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[LOGO]
2711 NORTH HASKELL AVENUE - BOX 719 - DALLAS, TEXAS 75221-0719
March 19, 1997
Dear Southland Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
The Southland Corporation on Wednesday, April 23, 1997, at 9:30 a.m., Central
Daylight Time, in the Joe C. Thompson Conference Center, on the ground floor at
Cityplace Center, 2711 North Haskell Avenue, Dallas, Texas. If you are planning
to attend the meeting in person, please mark the appropriate space on the
enclosed proxy card. A map of Cityplace is included on the outside back cover of
the attached Proxy Statement showing entrances to the parking garage. The formal
Notice of Annual Meeting and Proxy Statement, which are contained in the
following pages, describe the proposals being presented to the shareholders for
consideration at this meeting and also provide additional important information.
At this meeting you will be voting on the election of fourteen directors,
approval of the 1997 Performance Plan and ratification of the selection of
auditors.
As described in the accompanying Proxy Statement, the Board of Directors
unanimously recommends that you vote FOR each of the persons nominated, FOR
approval of the 1997 Performance Plan, and FOR the ratification of the selection
of auditors.
A copy of Southland's 1996 Annual Report is being sent to you along with
this Proxy Statement and Notice of Annual Meeting. As always, we appreciate your
continued interest in Southland.
We urge you to complete, sign and mail the enclosed proxy card as soon as
possible so that your vote will be counted at the meeting.
Sincerely,
Clark J. Matthews, II
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
SECRETARY, AND DIRECTOR
<PAGE>
THE SOUTHLAND CORPORATION
2711 NORTH HASKELL AVENUE
BOX 719
DALLAS, TEXAS 75221-0719
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 1997
------------------------
To the Shareholders of The Southland Corporation:
The Annual Meeting of Shareholders of The Southland Corporation (the
"Company") will be held on Wednesday, April 23, 1997, at 9:30 a.m., Central
Daylight Time, in the Joe C. Thompson Conference Center, on the ground floor at
Cityplace Center, 2711 North Haskell Avenue, Dallas, Texas, for the following
purposes:
1. To elect fourteen directors to serve for the ensuing year;
2. To consider and vote upon a proposal that the shareholders approve the
Company's 1997 Performance Plan;
3. To consider and vote upon a proposal that the shareholders ratify the
appointment of Coopers & Lybrand L.L.P., certified public accountants, to
be the independent auditors of the Company for the year 1997; and
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business Friday, March 7,
1997, as the record date for the determination of shareholders entitled to
receive notice of, and to vote at, the meeting.
Your attention is directed to the Proxy Statement for further information
about each of the matters to be considered.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO
BE PRESENT, PLEASE DATE AND SIGN THE ACCOMPANYING PROXY CARD EXACTLY AS YOUR
NAME APPEARS THEREON, INDICATING YOUR VOTES BY MARKING THE APPROPRIATE BALLOT
BOXES, AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By order of the Board of Directors,
Clark J. Matthews, II
SECRETARY
Dallas, Texas
March 19, 1997
IF YOU PLAN TO ATTEND THE MEETING, PLEASE MARK
THE APPROPRIATE BOX ON THE PROXY CARD
<PAGE>
THE SOUTHLAND CORPORATION
2711 NORTH HASKELL AVENUE
DALLAS, TEXAS 75204
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 1997
DATE FIRST SENT OR GIVEN TO SECURITY HOLDERS: MARCH 24, 1997
------------------------
GENERAL INFORMATION
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors of
The Southland Corporation (the "Company" or "Southland") for use at the Annual
Meeting of Shareholders to be held April 23, 1997, and at any adjournments
thereof. Neither the Company's officers or directors who held office during the
last fiscal year, nor any nominee or associate of any of the aforementioned
persons, has any interest, direct or indirect, in the matters to be voted upon,
other than election to office and as otherwise disclosed herein.
The Board of Directors requests that you execute and return the proxy
promptly, whether or not you plan to attend the meeting. In addition, if you
plan to attend the meeting in person, please so indicate in the appropriate
space on the proxy card. Each properly executed proxy not revoked will be deemed
to grant authority to vote and, unless a contrary instruction is indicated on
the proxy, will be voted for the election of fourteen directors, for approval of
the 1997 Performance Plan and for ratification of the appointment of the
accounting firm of Coopers & Lybrand L.L.P. ("Coopers & Lybrand") to be the
independent auditors of the Company for 1997. Any shareholder may revoke such
shareholder's proxy by giving written notice of revocation to the Company at any
time prior to the meeting or by advising the Inspector of Election of the
revocation at the meeting; however, presence at the meeting will not
automatically revoke the proxy and revocation during the meeting will not affect
any votes previously taken. The signing of the proxy grants discretionary
authority to vote upon matters which may properly come before the meeting from
the floor or at such a late date as to prohibit additional notice. Other than
approval of the minutes of the 1996 Annual Meeting of Shareholders, no such
matter is known to management.
The cost of soliciting proxies will be borne by Southland. Southland has
retained The Herman Group, Inc., Dallas, Texas, to assist in the solicitation,
at an estimated cost of $2,500, plus reimbursement of reasonable out-of-pocket
expenses. In addition, the Company will reimburse brokers or other persons
holding stock in their names or in the names of their nominees for charges and
expenses incurred in forwarding proxies and proxy material to the beneficial
owners. Solicitation may also be made by officers and regular employees of
Southland, without additional compensation, by use of the mails, telephone,
telegraph or in person.
SHARES OUTSTANDING AND VOTING RIGHTS
Shareholders of record as of the close of business March 7, 1997 are
entitled to notice of, and to vote at, the meeting. At the record date there
were 409,922,935 shares of common stock, $.0001 par value (the "Common Stock"),
outstanding and entitled to vote, the only class of voting securities of the
Company outstanding, and there were 2,834 record holders on such date. Each
outstanding share is entitled to one vote.
<PAGE>
Shareholders are not entitled to vote cumulatively for the election of
directors or on any other matter. In addition, an abstention from voting or a
broker non-vote will be counted toward determining the presence of a quorum, but
will not be included in determining the number of votes "for" the election of
directors and will not be counted "for" or "against" any other item being voted
upon.
OTHER INFORMATION
THE COMPANY'S RESTRUCTURING. On October 24, 1990, the Company filed a
voluntary petition for reorganization relief under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy
Court (the "Bankruptcy Court") for the Northern District of Texas, Dallas
Division (Case No. 390-37119-HCA-11).
The Company filed a Plan of Reorganization (the "Plan of Reorganization")
which provided for, among other things, Ito-Yokado Co., Ltd. ("Ito-Yokado") and
Seven-Eleven Japan Co., Ltd. ("Seven-Eleven Japan") to acquire, for an aggregate
purchase price of $430 million in cash, pursuant to a Stock Purchase Agreement
among IYG Holding Company ("IYG" or the "Purchaser"), Ito-Yokado, Seven-Eleven
Japan and the Company, newly issued shares of Common Stock representing
approximately 70% of the Company's outstanding shares following the consummation
of the Plan of Reorganization. The Plan of Reorganization also provided for
holders of the Company's then outstanding securities to receive new debt
securities, Common Stock and, in certain cases, cash, in exchange for their old
securities. In addition, the Plan of Reorganization provided for the Company to
effect a one-for-ten reverse stock split of its Common Stock (the "Stock Split")
and, as subsequently modified, provided for the issuance by the Company of new
warrants (the "Warrants"), exercisable (until February 23, 1996) to acquire
certain shares of Common Stock owned by certain of the existing shareholders of
the Company pursuant to a Warrant Agreement with Wilmington Trust Company as
Warrant Agent (the "Warrant Agreement").
On February 21, 1991, the Bankruptcy Court issued an order confirming the
Plan of Reorganization (the "1991 Reorganization") and the closing under the
Stock Purchase Agreement (the "Closing") occurred on March 5, 1991. The Company
issued 286,634,619 shares of Common Stock to IYG, a Delaware corporation,
jointly owned by Ito-Yokado and Seven-Eleven Japan, and received $430 million in
cash. In connection with the Closing, the Company entered into certain other
agreements, including a Shareholders Agreement, Employment Agreements with John
P. Thompson, Jere W. Thompson and Joe C. Thompson, Jr., and the Warrant
Agreement among others, each of which had, for most purposes, a five-year term.
These agreements have terminated as of March 5, 1996, except for certain demand
registration rights granted under the Shareholders Agreement.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
BOARD OF DIRECTORS
The Board of Directors has set the number of directors to be elected at this
meeting at fourteen, which shall constitute the entire board of directors. Each
director shall be elected to hold office until the next Annual Meeting of
Shareholders or until his earlier death, removal or resignation or until his
successor is duly elected and qualified.
Until March 5, 1996, the composition of the Board of Directors was
controlled by the provisions of the Stock Purchase Agreement and Shareholders
Agreement entered into in connection with the 1991 Reorganization. Those
agreements have now terminated and the composition of the Board of Directors is
no longer controlled by any agreement or understanding; however, IYG Holding
Company owns over 65% of the Company's outstanding common stock (see "Security
Ownership of Certain Persons" below) and therefore can control the composition
of the Company's Board of Directors. The nominees for election as directors for
1996 have been nominated by resolution adopted by the current Board of
Directors.
2
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1996, there were four meetings of the Board of Directors.
The Board of Directors has an Audit Committee, which was composed of four
directors in 1996: Mr. Chai, who served as Chairman, Mr. Fernandes, Dr.
Pacholder and Mr. Sekine (deceased as of September 15, 1996). The Audit
Committee met nine times during 1996. The functions of the Audit Committee
include: recommending the engagement of independent auditors for the Company and
reviewing with them the plan and scope of the audit, its status during the year,
the results when completed and the fees for services performed, as well as
reviewing the engagement of the independent auditors to perform nonaudit
services and the effect, if any, this may have on their independence; reviewing
with the Company's internal auditors the plan, scope and results of their
operations; discussing with management, the independent auditors and the
internal auditors the adequacy of internal accounting controls and, if deemed
necessary or appropriate, discussing with each of them, independently of the
other, any recommendations on matters which any of them considers to be of
importance; reviewing the Company's accounting and financial reporting
principles, policies and practices; and reviewing, prior to publication, the
annual audited financial statements as well as such other Company financial
information or releases as the Committee deems desirable. The Audit Committee
also undertakes such other duties as may be assigned to it by the Board of
Directors.
The Board of Directors has a Compensation and Benefits Committee, composed
of three directors: Mr. Suzuki, who served as Chairman, Mr. Fernandes and Mr.
Otsuka. The Compensation and Benefits Committee met once in 1996. (See
"Compensation of Directors and Executive Officers," below, for a description of
the functions of the Compensation and Benefits Committee.) Mr. Ashida served on
this committee until April 24, 1996.
The Board of Directors does not have a Nominating Committee.
During 1996, each of the current directors attended more than 75% of the
combined meetings of the Board of Directors and committees of which such
director is a member.
COMPENSATION OF DIRECTORS
Effective as of May 1, 1995, the compensation for services as a director of
the Company was set, as follows: (a) the annual fee for a director who is a
non-employee of the Company, Ito-Yokado or Seven-Eleven Japan was set at $30,000
a year; (b) the annual fee for a director who is an employee of Ito-Yokado or of
Seven-Eleven Japan was set at $18,000 a year; (c) all directors who are
non-employees of the Company, Ito-Yokado or Seven-Eleven Japan are also paid
$1,000 for attendance at each Regular or Special Meeting of the Board or of any
Board Committee of which the director is a member, including meetings held by
means of conference telephone or similar communications equipment; however,
participation in any Committee meeting while in attendance at a Board or other
Committee meeting, or the signing of any consent in lieu of holding a meeting,
is not deemed attendance at a meeting for this purpose. In addition, the
Chairman of the Audit Committee receives a fee of $5,000 a year. Directors who
are employees of the Company receive only their compensation as an employee and
no director's fees for their service on the Board or any Committee thereof.
In addition, as described elsewhere herein, Mr. Ashida is paid $138,000 per
year, inclusive of the director's fees to which he would otherwise be entitled,
under an Independent Consultant's Agreement entered into on July 1, 1991, and
amended in 1995, pursuant to which he serves as liaison with the Board of
Directors. Mr. Asakura, a nominee for director, will be elected a Vice President
of Southland and will receive compensation from Southland for his service as a
director and officer of the Company (see "Proposal 1. Election of
Directors--Information About Nominees," below, for additional details concerning
Mr. Ashida's and Mr. Asakura's compensation).
3
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PROPOSAL 1. ELECTION OF DIRECTORS
INFORMATION ABOUT NOMINEES
The following biographical information includes the names, ages and year
first elected a director, the principal occupation or employment, as of March 1,
1997, of each person nominated, including all positions and offices with
Southland, and the principal directorships held by such persons in non-Southland
companies. All executive officers of Southland and the directors named herein
(other than Mr. Asakura) were in their positions within two years after October
24, 1990, the date Southland filed its voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code, as described above. Mr. Matthews and Mr.
Krumholz were officers of the Company prior to, and at the time of, the
bankruptcy filing.
<TABLE>
<CAPTION>
YEAR FIRST
POSITION WITH SOUTHLAND, PRINCIPAL OCCUPATION ELECTED
NAME AGE AND BUSINESS EXPERIENCE PAST FIVE YEARS DIRECTOR
- ------------------------ --- -------------------------------------------------------------------- -----------
<S> <C> <C> <C>
Masatoshi Ito 72 Chairman of the Board and Director(1) 1991
Toshifumi Suzuki 64 Vice Chairman of the Board and Director(2) 1991
Clark J. Matthews, II 60 President, Chief Executive Officer, Secretary 1981-1987
and Director(3) and 1991
Yoshitami Arai 65 Director(4) 1991
Masaaki Asakura 54 Nominee for Director(5) Nominee
Timothy N. Ashida 57 Director(6) 1991
Jay W. Chai 63 Director(7) 1991
Gary J. Fernandes 53 Director(8) 1991
Masaaki Kamata 57 Director(9) 1991
James W. Keyes 41 Executive Vice President and Chief Financial Officer; Nominee for
Director(10) Nominee
Stephen B. Krumholz 47 Executive Vice President and Chief Operating Officer; Nominee for
Director(11) Nominee
Kazuo Otsuka 50 Director(12) 1991
Asher O. Pacholder 59 Director(13) 1991
Nobutake Sato 58 Director(14) 1991
</TABLE>
- ------------------------
(1) Chairman of the Board and Director of the Company since March 5, 1991.
Director and Honorary Chairman of Ito-Yokado Group, which includes
Ito-Yokado Co., Ltd., Seven-Eleven Japan Co., Ltd. and Denny's Japan Co.,
Ltd., as well as other companies. Ito-Yokado Co., Ltd. is one of Japan's
leading diversified retailing companies which, together with its
subsidiaries and affiliates, operates superstores, convenience stores,
department stores, supermarkets, specialty shops and discount stores.
President of Ito-Yokado Co., Ltd. from 1958 to 1992. Chairman of
Seven-Eleven Japan Co., Ltd. from 1978 to 1992, and President from 1973 to
1978. Chairman of Denny's Japan Co., Ltd. from 1981 to 1992, and President
from 1973 to 1981. Chairman of Famil Co., Ltd. since 1986. Chairman of York
Mart Co., Ltd. since 1979. Chairman of Robinson's Japan Co., Ltd. since
1995. Chairman of Maryann Co., Ltd. since 1977. President of Oshman's Japan
Co., Ltd. since 1984. Statutory Auditor of Steps Co., Ltd. since 1992.
Chairman of York-Keibi Co., Ltd. since 1989. President of Union Lease Co.,
Ltd. since 1985. Statutory Auditor of Daikuma Co., Ltd. since 1982. Chairman
of Marudai Co., Ltd. since 1989. Director of Seven-Eleven (Hawaii), Inc.
since 1989. Chairman of Umeya Co., Ltd. since 1981. Director of Shop America
Limited since 1990. Director and Chairman of the Board of IYG Holding
Company since 1990.
(2) Vice Chairman of the Board and Director of the Company since March 5, 1991.
President and Chief Executive Officer of Ito-Yokado Co., Ltd. since October,
1992 and Director since 1971; Executive Vice President from 1985 to 1992;
Senior Managing Director from 1983 to 1985; Managing Director
4
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from 1977 to 1983; employee since 1963. Chairman of the Board and Chief
Executive Officer of Seven-Eleven Japan Co., Ltd. since October, 1992 and
Director since 1973; President from 1975 to 1992; Senior Managing Director
from 1973 to 1975. Statutory Auditor of Robinson's Japan Co., Ltd. since
1984. Chairman of Daikuma Co., Ltd. since 1985. President of Seven-Eleven
(Hawaii), Inc. since 1989. President of Shop America Limited since 1990.
President and Director of IYG Holding Company since 1990.
(3) Director of the Company since March 5, 1991, and from 1981 until 1987;
President and Chief Executive Officer since March 5, 1991 and Secretary
since April 26, 1995; Executive Vice President (or Senior Executive Vice
President) and Chief Financial Officer from 1979 to 1991; Vice President and
General Counsel from 1973 to 1979; employee since 1965.
(4) Director of the Company since March 5, 1991. Chairman of the Board of
Systems International Incorporated, a consulting firm for international
joint-ventures, licensing and investment arrangements, since 1977 and
President from 1970 to 1977. President of Tokyu Hotels International from
1977 to 1989. Chairman of Catalina Pacific Media LLC and Director of Entry
Strategies Inc., Parallel Inc., Europe Consultants S.A., and Industrial
Suppliers S.A. Member of Pacific Basin Economic Council and other
international non-profit organizations.
(5) Nominee for Director of the Company; General Manager and Overseas Liaison,
Planning Department, Seven-Eleven Japan Co., Ltd., from 1995 to present;
Director since 1991, and Executive Vice President and General Manager,
Seven-Eleven (Hawaii), Inc., from 1991 to 1994; employee of Seven-Eleven
Japan since 1976. In connection with Mr. Asakura's service on the Company's
Board of Directors, he and his family are in the process of relocating to
the Dallas, Texas, area. Relocation and moving expenses will be paid by the
Company. Effective April 23, 1997, Mr. Asakura will be elected a Vice
President of Southland and will receive compensation from Southland of
$145,000 per year, plus a car allowance of $1,000 per month and housing
allowance of between $2,200 and $4,000 per month from the Company. As an
employee of the Company, he will not be entitled to receive any director's
fee. Mr. Asakura and his family will be eligible to participate in the
Company's group medical and dental plans, but Mr. Asakura will not
participate in other benefit plans (such as Annual Performance Incentive,
Stock Incentive or Performance Plans).
(6) Director of the Company since March 5, 1991. President of A.K.K. Associates,
Inc., a consulting firm for Japanese/American investments, in Glendale,
California, since 1972. Director of Seven-Eleven Japan Co., Ltd. since 1991;
General Manager, Far East Division of Travel Systems International in Los
Angeles from 1969 to 1972. Interpreter/Technical Coordinator at Kawaguchi
Tour Services in Los Angeles from 1966 to 1969. Mr. Ashida has entered into
an "Independent Consultant's Agreement" with the Company pursuant to which
(as amended in 1995) he is paid $11,500 per month to serve as liaison with
the Board of Directors. This fee is inclusive of any director's fees to
which he would otherwise be entitled.
(7) Director of the Company since March 5, 1991. Chairman of the Board and Chief
Executive Officer of ITOCHU International Inc. (formerly known as C. Itoh &
Company (America) Inc.) since April 1991; Chief Operating Officer from 1989
to 1991; Executive Vice President from 1986 to 1991; Senior Vice President
from 1982 to 1985; Director since 1983. Executive Vice President of ITOCHU
Corporation (formerly C. Itoh & Co., Ltd.), a Japanese trading company,
since July 1993; Senior Managing Director from 1991 to 1993; Managing
Director from 1989 to 1991; Director from 1986 to 1989. Managing Director
with Representation Rights, ITOCHU Corporation, since 1989. Director of
Isuzu Motors Limited since 1984. Strategic Planning Advisor with General
Motors Corporation throughout 1982.
(8) Director of the Company since April 11, 1991. Vice Chairman of Electronic
Data Systems Corporation ("EDS"), an information technology service company,
since 1996, Senior Vice President from 1984 to 1996, and Director since
1981. Director and Chairman of the Board of A.T. Kearney, Inc.
5
<PAGE>
since September 1995. Director of John Wiley & Sons, Inc. since April 1988
and of Amtech Corporation since February 1995. Member of the Advisory Board
of the East Texas State University Foundation; Governor of the Boys and
Girls Clubs of America and Director of the Boys and Girls Clubs of Greater
Dallas, Inc.
(9) Director of the Company since March 5, 1991. Director, since 1978, and
Executive Vice President of Seven-Eleven Japan Co., Ltd.; Senior Managing
Director since 1989; Managing Director from 1985 to 1989; employee since
1973. Director of Shop America Limited since 1990. Vice President of Seven-
Eleven (Hawaii), Inc. since 1989. Director and Treasurer of IYG Holding
Company since 1990.
(10) Nominee for Director of the Company; Executive Vice President and Chief
Financial Officer from May 1, 1996 to present; Senior Vice President,
Finance, from June 1993 to April 1996; Vice President, Planning and Finance,
from August 1992 to June 1, 1993; Vice President and/or Vice President,
National Gasoline, from August 1991 to August 1992; General Manager,
National Gasoline, from 1986 to 1991; employee of the Company since 1985.
(11) Nominee for Director of the Company; Executive Vice President and Chief
Operating Officer from June 1993 to present; Senior Vice President,
Operations, from August 1992 to June 1993; Senior Vice President, 7-ELEVEN
Stores Operations, from 1990 to August 1992; Vice President, Marketing, from
1989 to 1990; Vice President, Northern Region, 7-ELEVEN Stores, from January
1989 to October 1989; Vice President, Northwest Region, 7-ELEVEN Stores,
from 1987 to 1988; Division Manager, Mountain Division, 7-ELEVEN Stores,
from 1986 to 1987; Regional Marketing Manager from 1981 to 1986; employee of
the Company since 1972.
(12) Director of the Company since March 5, 1991. General Manager, Corporate
Development, Ito-Yokado Co., Ltd., since 1986; Manager, Corporate
Development from 1982 to 1986; Assistant to Mr. Masatoshi Ito, President and
Chief Executive Officer, from 1978 to 1982; employee of Ito-Yokado Co., Ltd.
since 1975. Assistant Secretary of IYG Holding Company since 1990.
(13) Director of the Company since March 5, 1991. Chairman of the Board and
Chief Financial Officer, ICO, Inc., an oil field service company, since
February 1995; Chairman of the Board and Managing Director of Pacholder
Associates, Inc., an investment advisory firm, since 1984. Director of
TC/GP, Inc., and USF&G Pacholder Fund, Inc. Dr. Pacholder was a director of
MacLeod-Stedman, Inc., which went into receivership in 1991 in Manitoba,
Canada.
(14) Director of the Company since March 5, 1991. Chief Financial Officer,
Ito-Yokado Co., Ltd., since 1996; Executive Vice President, Corporate
Planning from 1993 to 1996; Senior Managing Director from 1985 to 1993;
Managing Director from 1983 to 1985; Director from 1977 to 1983; employee
since 1964. Director of Denny's Japan Co., Ltd. since 1973, Maryann Co.,
Ltd. since 1982, Oshman's Japan Co., Ltd. since 1984 and Marudai Co., Ltd.
since 1989. President of Urawa Building Co., Ltd. since 1985, Nitsu Systems
Kaihatsu Co., Ltd. since 1986 and Waiaru Kaihatsu Co., Ltd. since 1988.
Director and Vice President of IYG Holding Company since 1990.
Each of the nominees presented for election has been recommended by the
Board of Directors. All nominees are currently members of the Board of
Directors, except Mr. Asakura, who has been nominated to fill the seat left
vacant by Mr. Sekine's death, and Mr. Keyes and Mr. Krumholz, who have been
nominated to fill the two new seats created on the Board. Each nominee has
consented to serve as a director if elected. If any nominee becomes unavailable
for any reason or should a vacancy occur before the election (which events are
not anticipated), proxies may be voted for a substitute nominee. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES, WHICH REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES
REPRESENTED AND ENTITLED TO VOTE AT THE MEETING. VOTES WILL BE TABULATED BY AN
INSPECTOR OF ELECTION. AN ABSTENTION FROM VOTING OR A BROKER NON-VOTE WILL BE
TABULATED AS A
6
<PAGE>
VOTE WITHHELD ON THE ELECTION, AND WILL BE INCLUDED IN COMPUTING THE NUMBER OF
SHARES PRESENT FOR PURPOSES OF DETERMINING THE PRESENCE OF A QUORUM FOR THE
SHAREHOLDERS MEETING AND WHETHER NOMINEES HAVE RECEIVED THE VOTE OF A MAJORITY
OF THE SHARES PRESENT AT THE MEETING.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
At March 7, 1997, the record date for the Annual Meeting, the Company was
aware of the following beneficial owners of 5% or more (as determined under the
applicable rules of the Securities and Exchange Commission) of the Company's
shares of Common Stock (the only class of voting security of the Company) of
which a total of 409,922,935 shares are issued and outstanding. The following
table, however, in accordance with the applicable requirements, includes certain
shares which Ito-Yokado and Seven-Eleven Japan have the power to acquire within
the next sixty days.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------ ---------------------------------- ------------------------- -----------------
<S> <C> <C> <C>
Common Stock, IYG Holding Company 266,937,933 Shares(a) 65.12%
$.0001 par value 4-1-4, Shibakoen
Minato-ku, Tokyo Japan 105
Common Stock, Ito-Yokado Co., Ltd. 36,777,078 Shares(b) 8.23%(b)
$.0001 par value 4-1-4, Shibakoen
Minato-ku, Tokyo Japan 105
Common Stock, Seven-Eleven Japan Co., Ltd. 35,334,839 Shares(b) 7.94%(b)
$.0001 par value 4-1-4, Shibakoen
Minato-ku, Tokyo Japan 105
</TABLE>
- ------------------------
(a) IYG Holding Company is a Delaware corporation, created specifically for the
purpose of purchasing shares of Common Stock of the Company issued in
connection with consummation of the Company's Plan of Reorganization and as
contemplated therein and in the Stock Purchase Agreement (see "Other
Information," above). It is a jointly owned subsidiary of Ito Yokado Co.,
Ltd. and Seven-Eleven Japan Co., Ltd. Ito-Yokado owns 51%, and Seven-Eleven
Japan owns 49%, of IYG's outstanding common stock. Ito-Yokado owns 51% of
Seven-Eleven Japan's outstanding common stock. Messrs. Ito, Suzuki, Sato,
Kamata and Otsuka are the officers and directors of IYG (see "Security
Ownership of Management" and "Information About Nominees"). They each,
individually, disclaim beneficial ownership of the shares held by IYG.
(b) As required by the rules and regulations under the Securities Exchange Act
of 1934, as amended, the numbers shown in this table include shares of
common stock acquirable by Ito-Yokado (36,777,078 shares) and Seven-Eleven
Japan (35,334,839 shares) upon conversion of $300 million 4.5% Convertible
Quarterly Income Debt Securities due 2010, issued by the Company in November
1995 (the "Convertible Debt Securities"), which are convertible into
72,111,917 shares of Southland Common Stock at a conversion price of $4.1602
per share.
The percentage ownership shown in this table and the table that follows is
calculated as required by Rule 13d-3(d)(1) under the Securities Exchange Act of
1934, as amended. The actual percentage owned by IYG, Ito-Yokado and
Seven-Eleven Japan, if all the Convertible Debt Securities were converted, would
be 70.04%. IYG currently owns 65.12% of the Company's outstanding Common Stock.
Ito-Yokado and Seven-Eleven Japan do not currently own any shares of the Common
Stock.
7
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table, and the footnotes that follow, show the beneficial
ownership of Southland Common Stock as of March 7, 1997, as required by the
rules and regulations of the Securities and Exchange Commission (the
"Commission"), by each director and each person nominated for director, by each
of the five most highly compensated executive officers of the Company, and by
all officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(A) CLASS(A)
- ---------------------------------------------------------------------- ------------------ ---------------
<S> <C> <C>
Masatoshi Ito......................................................... 2,000,000(b) .49%(b)
Toshifumi Suzuki...................................................... 1,000,000(c) .24%(c)
Clark J. Matthews, II................................................. 435,708(d) *
Yoshitami Arai........................................................ 30,000(e) *
Masaaki Asakura....................................................... 10,000 (f) *
Timothy N. Ashida..................................................... 30,000 (g) *
Rodney A. Brehm....................................................... 67,361 (h) *
Jay W. Chai........................................................... -0- (i) -0- (i)
Gary J. Fernandes..................................................... -0- *
Masaaki Kamata........................................................ 100,000 (j) * (j)
James W. Keyes........................................................ 67,500 (k) *
Stephen B. Krumholz................................................... 110,834 (l) *
Kazuo Otsuka.......................................................... 30,000 (m) * (m)
Asher O. Pacholder.................................................... 160,000 (n) * (n)
Nobutake Sato......................................................... 100,000 (o) * (o)
Bryan F. Smith, Jr.................................................... 42,611 (p) *
All officers and directors as a group (31 persons)(q)................. 343,744,987 (q) 71.2 %(q)
</TABLE>
- ------------------------
* Rounds to less than one-tenth of one percent.
(a) At March 7, 1997, there were 409,922,935 shares of Common Stock outstanding.
The nature of beneficial ownership of the shares reported, if not direct, is
described in this footnote (a) and the footnotes that follow. Included in
the numbers of shares shown, as required by the rules and regulations of the
Commission, are those shares as to which such persons have or share voting
and/or investment power, or with respect to which they have a right to
receive such power within 60 days.
(b) Mr. Ito owns 2,000,000 shares directly. Additionally, Mr. Ito is Chairman of
the Board and a Director of IYG Holding Company. See "Security Ownership of
Certain Beneficial Owners," above.
(c) Mr. Suzuki owns 1,000,000 shares directly. Additionally, Mr. Suzuki is
President and a Director of IYG Holding Company. See "Security Ownership of
Certain Beneficial Owners," above.
(d) Mr. Matthews owns 151,042 shares directly, 143,334 of which were acquired
under the Company's Grant Stock Plan; 156,666 shares are acquirable upon the
exercise of options under the Company's Equity Participation Plan (see
"Compensation of Directors and Officers--Executive Officers' Compensation,"
below) and holds options to acquire 1,240,000 shares pursuant to options
granted under the 1995 Stock Incentive Plan, 128,000 of which are currently
exercisable (see "Compensation of Directors and Officers--Executive
Officers' Compensation," below).
(e) Mr. Arai owns 30,000 shares directly.
(f) Mr. Asakura owns 10,000 shares directly.
(g) Mr. Ashida owns 30,000 shares directly.
8
<PAGE>
(h) Mr. Brehm owns 8,334 shares directly which were acquired under the Company's
Grant Stock Plan; 31,667 shares are acquirable upon the exercise of options
under the Company's Equity Participation Plan (see "Compensation of
Directors and Officers--Executive Officers' Compensation," below) and holds
options to acquire 273,600 shares pursuant to options granted under the 1995
Stock Incentive Plan, 27,360 of which are currently exercisable (see
"Compensation of Directors and Officers-- Executive Officers' Compensation,"
below).
(i) Mr. Chai owns no shares directly. ITOCHU Corporation, of which he is
Executive Vice President, and ITOCHU International Inc., of which he is
Chairman of the Board and Chief Executive Officer, together own a total of
20,397,834 shares. Mr. Chai disclaims beneficial ownership of such shares.
(j) Mr. Kamata owns 100,000 shares directly. Additionally, Mr. Kamata is
Treasurer and a Director of IYG Holding Company. See "Security Ownership of
Certain Beneficial Owners," above.
(k) Mr. Keyes holds options to acquire 17,500 shares under the Company's Equity
Participation Plan (see "Compensation of Directors and Officers-- Executive
Officers' Compensation," below) and holds options to acquire 600,000 shares
pursuant to options granted under the 1995 Stock Incentive Plan, 50,000 of
which are currently exercisable (see "Compensation of Directors and
Officers--Executive Officers' Compensation," below).
(l) Mr. Krumholz owns 9,167 shares directly which were acquired under the
Company's Grant Stock Plan; 31,667 shares are acquirable upon the exercise
of options under the Company's Equity Participation Plan (see "Compensation
of Directors and Officers--Executive Officers' Compensation," below) and
holds options to acquire 700,000 shares pursuant to options granted under
the 1995 Stock Incentive Plan, 70,000 of which are currently exercisable
(see "Compensation of Directors and Officers--Executive Officers'
Compensation," below).
(m) Mr. Otsuka owns 30,000 shares directly. Additionally, Mr. Otsuka is
Assistant Secretary of IYG Holding Company. See "Security Ownership of
Certain Beneficial Owners," above.
(n) A limited partnership of which Dr. Pacholder is a general partner owns
160,000 shares of Southland. Dr. Pacholder is deemed to be the beneficial
owner of the number of such shares equal to his pro rata interest in the
partnership, which is approximately 10%.
(o) Mr. Sato owns 100,000 shares directly. Additionally, Mr. Sato is Chief
Financial Officer and a Director of IYG Holding Company. See "Security
Ownership of Certain Beneficial Owners," above.
(p) Mr. Smith owns 251 shares directly; 15,000 shares are acquirable upon the
exercise of options under the Company's Equity Participation Plan (see
"Compensation of Directors and Officers--Executive Officers' Compensation,"
below) and holds options to acquire 273,600 shares pursuant to options
granted under the 1995 Stock Incentive Plan, 27,360 of which are currently
exercisable (see "Compensation of Directors and Officers--Executive
Officers' Compensation," below).
(q) The total shares shown are as follows: 3,657,137 shares owned by officers
and directors directly or with family members; 570,000 shares acquirable by
17 officers upon exercise of options or conversion of convertible debentures
under the Equity Participation Plan; 468,000 shares pursuant to options
currently exercisable by 20 officers under the 1995 Stock Incentive Plan;
266,937,933 shares held by IYG Holding Company of which Messrs. Ito, Suzuki,
Sato, Kamata and Otsuka are the directors and officers, although they each
disclaim individual beneficial ownership of such shares, and 72,111,917
shares acquirable by Ito-Yokado and Seven-Eleven Japan (of either or both of
which Messrs. Ito, Suzuki, Kamata, Sato, Otsuka and Asakura are directors or
officers) upon conversion of the Convertible Debt Securities (as to which
Messrs. Ito, Suzuki, Kamata, Sato, Otsuka and Asakura disclaim beneficial
ownership).
9
<PAGE>
SECTION 16(a) REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. The Company believes
that during the fiscal year ended December 31, 1996, its officers, directors and
holders of more than 10% of the Company's Common Stock complied with all Section
16(a) filing requirements. In making these statements, the Company has relied
upon the written representations of its directors and officers.
PROPOSAL 2. APPROVAL OF 1997 PERFORMANCE PLAN
In 1993, Southland adopted a multi-year Performance Plan under which
officers and certain key employees of Southland are eligible to receive cash
awards based upon the Company's achievement of certain operating earnings
targets, both on an annual and a cumulative two-year basis. At the end of the
first two-year plan (1993 and 1994), the Performance Plan was renewed to cover a
new two-year period (1995 and 1996); however, no awards were earned under the
1995 Performance Plan for 1995 or 1996. This two-year plan is the only long-term
incentive plan ("LTIP") maintained by the Company, and in January 1997, the
Compensation and Benefits Committee of the Board approved the renewal of the
Plan to cover a new two-year term, covering 1997 and 1998.
Recently, the federal tax rules have been amended by adding Section 162(m)
to the Code which limits the deductibility, by publicly held companies, of
compensation amounts paid to certain senior officers which exceed $1 million,
unless certain requirements are satisfied. These requirements include
stockholder approval of an arrangement which meets the requirements of the rules
as they apply to "performance-based compensation." As noted in the "Compensation
Committee Report on Executive Compensation" included in this Proxy Statement,
the Committee believes the 1997 Performance Plan qualifies as "performance-based
compensation" and unanimously recommended that the Board of Directors submit the
1997 Performance Plan to the shareholders for approval so that the Plan would
conform with the shareholder approval requirements of Section 162(m).
The following summary description of the 1997 Performance Plan is qualified
in its entirety by reference to the 1997 Performance Plan, a copy of which is
attached hereto as Appendix A and incorporated herein by reference. Terms with
their initial letter capitalized that are used in this description and not
specifically defined herein shall have the same meaning given such terms in the
1997 Performance Plan.
GENERAL INFORMATION
Under the 1997 Performance Plan, eligible employees, including all officers,
are granted Performance Units, which are based upon the participant's salary
administration Grade Level. Cash Awards will be paid under the plan if the
Company's Actual Operating Earnings in either year in the Plan Period exceed the
threshold for Awards for that year or if the Company's Cumulative Actual
Operating Earnings exceed the Cumulative Threshold Operating Earnings for the
two-year period. A certain amount of each excess dollar of Actual Operating
Earnings funds the Award Pool under the plan. The amount paid per Performance
Unit is calculated as a pro rata portion of the Award Pool. The maximum amount
of the Award Pool is equal to the Annual Performance Incentive amount payable
under the Company's Annual Performance Incentive ("API" or "Annual Bonus") Plan
(at 100%) to all eligible employees for the Plan Period. The amount payable to
an individual participant is determined by dividing the cumulative number of
Performance Units outstanding at the end of the Plan Year for an Annual Award,
and at the end of the Plan Period for a Cumulative Award, into the Award Pool
and then multiplying the per unit amount by the number of Performance Units (not
cancelled or forfeited) held by that Participant.
10
<PAGE>
ADMINISTRATION
The 1997 Performance Plan is to be administered by the Company's
Compensation and Benefits Committee, which is appointed by the Board. It is
anticipated that, at any time that the members of the Compensation and Benefit
Committee do not qualify to administer the 1997 Performance Plan under Section
162(m) of the Code, then the Board or the Committee shall appoint a
sub-committee comprised of directors that do qualify. The committee that at any
time administers the 1997 Performance Plan is referred to as the "Committee."
The members of the Committee are Toshifumi Suzuki, Gary J. Fernandes and Kazuo
Otsuka. Committee members will serve in such capacity until their resignation or
removal at any time.
ELIGIBILITY
Employees in salary administration Grade Levels 41-44 and 50-58, or such
equivalent Grade Levels as may be established, are eligible to be selected for
participation in the 1997 Performance Plan, as selected by Southland's President
and approved by the Committee. The Company's executive officers are among the
employees eligible to participate in the Plan.
DETERMINATION OF AWARD
The number of Performance Units granted to a participant, for each Plan
Year, is equal to the Annual Performance Incentive payable (at 100%) at the
mid-point of the Participant's salary administration Grade Level on the
Determination Date for that Plan Year. The Award Pool, which is to be shared by
all eligible Participants, is equal to an amount, from $.35 to $.15, of each
dollar by which Southland's Actual Annual, or Actual Cumulative, Operating
Earnings exceed the Annual or Cumulative Threshold Operating Earnings set forth
in the Plan for the Plan Period, up to the maximum Award payable. The cumulative
number of Performance Units outstanding (and not otherwise forfeited due to
termination or ineligibility) will be divided into the Award Pool, and
Participants will receive a pro rata share of the Award Pool based upon the
number of Performance Units granted to the Participant as a proportion of the
total Performance Units outstanding under the Plan.
If a Participant's employment with the Company terminates due to death,
Disability, Divestiture, Retirement or termination by the Company for any reason
other than Cause, or the Participant is demoted to a non-eligible grade, the
Participant shall be entitled to a partial award under the Plan based upon the
number of days in the Plan prior to termination or cessation of participation.
The Participant's Performance Units for that Plan Year will be multiplied by a
fraction the numerator of which is the number of days the Participant worked
prior to termination or demotion and the denominator of which is 365.
Payment for any Awards earned will be made to Participants within 120 days
after the end of the Plan Year, if the Award is an Annual Award, and within 120
days after the end of the Plan Period, if the Award is a Cumulative Award.
MAXIMUM AWARDS TO ANY PARTICIPANT
The maximum that can be earned under the Plan depends upon a Participant's
salary administration Grade Level (which determines the number of Performance
Units the participant is granted) as well as on the Company's Actual Operating
Earnings for the Plan Year or the Plan Period compared with the Threshold
Operating Earnings set forth in the Plan for the same period. The amount earned
also depends upon how many other Performance Units are outstanding (and neither
cancelled, in situations such as Demotions, Divestitures or terminations, or
forfeited, for voluntary termination or termination for Cause) and eligible to
participate in the Award Pool.
11
<PAGE>
CALCULATION OF OPERATING EARNINGS
Actual Operating Earnings, as shown on the Company's internal financial
statements, are the earnings of the Company before non-operating income and
expense items, interest expense, taxes and extraordinary items. For 1997 and
1998, the Committee has determined that the Threshold Operating Earnings are
equal to the Company's Budgeted Operating Earnings for each year. For any Awards
to be earned under the Plan, the Company's Actual Operating Earnings must exceed
the Budgeted Operating Earnings, as shown on the annual budgets prepared by the
Company for internal use.
LIMITATIONS ON AWARDS
In the aggregate, for the Plan Period, the amount payable under the Plan
cannot exceed the cumulative amount payable under the Company's Annual Bonus
Plan, at 100%, to all employees eligible to participate in the Performance Plan.
In addition, the Company must have the liquidity to make the payments at the
time the Awards are payable.
AMENDMENT AND TERMINATION
The Board or the Committee may amend, suspend, or terminate the 1997
Performance Plan or any portion thereof at any time.
UNITS GRANTED
In 1996, Performance Units were granted to all eligible key employees
(approximately 360 persons); however, the Company's 1996 Actual Operating
Earnings did not exceed the 1996 Threshold Operating Earnings for the Plan, and
no Awards were paid.
The following table estimates the number of units that would be granted and
the value of such units based upon the number of units granted in 1996 and
assuming no changes in the number of participants in the Plan and the grade
levels assigned to such participants under the formula contained in the 1997
Performance Plan.
12
<PAGE>
NEW PLAN BENEFITS
1997 PERFORMANCE PLAN
<TABLE>
<CAPTION>
NUMBER OF UNITS
DOLLAR VALUE PURSUANT TO 1997
NAME AND POSITION ($) FORMULA
- ------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Clark J. Matthews, II.............................................. -0- 420,000
President and Chief Executive Officer; Secretary
James W. Keyes..................................................... -0- 155,000
Executive Vice President and Chief Financial Officer
Stephen B. Krumholz................................................ -0- 200,000
Executive Vice President and Chief Operating Officer
Rodney A. Brehm.................................................... -0- 112,500
Senior Vice President, Distribution
Bryan F. Smith, Jr................................................. -0- 112,500
Senior Vice President and General Counsel
Executive Officer Group (includes 16 persons)...................... -0- Total: 2,035,630
Non-Executive Officer Employee Group............................... -0- 6,954,648
</TABLE>
- ------------------------
(a) No units will be granted until May 1, 1997 and will be determined by each
Participant's 1997 salary administration Grade Level. In addition, the above
numbers indicate that there are 16 persons in the group of executive
officers. Certain officers have advised the Company of their intention to
retire in early 1997; therefore, they have been excluded from this table. In
addition, the actual number of units granted to this group and to all
participants may differ materially from the numbers shown in this table
which are only an estimate based on 1996 unit grants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1997
PERFORMANCE PLAN, WHICH REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
SHARES REPRESENTED AND ENTITLED TO VOTE AT THE MEETING. VOTES WILL BE TABULATED
BY AN INSPECTOR OF ELECTION. AN ABSTENTION FROM VOTING AND BROKER NON-VOTES WILL
BE INCLUDED IN COMPUTING THE NUMBER OF SHARES PRESENT FOR PURPOSES OF
DETERMINING THE PRESENCE OF A QUORUM FOR THE SHAREHOLDERS MEETING AND WHETHER
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES PRESENT AT THE MEETING HAS BEEN
RECEIVED, BUT WILL NOT BE COUNTED AS A VOTE EITHER "FOR" OR "AGAINST" THE
APPROVAL OF THE 1997 PERFORMANCE PLAN.
PROPOSAL 3. RATIFICATION OF THE SELECTION OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Coopers & Lybrand L.L.P. ("Coopers & Lybrand") to be the independent
auditors of the Company for 1997. Although not legally required to do so, upon
the recommendation of the Audit Committee, the Board is submitting the
appointment of Coopers & Lybrand as the Company's independent auditors for 1997
to the shareholders for ratification at this meeting.
The services provided to the Company by Coopers & Lybrand in 1997 will
include, in addition to performing the Company's audit, audits of certain
domestic and foreign subsidiaries and related companies and those of various
employee benefit plans; review of quarterly reports; issuance of letters to
underwriters in connection with registration statements, if any, filed by the
Company with the Securities and Exchange Commission; and consultation on
accounting, financial reporting, tax and related matters.
Coopers & Lybrand, a nationally known firm, has no direct or indirect
interest in the Company. The firm of Coopers & Lybrand has been the Company's
auditor since 1992.
13
<PAGE>
Representatives of Coopers & Lybrand will be at the meeting, will have an
opportunity to make a statement, if desired, and will be available to respond to
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND TO BE THE INDEPENDENT AUDITORS OF THE COMPANY
FOR 1997, WHICH REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES
REPRESENTED AND ENTITLED TO VOTE AT THE MEETING. VOTES WILL BE TABULATED BY AN
INSPECTOR OF ELECTION. AN ABSTENTION FROM VOTING AND BROKER NON-VOTES WILL BE
INCLUDED IN COMPUTING THE NUMBER OF SHARES PRESENT FOR PURPOSES OF DETERMINING
THE PRESENCE OF A QUORUM FOR THE SHAREHOLDERS MEETING AND WHETHER THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES PRESENT AT THE MEETING HAS BEEN
RECEIVED, BUT WILL NOT BE COUNTED AS A VOTE EITHER "FOR" OR "AGAINST"
RATIFICATION.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE OFFICERS' COMPENSATION
The Company's executive compensation program is subject to the approval of
the Compensation and Benefits Committee of the Board of Directors. The committee
is composed of three directors, as follows: Mr. Suzuki, the chairman of the
committee, is Vice Chairman of the Board of Directors, President of Ito-Yokado
and IYG Holding Company and Chairman of Seven-Eleven Japan. As described
elsewhere herein, IYG Holding Company, which owns approximately 65% of the
Common Stock of the Company, is a jointly owned subsidiary of Ito-Yokado and
Seven-Eleven Japan. Ito-Yokado has, since 1992, unconditionally guaranteed a
$400 million commercial paper facility established by the Company for which
Ito-Yokado has received no fee. Seven-Eleven Japan, a 51%-owned subsidiary of
Ito-Yokado, is the Company's area licensee in Japan and, through its subsidiary,
Seven-Eleven (Hawaii), Inc., is the Company's area licensee in Hawaii. On
November 22, 1995, Ito-Yokado and Seven-Eleven Japan acquired an aggregate of
$300 million of Southland 4.5% Convertible Quarterly Income Debt Securities due
2010, convertible into a total of 72,111,917 shares of Southland Common Stock.
Southland pays interest quarterly to Ito-Yokado and Seven-Eleven Japan on these
Convertible Debt Securities. The other committee members are Kazuo Otsuka, who
is an officer of Ito-Yokado, and Gary Fernandes, who is Vice Chairman and a
director of Electronic Data Systems Corporation. As described elsewhere herein,
the Company has entered into contractual arrangements with EDS under which EDS
has agreed to (1) install automatic teller machines in 7-Eleven stores over a
ten-year period and (2) provide the Company with certain consulting and business
systems planning services and data processing support for which EDS received
fees in 1996.
The Company's Executive Officers, as well as all other management personnel,
receive annual compensation consisting of base salary and annual performance
incentive, or "bonus," under the Company's Annual Performance Incentive ("API"
or "Annual Bonus") Plan. The amount paid as Annual Bonus under this plan is
based upon the employee's or officer's base salary, salary administration grade
level and the achievement of certain pre-established performance criteria for
the Company each year, as more fully described in the Report of the Compensation
and Benefits Committee, included elsewhere herein.
The following table shows the compensation paid, or earned, during 1996, by
the Company's Chief Executive Officer and the next four most highly compensated
Executive Officers, as specifically required by the rules and regulations
relating to Proxy Statement disclosure.
14
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION PAYOUTS
------------------------------------------------ AWARDS ---------------
OTHER ANNUAL ------------------------------
NAME AND SALARY BONUS COMPEN- RESTRICTED STOCK OPTIONS/ LTIP
PRINCIPAL POSITION YEAR ($)(I) ($)(II) SATION($)(III) AWARD(S)($) SARS(#) PAYOUTS($)(IV)
- ---------------------------- --------- --------- --------- --------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Clark J. Matthews, II....... 1996 410,000 216,480 N/A -0- 600,000 -0-
President and Chief 1995 410,000 196,800 640,000 -0-
Executive Officer; Secretary 1994 390,000 177,840 -0- 55,843
James W. Keyes.............. 1996 200,000 85,091 N/A -0- 350,000 -0-
Executive Vice President 1995 200,000 72,000 N/A 250,000 -0-
and Chief Financial Officer 1994 183,000 64,280 N/A -0- 15,746
Stephen B. Krumholz......... 1996 300,000 132,000 N/A -0- 350,000 -0-
Executive Vice President 1995 300,000 120,000 350,000 -0-
and Chief Operating 1994 271,000 112,980 -0- 29,788
Officer
Rodney A. Brehm............. 1996 210,000 83,160 N/A -0- 136,800 -0-
Senior Vice President, 1995 210,000 75,600 136,800 -0-
Distribution 1994 195,000 64,280 -0- 12,757
Bryan F. Smith, Jr.......... 1996 200,000 79,200 N/A -0- 136,800 -0-
Senior Vice President 1995 200,000 72,000 N/A 136,800 -0-
and General Counsel 1994 183,000 55,632 N/A -0- 12,757
<CAPTION>
ALL OTHER
NAME AND COMPEN-
PRINCIPAL POSITION SATION($)(V)
- ---------------------------- -----------
<S> <C>
Clark J. Matthews, II....... 280,114
President and Chief 10,680
Executive Officer; Secretary 9,981
James W. Keyes.............. 9,652
Executive Vice President 7,423
and Chief Financial Officer 6,929
Stephen B. Krumholz......... 10,049
Executive Vice President 7,638
and Chief Operating 7,239
Officer
Rodney A. Brehm............. 9,674
Senior Vice President, 7,519
Distribution 6,947
Bryan F. Smith, Jr.......... 9,636
Senior Vice President 7,479
and General Counsel 6,907
</TABLE>
- ------------------------------
(i) In general, officers received no salary increases in 1996.
(ii) Certain officers and other employees received special bonus amounts in
1994. The amounts paid as a special bonus to any of the five named executive
officers are included in the bonus amount shown.
(iii) No "Other Annual Compensation" is shown because the total amounts paid for
perquisites in 1994, 1995 and 1996 to the five named executive officers did
not exceed the lesser of $50,000 or 10% of the named executive officer's
salary and bonus for such years.
(iv) No amounts were paid for 1996 pursuant to the 1995 Performance Plan
because the Company's 1996 threshold operating earnings under the plan were
not achieved.
(v) Includes only (a) the amount of Company contribution to each of the named
executive officer's accounts in The Southland Corporation Employees' Savings
and Profit Sharing Plan (the "Savings and Profit Sharing Plan"), a Section
401(k) defined contribution plan with over 20,000 participants, which for
1996 was as follows: $8,850 for each of the named executive officers; (b)
for each of the named executive officers, the full premiums paid for basic
term life insurance under the Company's group plan for all employees, which
for 1996 were as follows: Mr. Matthews--$1,681; Mr. Keyes--$802; Mr.
Krumholz--$1,199; Mr. Brehm--$824; and Mr. Smith--$786; and (c) $269,583 to
Mr. Matthews in connection with the Company's request that Mr. Matthews
enter into a settlement of a previous insurance arrangement (see additional
information under "Certain Relationships and Related Transactions").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
In 1995, the Company's Board of Directors unanimously approved the adoption
of the 1995 Stock Incentive Plan, which was approved by the Company's
shareholders in 1996. Pursuant to the Stock Incentive Plan, the Board of
Directors granted, upon the recommendation of the Compensation and Benefits
Committee, nonqualified stock options to approximately 76 of the Company's key
employees in 1996, including each of the named executive officers, as well as
all other officers. Options to purchase an aggregate of 3,977,640 shares, over
the five-year vesting period, were granted. Under the terms of the plan, vesting
will be accelerated if certain target prices for the Company's Common Stock are
achieved and maintained.
15
<PAGE>
The following table provides information on the number of options granted,
the exercise price and expiration date of such options, as well as the potential
realizable value of the options assuming that the underlying Common Stock
appreciates in value from the date of grant at the annualized rates of 5% and
10%, as required by the Securities and Exchange Commission, and is not intended
to forecast future appreciation of the Company's stock price.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES
------------------------------------------------------------ OF STOCK PRICE APPRECIATION
NUMBER OF OF OPTION TERM(II)
SECURITIES PERCENT OF TOTAL ----------------------------
UNDERLYING OPTIONS/ SARS 5% ASSUMING 10% ASSUMING
OPTIONS/SARS GRANTED TO EXERCISE OR 9/30/06 STOCK 9/30/06 STOCK
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRICE OF PRICE OF
NAME (#)(I) FISCAL YEAR ($/SH) DATE $4.89 $7.78
- --------------------------- ------------- ----------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Clark J. Matthews, II...... 600,000 15.1% $ 3.00 9-30-06 $ 1,134,000 $ 2,868,000
James W. Keyes............. 350,000 8.8% $ 3.00 9-30-06 $ 661,500 $ 1,673,000
Stephen B. Krumholz........ 350,000 8.8% $ 3.00 9-30-06 $ 661,500 $ 1,673,000
Rodney A. Brehm............ 136,800 3.4% $ 3.00 9-30-06 $ 258,552 $ 653,904
Bryan F. Smith, Jr......... 136,800 3.4% $ 3.00 9-30-06 $ 258,552 $ 653,904
</TABLE>
- ------------------------------
(i) Options become exercisable as to 20% of the shares subject thereto on the
first through fifth anniversaries of the grant date. Thirty percent (30%) of
the shares received upon exercise will bear a legend restricting the
transfer or sale of such shares for 24 months after the date acquired,
unless the optionee dies, retires, becomes disabled or his employment is
terminated due to divestiture.
(ii) The amounts shown under these columns are the result of calculations at the
5% and 10% rates required by the Securities and Exchange Commission and are
not intended to forecast future appreciation of the Company's stock price.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information on the number of options
outstanding under both the Company's Equity Participation Plan and under the
1995 Stock Incentive Plan, as well as the value of unexercised options, both
exercisable and unexercisable, under both plans.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT AT FISCAL
FISCAL YEAR END(#) YEAR-END($)(III)
SHARES ACQUIRED VALUE ------------------------------ -----------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE(I) UNEXERCISABLE(II) EXERCISABLE(IV)
- ------------------------------ --------------- --------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Clark J. Matthews, II......... -- -- 284,667 1,112,000 N/A
James W. Keyes................ -- -- 67,500 550,000 N/A
Stephen B. Krumholz........... -- -- 101,667 630,000 N/A
Rodney A. Brehm............... -- -- 59,027 246,240 N/A
Bryan F. Smith, Jr............ -- -- 42,360 246,240 N/A
<CAPTION>
NAME UNEXERCISABLE(V)
- ------------------------------ -----------------
<S> <C>
Clark J. Matthews, II......... N/A
James W. Keyes................ N/A
Stephen B. Krumholz........... N/A
Rodney A. Brehm............... N/A
Bryan F. Smith, Jr............ N/A
</TABLE>
- ------------------------
(i) The exercisable options shown are held pursuant to the Equity Participation
Plan (including both Incentive Stock Options and Nonqualified Stock Options)
which became exercisable on December 31, 1994 and the 1995 Stock Incentive
Plan (pursuant to which 20% of the options granted in 1995 became
exercisable on October 23, 1996).
(ii) The unexercisable options shown are Nonqualified Stock Options granted in
1995 under the 1995 Stock Incentive Plan, at an exercise price of $3.1875
per share and granted in 1996 under the same
16
<PAGE>
plan at an exercise price of $3.00. The options granted will become
exercisable 20% per year for five years, which schedule can be accelerated
if certain share price targets are achieved.
(iii) No SARs are held by any of the named executive officers nor are any SARs
currently outstanding.
(iv) All options exercisable under the Equity Participation Plan have an
exercise price of $7.50 or $7.70 per share, and options exercisable under
the 1995 Stock Incentive Plan have an exercise price of $3.1875 per share.
(v) Based on the closing price of $2.97 on The Nasdaq Stock Market on the last
business day of the Company's fiscal year.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table provides information on performance units awarded under
the 1995 Performance Plan to the named executive officers during the year ended
December 31, 1996. Units have no cash value, but are used to determine the pro
rata interest of a participant in the Award Pool, if any, under the Plan.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE
NUMBER OF OR OTHER UNDER NON-STOCK PRICE-
SHARES, PERIOD BASED PLANS(A)(B)
UNITS OR UNTIL --------------------------
OTHER MATURATION THRESHOLD ($ MAXIMUM ($
NAME RIGHTS(#) OR PAYOUT OR #) OR #)
- -------------------------------------------------------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Clark J. Matthews, II......................................... 415,200 12/31/96 -0- 830,400
James W. Keyes................................................ 155,000 12/31/96 -0- 310,000
Stephen B. Krumholz........................................... 193,500 12/31/96 -0- 387,000
Rodney A. Brehm............................................... 112,500 12/31/96 -0- 225,000
Bryan F. Smith, Jr............................................ 112,500 12/31/96 -0- 225,000
</TABLE>
- ------------------------
(a) There is no "target" payout amount under the plan.
(b) No awards were earned under this plan for 1996.
All units granted, as described in the above table, were awarded pursuant to
the 1995 Performance Plan adopted by the Company in 1995 as an extension of the
1993 Performance Plan. (See "Approval of 1997 Performance Plan," above). The
plan has both annual and two-year cumulative operating earnings targets. Under
the 1995 Performance Plan, units were granted to eligible executives, including
all officers, based upon the salary administration grade level assigned to the
executive's job. All executives in the same grade level are awarded the same
number of units. Units are awarded for each year that the executive is a
participant in the plan. At the end of the plan period (December 31, 1996) the
award pool is to be funded by a predetermined amount of each dollar of actual
operating earnings achieved by the Company above the threshold operating
earnings set for each year and for the cumulative two-year period. The plan
contains both annual and cumulative thresholds. Failure to meet the threshold
operating earnings in one year could possibly have no impact if the other year's
results are sufficient to offset any shortfall.
The Company's 1996 operating earnings were not above the threshold for 1996
and, pursuant to the terms of the plan, no amounts were paid.
The maximum aggregate awards that can be paid under this plan are equal to
the total amount of Annual Bonus payable to the participants in this plan for
the plan period.
17
<PAGE>
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
The Company does not maintain a defined benefit pension plan for its
employees. It does maintain an Executive Protection Plan, covering approximately
83 executives, including each of the named executive officers. This plan
provides three benefits: salary continuation upon retirement at age 65 (or
later) equal to 150% of the executive's "final compensation," as determined for
plan purposes, payable in ten equal annual installments (if the executive
retires between the ages of 55 and 65, a reduced benefit is payable);
post-retirement life insurance benefit equal to 200% of the executive's "final
compensation," as determined for plan purposes, plus $15,000 (or, in lieu
thereof, if the executive dies prior to retirement, a salary continuation death
benefit shall be paid to the executive's named beneficiary, equal to 200% of
such compensation, payable in ten equal annual installments); and disability
income in excess of the amount provided under the Company's group long-term and
short-term disability plans. If the executive becomes disabled while a
participant in this plan, the total amount paid to the executive as disability
benefits will equal 80% of the executive's "final compensation" prior to the
disability. The Company maintains various insurance policies to fund the amounts
payable under this plan.
Under the current plan provisions, the "final compensation" on which
benefits would be calculated for each of the named executive officers would be
based on that executive's 1995 earnings (which may be adjusted to 1996 earnings
in mid-1997). Based on such compensation, the annual installment of salary
continuation, assuming retirement at age 65, and no adjustments to compensation
between 1995 and retirement, would be as follows: Mr. Matthews--$91,020, Mr.
Keyes--$40,800, Mr. Krumholz--$63,000, Mr. Brehm--$42,840 and Mr. Smith $40,800.
Under the plan, normal retirement age is 65; however, if an executive retires
between the ages of 55 and 65, a reduced benefit is payable under the plan. At
age 55, the benefit is 50% of what would have been paid at age 65; the benefit
increases to 55% at age 56, and increases 5% per year thereafter for each year
up to 100% at age 65.
DIRECTORS' COMPENSATION
For information about compensation of the Board of Directors see
"Information About The Board of Directors and Committees of the
Board--Compensation of Directors," above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As described above, the Compensation and Benefits Committee of the Board of
Directors is composed of three directors, as follows: Mr. Suzuki, the chairman
of the committee, is Vice Chairman of the Board of Directors, President of
Ito-Yokado and IYG Holding Company and Chairman of Seven-Eleven Japan. As
described elsewhere herein, IYG Holding Company, which owns approximately 65% of
the Common Stock of the Company, is a jointly owned subsidiary of Ito-Yokado and
Seven-Eleven Japan. Ito-Yokado has, since 1992, unconditionally guaranteed a
$400 million commercial paper facility established by the Company for which
Ito-Yokado has received no fee. Seven-Eleven Japan, a 51%-owned subsidiary of
Ito-Yokado, is the Company's area licensee in Japan and, through its subsidiary,
Seven-Eleven (Hawaii), Inc., is the Company's area licensee in Hawaii. On
November 22, 1995, Ito-Yokado and Seven-Eleven Japan acquired an aggregate of
$300 million of Southland 4.5% Convertible Quarterly Income Debt Securities due
2010, convertible into a total of 72,111,917 shares of Southland common stock.
Southland pays interest quarterly to Ito-Yokado and Seven-Eleven Japan on these
Convertible Debt Securities. The other committee members are Kazuo Otsuka, who
is an officer of Ito-Yokado, and Gary Fernandes, who is Vice Chairman and a
director of Electronic Data Systems Corporation. As described elsewhere herein,
the Company has entered into contractual arrangements with EDS under which EDS
has agreed to (1) install automatic teller machines in 7-Eleven stores over a
ten-year period and (2) provide the Company with certain consulting and business
systems planning services and data processing support, for which EDS received
fees in 1996.
Both Mr. Suzuki and Mr. Otsuka served as officers and/or directors of IYG
Holding Company, Ito-Yokado and/or Seven-Eleven Japan during 1996.
18
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The functions of the Compensation and Benefits Committee are to review the
level, coverage and competitiveness of the Company's compensation, incentives,
benefits and perquisites and its plans, goals and objectives for officer-level
and other executive positions, so as to retain and reward high-quality personnel
in key positions; to administer the Equity Participation Plan, Grant Stock Plan,
1997 Performance Plan and the 1995 Stock Incentive Plan; to make recommendations
to the Board regarding amendments to the various plans and institution of new
plans and other related matters. It also undertakes such other duties as may be
assigned to it by the Board of Directors.
In carrying out its duties, the Committee has considered the recommendations
presented to it by outside consultants who have been utilized from time to time
to assist the Company in determining the competitiveness of its compensation
policies, as well as on recommendations of the Company's executive officers with
regard to the specific performance of individuals in carrying out their job
responsibilities, and on data collected and utilized by the Company's
Compensation and Benefits Department about compensation structure, practices and
payment levels in certain "Comparable Companies" (as described below).
In 1993, as the result of a Company-wide analysis of position
responsibilities and classifications, all exempt jobs were evaluated, and the
Company's compensation practices were compared against the compensation
practices of companies of similar size for jobs of similar responsibilities and
in the various geographic areas where the Company's employees are located. The
resulting job reclassification affected all exempt job levels, including
officers. The Company's compensation structure relies on grade level
classifications for all exempt positions, with a salary range being assigned to
each grade level. Annual compensation consists of salary (or "base"
compensation) and an Annual Performance Incentive (called "API" or "Annual
Bonus") which is paid only if certain pre-established performance goals are
achieved by the Company (most recently payment of API has been dependent on the
achievement of certain operating earnings targets). The API payable to any
employee is a set percentage of the employee's salary, based on grade level. The
combined total of full annual salary and full API at the mid-point of each grade
level is designed to achieve a compensation level that is slightly above the
median compensation level for the same job responsibilities in Comparable
Companies. During recent years the API targets have been only partially
achieved, resulting in payment of less than the full API potential.
DESCRIPTION OF 1996 COMPENSATION
BASE SALARY. Based upon the Company's shortfall in achieving certain
internal performance targets, increases for officers, as well as the top two
grade levels of below-officer-level managers, were not granted in 1996. Thus,
officers did not receive any base salary increases for 1996, except in one
instance as the result of a promotion to a new grade level. For 1997, officer
salaries have been increased, with consideration given to the fact that, in
general, officers received no increases in two of the last three years.
ANNUAL PERFORMANCE INCENTIVE. The Company's executive officers and all
exempt personnel receive annual compensation consisting of a combination of base
salary and the potential to earn API. The Chief Executive Officer and all
executive officers are compensated under the API plan. The API potential for the
Chief Executive Officer, if the Company's earnings target is reached, is 60% of
his base salary. The Company's senior officers have API potential of from 50% to
45% of their base salary. Other executive officers have a potential to earn
between 45% and 34% of their base salary.
The amount of API received by any particular executive for service in 1996
was based upon the Company's achievement of certain operating earnings threshold
and budgeted target and above-budget goal levels, as set forth in the Company's
internal budget documents. Under the plan, as designed for 1996, if the budgeted
operating earnings amount was achieved, then 100% of the API would have been
earned and, if operating earnings exceeded the budgeted amount, then a set
amount of each excess dollar of operating earnings would have funded the payment
of additional API. The maximum that can be earned
19
<PAGE>
under this plan is 200% of the targeted amount of API. Based upon the
calculations under the formula for this plan and the Company's actual operating
earnings, 88% of the targeted API was paid for 1996.
1995 PERFORMANCE PLAN. In 1993, the Company initiated a multi-year
incentive plan, the Performance Plan, which was designed to retain and reward
employees whose responsibilities were directly related to the Company's
performance. In 1995, the Committee approved extension of the Performance Plan
for 1995 and 1996. This plan provided for two-year cumulative operating earnings
targets. Performance units were granted to eligible executives, including all
officers, based upon the salary administration grade level assigned to the
executive's job. All executives in the same grade level were awarded the same
number of units. During both 1995 and 1996 the threshold operating earnings
targets were not met and no awards were earned under this plan.
1995 STOCK INCENTIVE PLAN. During 1995, after reviewing the Company's
executive benefit package with outside consultants, the Committee decided that
it was appropriate to adopt a plan that would provide equity-based awards to key
members of the Company's management team. After extensive consideration, the
Committee recommended, and the Board of Directors adopted, the 1995 Stock
Incentive Plan. The plan provides for the Company to award a variety of
stock-based incentives, including options, stock units, restricted stock,
phantom stock and stock appreciation rights. Based on the study of practices at
Comparable Companies, the Board has set aside from the Company's authorized, but
unissued, shares, approximately 10% of the Company's currently issued and
outstanding shares, for awards under this plan over the ten-year term of the
plan, with approximately one-tenth of the amount reserved to be issued each
year. Shareholder approval of this plan was obtained in April 1996.
Options were granted under this plan in October 1995 and again in October
1996. The options issued become exercisable over a five-year period starting one
year after the date of grant. Approximately 8 million shares of the Company's
authorized but unissued Common Stock is now subject to outstanding options under
this plan. The option exercise price is $3.1875 for the options granted in 1995
and $3.00 for the options granted in 1996, in each case being equal to the
closing price of the stock on the date of grant. The Committee believes this
plan, which provides for an accelerated vesting schedule if the Company's stock
price reaches and stays above certain levels for a significant period of time,
will assist in rewarding and retaining the executives who are responsible for
the success of the Company's long-term growth.
CHIEF EXECUTIVE COMPENSATION. Mr. Matthews did not receive a salary
increase in 1996. For 1997, Mr. Matthews' base pay was increased to $480,000.
Mr. Matthews' compensation remains well below the median for chief executive
officers in Comparable Companies.
EQUITY PARTICIPATION PLAN. This plan, adopted in 1988 following the
Company's leveraged buyout, remains in place. Options granted under the plan
became exercisable on December 31, 1994 and will expire on December 31, 1997.
Under current market conditions, the options are without value, as the exercise
price to acquire a share of common stock is $7.50 or $7.70 under the plan. The
Company does not intend to grant any new awards under this plan.
FUTURE COMPENSATION
1997 PERFORMANCE PLAN. The Committee has approved adoption of the 1997
Performance Plan (which is described in greater detail elsewhere in this Proxy
Statement). This plan is an extension of the same benefits that were contained
in the 1995 Performance Plan, which expired on December 31, 1996. The new plan
contains 1997 and 1998 targets and thresholds. Under this plan, Performance
Units are granted to eligible executives, including all officers, based upon the
salary administration grade level assigned to the executive's job. All
executives in the same grade level are awarded the same number of units. Units
are awarded for each year that the executive is a participant in this plan.
Threshold Operating Earnings targets are set, based on internally budgeted
earnings criteria for (a) each year in the Plan Period, and (b) the cumulative
two-year term. Awards are paid if the threshold is exceeded during either year
in
20
<PAGE>
the Plan Period and, if the results in either the first or second year exceed
the annual target, then any excess amount can be applied to the cumulative
target.
The award pool for this plan is funded by a predetermined amount of each
dollar of operating earnings achieved by the Company above the threshold set for
each year in the plan term and for the cumulative two-year term. In 1997, the
threshold has been set as budgeted operating earnings, as set forth in the
Company's internal budget documents. For each excess dollar of operating
earnings that is achieved, from $.15 to $.35 will be contributed to the award
pool, until the maximum awards payable under this plan have been funded. The
maximum aggregate awards that can be paid under this plan are equal to the total
amount of API payable to the participants in this plan for the plan period
(i.e., the total of 1997 and 1998 API payable at 100% to all executives eligible
to participate in the plan), and this amount shall be paid if the cumulative
maximum target is achieved at the end of the plan term. See additional
discussion under "Item 2.--Approval of 1997 Performance Plan."
COMPENSATION PRACTICES UNDER REVIEW. In response to concerns with different
aspects of the Company's pay program for exempt employees, the Executive
Committee, composed of three members of Southland's management team has asked
the Compensation Department to review Southland's compensation and benefits
strategy and assess the degree to which it supports the Company's business
strategies. The focus of this project will be exempt, non-store employees,
although the implications for store management and staff positions will be
considered. Some areas which have been questioned are the current job evaluation
approach, the number of grades/ranges, the performance management system, and
short term and long term incentive programs. The project will begin with a
series of senior management interviews. The goal is to obtain information about
how the Company's reward programs might be improved to assist the company in
achieving its goals. The purpose of this project will be to develop a strategy
that will allow Southland to continue to attract, retain, and motivate
outstanding employee talent.
SECTION 162(M). Changes in the tax laws for 1994 and thereafter do not
permit public companies to recognize a tax deduction for compensation paid in
excess of $1,000,000 to any of the five most highly compensated officers, unless
the plan under which such compensation is paid is not only approved by the
Board's Compensation Committee but is also performance-based and approved by the
Company's shareholders, in which case the compensation paid under such plan is
exempt from the $1,000,000 limitation. Although the Committee does not believe
that any executive will earn in excess of $1,000,000 of non-exempt compensation
in 1997, the Committee has recommended that the Board request shareholder
approval for the 1997 Performance Plan, in order to comply with Section 162(m).
In addition, the Committee intends to take other actions, if required, to comply
with the regulations under Section 162(m).
APPROVAL OF PLANS. Although the Committee does not believe that any
executive will earn in excess of $1,000,000 in 1997, the Committee has
recommended that the 1997 Performance Plan be presented to the shareholders, at
this meeting, for approval, so that any compensation paid under that plan, all
of which is performance based, will be exempt from the $1,000,000 limit
contained in Section 162(m) of the Internal Revenue Code. Based on the
Committee's recommendation, shareholder approval of the 1997 Performance Plan is
being requested by the Board and the plan is more fully described in Item 2,
being presented to the shareholders for approval, in this Proxy Statement. The
1995 Stock Incentive Plan was approved by the shareholders in 1996 and the
Equity Participation Plan, which was adopted in 1988 is not subject to the 1994
tax law limitations on deductibility.
COMPARATIVE DATA. In carrying out its functions, the Committee refers to
data collected from various sources by the Company's Compensation and Benefits
Department. The Company believes that, to effectively recruit talented
executives, it must compete with other national companies having a similar
employee base, approximately the same range of revenue and similar geographic
locations, although such companies are not in the same line of business as
Southland (the "Comparable Companies"). Therefore, the companies used for
compensation comparisons are not the same companies as those included in the
peer group index shown on the Performance Graph appearing elsewhere herein. The
companies included
21
<PAGE>
in that peer group are specifically selected because they (1) are publicly owned
with actively traded common stock, (2) have a market capitalization that can be
analyzed for comparison with Southland's rate of return on equity, and (3)
engage in either the convenience retailing or food retailing business. The
Company believes it competes with a much broader range of companies in its quest
for executive talent.
The Committee will continue to review the compensation package provided for
the Chief Executive Officer and other executive officers, and to monitor its
competitiveness within the industry and the community, as well as its
relationship to shareholders' return on investment in the Company, making
adjustments that are deemed appropriate, both in compensation policies and
practices, compensation structure and the actual amounts paid and will look to
the Company's Executive Committee for recommendations resulting from the newly
commenced review of the compensation program and strategies.
Toshifumi Suzuki, Chairman
Gary J. Fernandes
Kazuo Otsuka
PERFORMANCE GRAPH
The Performance Graph, below, shows the value, at year-end 1992, 1993, 1994,
1995 and 1996 of an investment in Southland Common Stock of $100 on December 31,
1991. Also shown are the values, assuming $100 invested in the NASDAQ Market
Index and a peer group index selected by the Company consisting of three
publicly traded convenience store companies (Casey's General Stores, Inc., Dairy
Mart Convenience Stores, Inc. and Uni-Marts, Inc.) and three food retailers (The
Kroger Co., Safeway, Inc. and The Vons Companies Inc.), also beginning on
December 31, 1991, and at year-end 1992, 1993, 1994, 1995 and 1996. Missing from
the peer group are two of the Company's major convenience store competitors: the
Circle K Corporation ("Circle K") and National Convenience Stores (operator of
"Stop N Go"), as both companies have been acquired and do not issue securities
to the public at this time. The Company may decide, in future years, to change
the composition of the peer group if the Company believes that better
comparative data is available.
22
<PAGE>
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG THE SOUTHLAND CORPORATION,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE SOUTHLAND CORPORATION PEER GROUP NASDAQ MARKET INDEX
<S> <C> <C> <C>
1991 $ 100.00 $ 100.00 $ 100.00
1992 323.34 74.91 110.78
1993 720.00 93.45 132.88
1994 480.00 121.60 139.51
1995 353.33 191.50 180.96
1996 158.34 329.27 204.98
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 31, 1991
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1996
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31
-----------------------------------------------------
COMPANY 1992 1993 1994 1995 1996
- ----------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
The Southland Corporation........................................ 323.34 720.00 480.00 353.33 158.34
Peer Group....................................................... 74.91 93.45 121.60 191.50 329.27
NASDAQ Market Index.............................................. 110.78 132.88 139.51 180.96 204.98
</TABLE>
Source of information: Media General Financial Services
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In November 1995, the Company issued a total of $300 million 4.5%
Convertible Quarterly Income Debt Securities due 2010 to Ito-Yokado ($153
million) and Seven-Eleven Japan ($147 million). Interest is payable quarterly,
and in 1996, the Company paid Ito-Yokado $6,885,000 in interest and paid
Seven-Eleven Japan $6,615,000 in interest on the Convertible Debt Securities.
Interest payments will continue to total approximately $13.5 million per year.
The Company may defer the interest payments for up to 20 consecutive quarters
but currently intends to make interest payments as they come due. In addition,
the Convertible Debt Securities are convertible into a total of 72,111,917
shares of Southland Common Stock at a conversion price of $4.16 per share.
On September 9, 1992, the Company began issuing commercial paper in a
program under which it can issue up to $400 million based upon the Company's
needs. The commercial paper facility is unconditionally guaranteed by
Ito-Yokado.
Seven-Eleven Japan is the largest area licensee of the Company, operating,
as of December 1996, over 6,700 7-Eleven stores in Japan under an area license
agreement entered into in 1973. In 1988, the Company entered into a financing
arrangement pursuant to which it pledged the royalty stream from Seven-Eleven
Japan as collateral for the approximately twenty-year term of the financing.
Thereafter, the royalties under the area license agreement, at a reduced
percentage, will again be paid to the Company. In 1996, the royalties from
Seven-Eleven Japan that were paid under this arrangement totaled $46,497,534.
23
<PAGE>
In addition, Seven-Eleven (Hawaii), Inc., the Company's area licensee in
Hawaii, is a subsidiary of Seven-Eleven Japan, and operates 47 stores in Hawaii.
During 1996, Seven-Eleven (Hawaii), Inc. paid the Company $64,048 in connection
with the area license arrangement.
As of December 31, 1996, the Savings and Profit Sharing Plan leased a total
of 743 operating convenience stores to the Company plus 50 other locations at
rates slightly more favorable for the Savings and Profit Sharing Plan than
contemporaneously available similar transactions with third parties. Rentals,
including percentage rents, paid by the Company to the Savings and Profit
Sharing Plan for 1996 aggregated $26,480,034. During 1996, the Savings and
Profit Sharing Plan sold 46 locations to third parties, 20 of which were leased
to the Company at the time of the sale, which leases were assigned to the buyer.
The leases with the Company were terminated on 26 locations upon payment by the
Company of $283,382 in termination fees.
Gary J. Fernandes, a director of Southland, is an officer and director of
Electronic Data Systems Corporation ("EDS"). During 1996, EDS provided the
Company with certain consulting and business systems planning and development
services to assist the Company in its planning and production of data processing
support for the Company's retail information system, combined distribution
centers, and an environmental compliance tracking and control system. During
1996, EDS also provided support and maintenance in connection with the Company's
projects to convert its General Ledgers, Accounts Payable, Human Resources,
Legal File Management and Security systems to new software. During 1996, the
Company paid EDS a total of approximately $24 million in connection with these
business systems planning and retail automation projects. Such payments are
expected to continue in the future, pursuant to the terms of the relevant
agreements.
In addition, the Company has an ongoing agreement with EDS, originally
entered into in 1993 with a ten-year term, for the installation and operation of
ATMs in 7-Eleven stores. Payments from EDS to the Company, under this agreement,
include both a flat fee per month per store and transaction-based fees
determined by the number of transactions completed on the ATM each month.
Payments to the Company under these agreements relating to operation of ATMs in
the Company's stores totaled approximately $9.3 million in 1996. In addition,
during 1996, the Company received approximately $1 million from EDS for
advertising and reimbursements under these agreements. Such payments are
expected to continue in the future.
Southland also leases property in Arlington, Texas, from EDS for annual
rental of $10,062.
Mr. Fernandes has no personal material interest in any transactions between
the Company and EDS, other than as a director and officer of EDS.
Mr. Chai is Chairman and Chief Executive Officer of ITOCHU International
Inc. and Executive Vice President of ITOCHU Corporation. Both ITOCHU
International and ITOCHU Corporation are general trading companies and each has
a 10% direct equity interest in Prime Deli, Inc., a company that operates a
fresh food commissary for Southland, serving approximately 287 7-Eleven stores
in Texas. During 1996, Southland purchased fresh food products from the
commissary for approximately $6.7 million and, in addition, paid Prime Deli
approximately $16,000 as fees related to research and development, advertising,
promotions and product write-off.
In addition, SIG Logistics, which is partially owned by ITOCHU Corporation
and ITOCHU International, operated a combined distribution center in Orlando,
Florida that served 169 7-Eleven stores in 1996, and, in January 1997, SIG
Logistics opened a combined distribution center in Tampa, Florida, to serve
approximately 107 stores. During 1996 the fees paid to SIG Logistics as
distribution fees totaled approximately $699,000.
C. Itoh & Co. (now ITOCHU Corporation) entered into a Consulting Agreement
with The Southland Corporation and Seven-Eleven Japan Co., Ltd. in 1973, related
to the 7-Eleven convenience store chain operating in Japan, and has performed
under this agreement since then.
24
<PAGE>
In addition, ITOCHU International and ITOCHU Corporation may, from time to
time, negotiate with the Company to provide additional goods or services.
Mr. Chai has no personal material interest in any transactions between the
Company and ITOCHU Corporation and ITOCHU International Inc., other than as a
director and/or officer of such companies.
In December, 1996, at Southland's request, Mr. Matthews and Southland
entered into a Mutual Release and Settlement Agreement relating to an insurance
arrangement that had been in existence since 1989, which obligated Southland to
advance funds to Mr. Matthews, and certain other former directors, to maintain
additional life insurance, covering the individual insured's life, for the
benefit of his named beneficiaries. The insurance policy was assigned as
collateral to the Company for the premium loans. As part of the settlement, Mr.
Matthews repaid the amount loaned to him by Southland ($158,919) and the Company
was released from all further obligations to advance the premiums on the policy.
The Company paid Mr. Matthews $269,583 and assigned to Mr. Matthews an
additional $822,000 death benefit under a separate policy owned by the Company
covering Mr. Matthews' life, which replaced the insurance provided under the
1989 arrangement.
SHAREHOLDER PROPOSALS
Any shareholder intending to present a proposal and wishing to have it
included in the Proxy Statement for the Company's 1998 Annual Meeting of
Shareholders, which is expected to be held during April or May 1998, must send
such proposal to the Company at its principal office, 2711 North Haskell Avenue,
Dallas, Texas 75204, Attn: Office of the Secretary. Such proposal must be
received by the Company not later than December 1, 1997, and must comply with
the then current rules of the Securities and Exchange Commission relating to
shareholder proposals.
ANNUAL REPORT
The Annual Report of the Company for the year ended December 31, 1996 is
being mailed to shareholders with this Proxy Statement but such report is not
incorporated in this Proxy Statement and is not deemed to be a part of the proxy
soliciting material. A COPY OF SOUTHLAND'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1996 (WITHOUT EXHIBITS ) WILL BE FURNISHED TO
SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO: MANAGER, INVESTOR
RELATIONS, THE SOUTHLAND CORPORATION, 2711 NORTH HASKELL AVENUE, DALLAS, TEXAS
75204.
OTHER BUSINESS
Management knows of no other matters to be brought before this meeting.
However, if other business should come before this meeting, it is the intention
of each person named in the proxy to vote such proxy in accordance with his
respective judgment on such matters. Minutes of the last Annual Meeting of
Shareholders will be approved. Management's reports will be heard and received.
Neither the hearing of the reports nor the approval of the minutes will
constitute approval or disapproval of the matters set forth therein.
INDEMNIFICATION
Pursuant to the Company's Articles of Incorporation and Bylaws and the Texas
Business Corporation Act, the Company has indemnified certain current and former
officers and directors in connection with pending litigation as well as with
other actions they may have taken while serving as directors or officers of the
Company.
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APPENDIX A
THE SOUTHLAND CORPORATION
1997 PERFORMANCE PLAN
SECTION 1: PURPOSE
The purpose of this Plan is to (a) provide incentives and rewards to
eligible Employees of the Corporation by allowing Participants to earn Awards
based upon the Corporation's performance; (b) assist the Corporation in
attracting, retaining, and motivating employees of high ability and experience;
(c) direct the focus of management on maximizing the value of the Corporation as
a going concern over a multi-year period; and (d) promote the long-term
interests of the Corporation and its shareholders.
SECTION 2: DEFINITIONS
2.1 ACTUAL OPERATING EARNINGS, shall mean Operating Earnings in a particular
Plan Year, as set forth on the Corporation's internal financial statements for
such Plan Year, calculated in accordance with GAAP; both the calculation of
Operating Earnings and the internal financial statements being certified by the
Corporation's Chief Accounting Officer (1) as accurate and (2) that such
Operating Earnings were calculated, and such financial statements were prepared,
in a manner consistent with the accounting principles utilized in preparation of
the Corporation's annual budget.
2.2 ANNUAL AWARD shall mean the amount payable to a Participant pursuant to
Section 5.5 if the Annual Threshold Operating Earnings set forth on Exhibit 1
are achieved.
2.3 ANNUAL AWARD POOL shall mean the amount available for payment of Annual
Awards as a result of the achievement of Actual Operating Earnings in excess of
Threshold Operating Earnings in any Plan Year as described in Section 5.4.
2.4 AWARD shall mean the amount payable, either as an Annual Award or
Cumulative Award, to Participants in this Plan.
2.5 BENEFICIARY shall mean a Participant's beneficiary designated in
accordance with Section 7.
2.6 BOARD shall mean the Board of Directors of the Corporation.
2.7 BONUS AMOUNT shall mean the annual amount payable, as of the
Determination Date (at 100% of normal bonus) under the Corporation's Annual
Performance Incentive Plan, in each Plan Year for Employees in Grade Levels
50-58 and 41-44 or such equivalent Grade Levels as may be established.
2.8 BUDGETED OPERATING EARNINGS shall mean the amount of Operating Earnings
included in the Corporation's annual budget for a particular year, as determined
during the budgeting process, generally in the fourth quarter of the preceding
year.
2.9 CAUSE shall mean acts constituting insubordination, theft, dishonesty,
fraud, embezzlement or other acts detrimental to the interests of the
Corporation, or any breach of any employment, nondisclosure, noncompetition or
other contract with the Corporation, all as determined in good faith by the
Committee.
2.10 COMMITTEE shall mean the Compensation and Benefits Committee of the
Board or, if such committee has not been designated, shall mean the Board.
2.11 CORPORATION shall mean The Southland Corporation, a Texas corporation,
and any of its wholly owned subsidiaries, and any successor or assignee of The
Southland Corporation, by merger, consolidation, acquisition or otherwise, of
all or substantially all of the assets thereof.
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2.12 CUMULATIVE AWARD shall mean an amount payable to participants based on
the achievement of Excess Actual Operating Earnings in either, or both, Plan
Years.
2.13 CUMULATIVE AWARD POOL shall mean the amount available to pay Cumulative
Awards as a result of the achievement of Excess Actual Operating Earnings.
2.14 DEPARTMENT shall mean the Corporation's Compensation and Benefits
Department.
2.15 DETERMINATION DATE shall mean the date designated by the Committee each
Plan Year, or, if no date is so designated, May 1 of each Plan Year, for certain
specified purposes under the Plan.
2.16 DISABILITY shall mean the mental or physical disability, either
occupational or non-occupational in cause, which, in the opinion of the
Committee, on the basis of medical evidence satisfactory to it, prevents the
employee from engaging in any occupation or employment for wage or profit, which
has continued for at least 12 months and is likely to be permanent.
2.17 DIVESTITURE shall mean the sale of, or closing by, the Corporation of
the business operations in which the Participant was employed.
2.18 EMPLOYEE shall mean any person employed by the Corporation.
2.19 EXCESS ACTUAL OPERATING EARNINGS shall mean Actual Operating Earnings
in a Plan Year that are in excess of the Actual Operating Earnings required to
pay 100% of the Annual Awards under this Plan for the particular Plan Year.
Excess Actual Operating Earnings shall be used to fund the Cumulative Award
Pool.
2.20 GAAP shall mean generally accepted accounting principles in the United
States as in effect from time to time.
2.21 GRADE LEVEL shall mean a Participant's grade level classification (as
such grade levels are specified in the Corporation's exempt salary
administration and/or job evaluation programs) as of the Determination Date in
the Plan Year for which his or her Grade Level is to be determined.
2.22 OPERATING EARNINGS shall mean the earnings of the Corporation before
non-operating income and expense items, interest expense, taxes and
extraordinary items, as set forth on the Corporation's internal financial
statements for such Plan Year, calculated in accordance with GAAP and in a
manner consistent with the accounting principles utilized in preparation of the
Corporation's annual budget for such Plan Year; both the calculation of
Operating Earnings and the internal financial statements being certified by the
Corporation's Chief Accounting Officer (1) as accurate and (2) that such
Operating Earnings were calculated, and such financial statements were prepared,
in a manner consistent with the accounting principles utilized in preparation of
the Corporation's annual budget.
2.23 PARTICIPANT shall mean any Employee who is selected to participate in
the Plan as of the Determination Date.
2.24 PERFORMANCE UNIT shall mean a unit of measurement for purposes of
determining a Participant's Award under the Plan, as more fully described in
Section 5.2.
2.25 PLAN shall mean The Southland Corporation 1997 Performance Plan, as it
may be amended from time to time.
2.26 PLAN PERIOD shall mean the two-year period commencing on January 1,
1997, and ending on December 31, 1998.
2.27 PLAN YEAR shall mean a calendar year occurring during the Plan Period.
2.28 RETIREMENT shall mean, in the case of any Participant, the date
established by the Corporation as his or her normal retirement date, generally
when the Participant reaches age 65 (or earlier if approved by the President of
the Corporation).
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2.29 THRESHOLD OPERATING EARNINGS for a Plan Year shall equal Budgeted
Operating Earnings for such Plan Year, or, if the Committee so determines, a
different amount that is based on Budgeted Operating Earnings, with the number
as determined for each year to be as set forth in Exhibit 1.
SECTION 3: ADMINISTRATION
3.1 COMMITTEE. This Plan shall be administered by the Committee.
3.2 COMMITTEE'S POWERS. Subject to the express provisions hereof and in
addition to the other powers set forth in this Plan, the Committee shall have
the authority, in its sole and absolute discretion, to (i) determine criteria
for eligibility for inclusion in this Plan; (ii) adopt, amend, and rescind
administrative and interpretive rules and regulations relating to this Plan;
(iii) construe this Plan or any agreements contemplated hereunder; and (iv) make
all other determinations and perform all other acts necessary or advisable for
administering this Plan, including the delegation of such ministerial acts and
responsibilities as the Committee deems appropriate. The Committee may correct
any defect or supply any omission or reconcile any inconsistency in this Plan or
in any agreement contemplated hereunder in the manner and to the extent it shall
deem expedient to carry it into effect and it shall be the sole and final judge
of the necessity of such action. The determination of the Committee on the
matters referred to in this Section 3.2 shall be final and conclusive.
3.3 ADMINISTRATION. The Department shall (i) prepare and distribute
designation of beneficiary forms to Participants; (ii) maintain records of
designations of Beneficiaries; (iii) prepare communications to Participants;
(iv) prepare reports and data required by the Corporation, the Committee and
government agencies; (v) obtain data requested by the Committee; and (vi) take
such other actions requested by the Committee as are necessary for the effective
implementation of the Plan.
SECTION 4: PARTICIPATION
4.1 ELIGIBILITY. Eligibility for participation in the Plan shall be
limited to those Employees who, as of the Determination Date, are in Grade
Levels 50-58 or 41-44 or such equivalent Grade Levels as may be established, and
who, in the judgment of the Committee or the President of the Corporation, have
the ability and opportunity to influence significantly the Corporation's
performance over a multi-year period. Employees shall be selected for
participation in the Plan as of the Determination Date each year, as approved by
the President of the Corporation.
SECTION 5: AWARDS
5.1 GENERAL. A Participant shall be entitled to an Annual Award or
Cumulative Award out of the applicable Award Pool with respect to any Plan Year
or the Plan Period, if the performance level described in Section 5.3 is
achieved.
5.2 PERFORMANCE UNITS.
(a) Based on the Grade Level of each Participant as of the Determination
Date in a Plan Year, the Committee shall grant to each Participant for such Plan
Year a specified number of Performance Units as determined under subsection (b)
below. Performance Units shall be solely units of account, shall imply no
ownership interest in the Corporation, and shall carry no value outside the
context of the Plan.
(b) The number of Performance Units to be granted to each Participant for
each Plan Year shall equal the Bonus Amount payable to a person earning the
mid-point of such Participant's Grade Level (as determined as of the
Determination Date) for such Plan Year.
5.3 PERFORMANCE LEVEL. The performance level under the Plan can be
satisfied either on an annual or a cumulative basis. If at the end of any year
in the Plan Period, Actual Operating Earnings exceed Threshold Operating
Earnings, then the performance level under the Plan is satisfied for that year
and the
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Annual Award Pool shall be determined in accordance with the formula for
determining the Annual Award Pool for that year, as set forth in Section 5.4. In
addition, if there are Excess Actual Operating Earnings in any Plan Year, then
those Excess Actual Operating Earnings shall be used to fund the Cumulative
Award Pool, using the formula in Section 5.4 for the year in which the Excess
Actual Operating Earnings were achieved.
5.4 CALCULATION OF AWARD POOL. The amount to be credited to the Annual
Award Pool for 1997 shall be determined as follows: if 1997 Actual Operating
Earnings exceed 1997 Threshold Operating Earnings, as defined in Section 2.29,
then $.15 of every excess dollar of 1997 Actual Operating Earnings shall be
contributed to the Annual Award Pool for 1997. In addition, if Actual Operating
Earnings are sufficient to pay 150% of the annual performance incentive ("API")
payable to all covered employees in the Corporation's 1997 Annual Performance
Incentive Plan, then $.35 of every dollar of 1997 Actual Operating Earnings
earned in excess of the amount necessary to pay 150% of the API payable pursuant
to the Annual Performance Incentive Plan, shall be contributed to the Annual
Award Pool, up to the maximum Annual Awards payable for 1997 under this Plan, as
described in Section 5.6. If there are Excess Actual Operating Earnings in any
Plan Year, then until 200% of the API payable to all covered employees pursuant
to the Annual Performance Incentive Plan has been paid pursuant to the Annual
Performance Incentive Plan, $.15 of every dollar of Excess Actual Operating
Earnings shall fund the Cumulative Award Pool for this Plan and, after 200% of
the API has been paid to all covered employees pursuant to the Annual
Performance Incentive Plan, then $.35 of every additional dollar of Excess
Actual Operating Earnings shall be designated to fund the Cumulative Award Pool
for this Plan, up to the maximum Awards payable for the Plan Period, as
described in Section 5.6. The 1998 Annual Award Pool shall be determined
according to the same formula as 1997, unless a different formula is approved by
the Committee. An Annual Award that is based on achievement of only the 1997
performance level shall be based on the Performance Units granted for that year
only; an Annual Award that is based on the achievement of the 1998 performance
level shall be based on the Performance Units granted for that year only; and
any Cumulative Awards that are based on the achievement of Excess Actual
Operating Earnings in either Plan Year shall be based upon the total Performance
Units granted for both years in the Plan Period.
5.5 AWARDS. Subject to the limitations under Section 5.6, a Participant
shall be entitled to an Annual Award equal to (a) the Annual Award Pool
determined under Section 5.4 multiplied by (b) a fraction, the numerator of
which is the number of such Participant's Performance Units granted for that
Plan Year, and the denominator of which is the total Performance Units for that
Plan Year granted and outstanding under the Plan to persons who are to
participate in the Annual Awards for that Plan Year. If the Award is a
Cumulative Award based on Excess Actual Operating Earnings from either Plan
Year, then a Participant shall be entitled to a Cumulative Award equal to (a)
the Cumulative Award Pool determined under Section 5.4 multiplied by (b) a
fraction, the numerator of which is the number of such Participant's Performance
Units granted for the Plan Period, and the denominator of which is the total
Performance Units granted and outstanding under the Plan to persons who are to
participate in the Cumulative Awards for the Plan Period. A Cumulative Award
shall not be paid if the maximum Annual Awards have been paid for each Plan Year
in the Plan Period.
5.6 LIMITATIONS ON AWARDS. Awards under the Plan shall be subject to the
limitations described in subsections (a), (b) and (c) below.
(a) The Awards payable to all Participants under the Plan shall not exceed
the sum of the Bonus Amounts to all eligible Participants for (i) each Plan Year
for an Annual Award and (b) the Plan Period, less any amounts paid as Annual
Awards, for any Cumulative Awards.
(b) The amount of Annual and Cumulative Awards payable under the Plan shall
be subject to the condition that the Corporation has sufficient liquidity as
determined by the President of the Corporation, either from available cash or
from borrowings to make the payments under this Plan at the time provided in
Section 5.7.
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(c) Except as provided in Section 6.1 and Section 6.3, to be eligible for an
Award, a Participant must be actively employed by the Corporation at the end of
the applicable Plan Year for any Annual Award and at the end of the Plan Period
to be eligible for a Cumulative Award based on Excess Actual Operating Earnings
in either Plan Year.
5.7 PAYMENT. Except as set forth in Section 9.1, Awards will be paid to
Participants within one hundred twenty (120) days after the end of the Plan Year
for which an Annual Award is earned or within one hundred twenty (120) days
after the end of the Plan Period for a Cumulative Award. As determined by the
Committee, Awards may be paid in cash or stock of the Corporation, or a
combination of cash and stock, and may be paid in different forms to different
Participants.
SECTION 6: TERMINATION OF EMPLOYMENT; CHANGE IN GRADE LEVEL
6.1 TERMINATION WITHOUT FORFEITURE. If a Participant ceases to be employed
by the Corporation prior to the end of the applicable Plan Year or Plan Period
because of (i) Disability, (ii) death, (iii) Retirement, (iv) a Divestiture, or
(v) other termination by the Corporation for any reason other than Cause, then
such Participant shall be entitled to an Award as provided in Section 6.3 below.
6.2 CHANGE IN GRADE LEVEL. If a Participant ceases participation in this
Plan prior to the end of the applicable Plan Year or Plan Period because of a
change in Grade Level, then such Participant shall be entitled to a partial
Award as provided in Section 6.3.
6.3 PARTIAL AWARD. A Participant who ceases to be employed by the
Corporation in accordance with any of the applicable conditions set forth in
Section 6.1 or who ceases participation in the Plan for the reason set forth in
Section 6.2, will be entitled to receive an Annual Award under Section 5.5 only
for a Plan Year during which the Participant was employed and granted
Performance Units and the Participant's Annual Award for that Plan Year shall be
determined by multiplying the number of Performance Units granted to such
Participant for that Plan Year by a fraction, the numerator of which is the
number of days in the Plan Year prior to such cessation of employment or
participation, and the denominator of which is the number of days in the
particular Plan Year. If a Cumulative Award based on Excess Actual Operating
Earnings is earned under the Plan for any Plan Year, then a Participant who is
described in the first sentence of this section shall be entitled to a
Cumulative Award based on (i) the Participant's Performance Units for each full
Plan Year occurring prior to such Participant's cessation of employment or
participation in the Plan, plus (ii) the number of Performance Units granted to
such Participant for the Plan Year in which the Participant's employment or
participation terminated multiplied by a fraction, the numerator of which is the
number of days in the Plan Year prior to such cessation of employment or
participation, and the denominator of which is the number of days in the
particular Plan Year. Such resulting number of eligible Performance Units shall
then share pro rata in the Cumulative Award Pool by multiplying the Cumulative
Award Pool by a fraction, the numerator of which is the eligible number of such
Participant's Performance Units, and the denominator is the total number of
Performance Units granted and outstanding for the Plan Period.
Awards paid in accordance with this Section 6.3 shall be paid at the same
time and in the same manner as described in Section 5.7.
6.4 TERMINATION RESULTING IN FORFEITURE. If a Participant ceases to be
employed by the Corporation for any reason other than those specified in Section
6.1 above, including, without limitation, voluntary termination of employment,
then such Participant shall only be entitled to an Annual Award under the Plan
if the Participant was actively employed on December 31 of the Plan Year for
which the Annual Award was earned and shall not be entitled to share in any
Cumulative Award, regardless of the Plan Year in which the Excess Actual
Operating Earnings were achieved.
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SECTION 7: DESIGNATION OF BENEFICIARIES
7.1 DESIGNATION AND CHANGE OF DESIGNATION. Each Participant shall file
with the Department a written designation of the Beneficiary who shall be
entitled to receive the amount, if any, payable under the Plan upon his or her
death. A Participant may, from time to time, revoke or change his or her
Beneficiary designation without the consent of any prior Beneficiary by filing a
new designation with the Department. The last such designation received by the
Department shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Department prior to the Participant's death, and in no event shall it be
effective as of a date prior to the date of such receipt.
7.2 ABSENCE OF VALID DESIGNATION. If no such Beneficiary designation is in
effect at the time of a Participant's death, or if no designated Beneficiary
survives the Participant, or if such designation conflicts with law, the
Participant's estate shall be deemed to have been designated his or her
Beneficiary and shall receive the payment of the amount, if any, payable under
the Plan upon his or her death. If the Committee is in doubt as to the right of
any party to receive such amount, the Corporation may retain such amount, or the
Corporation may pay such amount into any court of appropriate jurisdiction and
such payment shall be a complete discharge of the liability of the Plan and the
Corporation therefor.
SECTION 8: GENERAL PROVISIONS
8.1 NO ASSIGNMENT. A Participant may not assign an Award without the
Committee's prior written consent. Any attempted assignment without such consent
shall be null and void; provided, however, that an assignment to the Corporation
to collateralize indebtedness of the Participant to the Corporation does not
need the consent of the Committee. For purposes of this paragraph, any
designation of, or payment to, a Beneficiary shall not be deemed an assignment.
8.2 UNFUNDED INCENTIVE COMPENSATION ARRANGEMENT. The Plan is intended to
constitute an unfunded incentive compensation arrangement covering a select
group of management or highly compensated employees. Nothing contained in the
Plan, and no action taken pursuant to the Plan, shall create or be construed to
create a trust of any kind. A Participant's right to receive an Award shall be
no greater than the right of an unsecured general creditor of the Corporation.
All Awards shall be paid from the general funds of the Corporation, and no
special or separate fund shall be established and no segregation of assets shall
be made to assure payment of such Awards.
8.3 NO RIGHT TO EMPLOYMENT. Nothing contained in the Plan shall give any
Participant the right to continue in the employment of the Corporation or affect
the right of the Corporation to discharge a Participant.
8.4 GOVERNING LAW. The Plan shall be construed and governed in accordance
with the laws of the State of Texas except to the extent Texas law is preempted
by federal law.
8.5 NO RIGHT TO SPECIFIC ASSETS. There shall not vest in any Participant
or Beneficiary any right, title, or interest in and to any specific assets of
the Corporation.
8.6 NO EFFECT ON OTHER BENEFIT PLANS. Benefits under the Plan shall not
increase, decrease, modify or otherwise be taken into account for purposes of
determining benefits under any other employee benefit plan unless such other
plan expressly provides, by referring to this Plan, that benefits under the Plan
are to be so taken into account.
8.7 WITHHOLDING. The Corporation shall have the right to deduct from all
payments made to any Participant pursuant to this Plan any federal, state or
local taxes required by law to be withheld with respect to such payments, as
well as any amount then owed by the Participant to the Corporation.
8.8 EFFECTIVE DATE. This Plan is effective as of January 1, 1997. Subject
to Section 9.1, the Plan shall expire December 31, 1998.
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8.9 HEADINGS. The titles and headings of Sections are included for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
8.10 WORD USAGE. Words used in the masculine shall apply to the feminine
where applicable, and wherever the context of this Plan dictates, the plural
shall be read as the singular and the singular as the plural.
SECTION 9: AMENDMENT, SUSPENSION OR TERMINATION
9.1 The Board or the Committee may amend, terminate, extend or suspend the
Plan at any time. If the Plan is terminated within the Plan Period, (i) Awards,
if any, shall be determined as of the date of termination, (ii) Annual Awards
for 1997 will be paid to Participants within one hundred twenty (120) days after
December 31, 1997, and Annual Awards for 1998 and/or Cumulative Awards based on
Excess Actual Operating Earnings shall be paid within one hundred twenty (120)
days after December 31, 1998; (iii) for all other purposes under the Plan, the
date of such termination shall be deemed the last day of the Plan Period.
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On the outside back cover of the Proxy Statement of The Southland Corporation
there is a map of the intersection of North Central Expressway and Lemmon Avenue
and North Central Expressway and Haskell Avenue, in Dallas, Texas, showing the
entrances to Cityplace Center.
<PAGE>
PROXY THE SOUTHLAND CORPORATION PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS -- APRIL 23, 1997
The undersigned appoints Clark J. Matthews, II, Bryan F. Smith, Jr. and Carol
S. Hilburn, and each of them (acting by majority, or if only one be present,
then by that one alone) as my true and lawful agents and proxies, with full
power of substitution and revocation, to vote, as designated on the reverse
side hereof, all the Common Stock of The Southland Corporation which the
undersigned has power to vote, with all powers which the undersigned would
possess if personally present, at the Annual Meeting of Shareholders of The
Southland Corporation to be held on April 23, 1997 and at any adjournments
thereof.
Unless otherwise marked, this proxy will be voted FOR the election of the
nominees named and FOR Proposals Nos. 2 and 3. The proxy holders will use
their discretion with respect to any other matter that is properly brought
before the meeting, as referred to in Item 4.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
THE SOUTHLAND CORPORATION /X/
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
[ ]
1. ELECTION OF DIRECTORS-Nominees: For Withheld For All
Masatoshi Ito; Toshifumi Suzuki; All All Except
Clark J. Matthews, II; Yoshitami Arai; --- -------- -------
Masaaki Asakura; Timothy N. Ashida; / / / / / /
Jay W. Chai; Gary J. Fernandes;
Masaaki Kamata; James W. Keyes; Vote withheld from the
Stephen B. Krumholz; Kazuo Otsuka; following nominee(s):
Asher O. Pacholder; Nobutake Sato. __________________________
Nominee Exception(s)
2. Approval of the 1997 Performance Plan. For Against Abstain
/ / / / / /
3. Ratification of the appointment of the For Against Abstain
accounting firm of Coopers & Lybrand / / / / / /
L.L.P., as independent auditors of the
Company for 1997.
4. Other Business. In their discretion,
the proxies are authorized to vote upon
such other matters as may properly come
before the meeting or any adjournments
thereof.
If you plan to attend the meeting in person, / /
please mark this oval.
SIGNATURE(S) DATE
----------------------------------- -----------------------
SIGNATURE(S) DATE
----------------------------------- -----------------------
Date and sign exactly as your name appears hereon. Joint owners should each
sign. When signing as an administrator, executor, trustee, attorney,
guardian, corporate officer, or in any other capacity, please give full title
as such. Receipt of 1996 Annual Report and March 19, 1997 Notice and Proxy
Statement is hereby acknowledged.
