK
BRANCH
By
---------------------------------
Name:
Title:
Notice Address:
The Asahi Bank, Ltd., New York
Branch
1 World Trade Center, Suite 6011
New York, New York 10048-0476
Attn: Mr. Douglas E. Price
(Credit Matters)
Debbie Gopaul
(Administrative Matters)
Telecopier No. (212) 432-1135
Tranche A Commitment:$12,248,627.88
Tranche B Commitment: $2,000,000.00
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
By: THE INDUSTRIAL BANK OF JAPAN,
LIMITED, HOUSTON OFFICE,
Authorized Representative
By
--------------------------------
Name:
Title:
Notice Address:
The Industrial Bank of Japan
Trust Company
1251 Avenue of the Americas
New York, New York 10020
Attn: Atsushi Kawai
Telecopier No. (212) 282-4250
Tranche A Commitment: $6,124,313.94
Tranche B Commitment: $0
34
<PAGE>
EXHIBIT A
TO
MASTER LEASING AGREEMENT
ASSIGNMENT CERTIFICATE
Dated as of
------------------------
Reference is made to the Master Leasing Agreement dated as of April 15,
1997 (as amended, restated, supplemented or otherwise modified from time to
time, the "Master Leasing Agreement") by and among THE SOUTHLAND
CORPORATION, a Texas corporation ("Lessee"), the FINANCIAL INSTITUTIONS FROM
TIME TO TIME PARTY THERETO AS LESSOR PARTIES, CBL CAPITAL CORPORATION
("CBL"), in its separate capacity as Agent for the Lessor Parties (in such
capacity, together with any successor agent appointed pursuant to the Master
Leasing Agreement, the "Agent"). Terms defined in the Master Leasing
Agreement are used herein with the same meaning unless otherwise defined
herein.
("Assignor") and ("Assignee") agree as follows:
- --------------- ---------------
1. Assignor hereby sells and assigns to Assignee, and Assignee
hereby purchases and assumes from Assignor, (collectively, the "ASSIGNED
PROPERTY") [a Tranche A Commitment in the amount of$----------- representing
a Tranche A Percentage of --------%] [and] [a Tranche B Commitment in the
amount of $------------ representing a Tranche B Percentage of --------%.
Assignee hereby expressly assumes and agrees to perform, to the extent of
the interest assigned hereunder, Assignor's obligations and liabilities as a
Lessor Party under the Master Leasing Agreement, including but not limited
to the obligations to advance funds to Agent for the purchase of Equipment
(collectively, the "ASSUMED OBLIGATIONS").
2. Assignor (i) represents and warrants that it is the legal and
beneficial owner of, and has full right to sell and assign, the Assigned
Property and (ii) confirms that it has obtained all necessary approvals,
taken all necessary corporate and legal action and has full power and
authority to enter into this Assignment Certificate. Assignor and Agent (i)
make no representation or warranty and assume no responsibility with respect
to any statements, warranties or representations made in or in connection
with the Master Leasing Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Master Leasing
Agreement or any other instrument or document furnished pursuant thereto,
(ii) make no representation or warranty and assume no responsibility for the
performance or observance by Lessee of any of its obligations under the
Master Leasing Agreement or any other instrument or document furnished
pursuant thereto, and (iii) make no other representation or warranty, except
(in the case of Assignor) as expressly set forth herein.
3. Assignee (i) confirms that it has received a copy of the Master
Leasing Agreement and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment Certificate and that it has obtained all necessary approvals,
taken all necessary corporate and legal action and has full power and
authority to enter into this Assignment Certificate; (ii) agrees that it
will, independently and without reliance upon Agent, Assignor or any other
Lessor Party
<PAGE>
and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Master Leasing Agreement; (iii) appoints and authorizes
Agent to take such action as agent on its behalf and to exercise such powers
under the Master Leasing Agreement as are delegated to Agent by the terms
thereof, together with such powers as are reasonably incidental thereto;
(iv) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Master Leasing Agreement are required
to be performed by it as a Lessor Party; (v) specifies as its address for
notices, the office(s) set forth beneath its name on the signature pages
hereof; and (vi) represents and warrants that it is acquiring the Assigned
Property for its own account and not with a view toward a public sale or
distribution and has such knowledge and experience in financial and business
matters to enable it to evaluate the merits and risks of purchasing the
Assigned Property and to make the necessary investment decisions in
connection therewith.
4. The effective date for this Assignment Certificate shall be the
date of acceptance thereof by Agent, unless a later date is specified on the
signature pages hereof (the "EFFECTIVE DATE"). Following the execution of
this Assignment Certificate by Assignor and Assignee, it will be delivered
to Agent for acceptance and recording by Agent, together with a processing
and recordation fee in the amount of $2,500.00.
5. Upon such acceptance and recording by Agent, on and after the
Effective Date, Agent shall make all payments under the Master Leasing
Agreement in respect of the interest assigned hereby (including, without
limitation, Rent) to Assignee. Assignor and Assignee shall make all
appropriate adjustments in payments under the Master Leasing Agreement for
periods prior to the Effective Date directly between themselves.
6. This Assignment Certificate shall be governed by, and construed
in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Certificate to be executed by the ---------------------------------ir
respective officers thereunto duly authorized as of the date first above
written.
(NAME OF ASSIGNOR)
By:
---------------------------
Title:
-------------------------
<PAGE>
(NAME OF ASSIGNEE)
By:
----------------------------
Title:
-------------------------
Address for notices:
-------------------------------
-------------------------------
Attention:
---------------------
Telephone:
(----)---------------
Fax:
(----)---------------
(Effective Date:
---------------------)
Accepted this day
-----
of
---------------------
CBL Capital Corporation,
as Agent
By:
-----------------------------------
Title:
<TABLE>
<CAPTION>
EXHIBIT 11
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
CALCULATION OF EARNINGS PER COMMON SHARE
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings. . . . . . . . . . . . . $ 25,630 $ 30,387 $ 31,152 $ 35,876
Add interest on Convertible Debt, net of tax 2,071 2,083 4,138 4,165
----------- ----------- ----------- -----------
Net earnings applicable to common
stock and equivalents outstanding . . . . $ 27,701 $ 32,470 $ 35,290 $ 40,041
=========== =========== =========== ===========
Weighted average number of common shares
outstanding . . . . . . . . . . . . 409,923 409,923 409,923 409,923
Weighted average number of common shares
issuable upon conversion of Convertible Debt. 72,112 72,112 72,112 72,112
Dilutive effect of stock options after application
of treasury stock method . . . . . . . 682 298 341 149
----------- ----------- ----------- -----------
Weighted average number of common shares
and equivalents outstanding. . . . . . . 482,717 482,333 482,376 482,184
=========== =========== =========== ===========
Net earnings per common share and equivalents
(Primary and Fully Diluted) . . . . . . $.06 $.07 $.07 $.08
===== ===== ===== =====
Tab 2
</TABLE>
Exhibit 15
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, D.C. 20549
Attention: Document Control
Re: The Southland Corporation Form 10-Q
We are aware that our report dated August 4, 1997 on our review of the
condensed consolidated balance sheet of The Southland Corporation and
Subsidiaries as of June 30, 1997, and the related condensed consolidated
statements of earnings for the three-month and six-month periods ended June
30, 1997 and 1996, and the condensed consolidated statements of cash flows
for the six-month periods ended June 30, 1997 and 1996, included in this Form
10-Q, is incorporated by reference in the following registration statements.
REGISTRATION NO.
----------------
On Form S-8 for:
Post-Effective Amendment No. 3 to The Southland
Corporation Equity Participation Plan 33-23312
Post-Effective Amendment No. 1 to The Southland
Corporation Grant Stock Plan 33-25327
The Southland Corporation 1995 Stock Incentive Plan 33-63617
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statement prepared or certified
by us within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
August 7, 1997
Tab 3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 47,023
<SECURITIES> 0
<RECEIVABLES> 110,134
<ALLOWANCES> 5,682
<INVENTORY> 107,745
<CURRENT-ASSETS> 366,478
<PP&E> 2,646,273
<DEPRECIATION> 1,293,351
<TOTAL-ASSETS> 2,015,697
<CURRENT-LIABILITIES> 657,440
<BONDS> 1,927,381
<COMMON> 41
0
0
<OTHER-SE> (759,489)
<TOTAL-LIABILITY-AND-EQUITY> 2,015,697
<SALES> 3,386,383
<TOTAL-REVENUES> 3,430,111
<CGS> 2,414,283
<TOTAL-COSTS> 2,414,283
<OTHER-EXPENSES> 918,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,714
<INCOME-PRETAX> 51,696
<INCOME-TAX> 20,544
<INCOME-CONTINUING> 31,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,152
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
