-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VQXVXeJmeasEpIVe0ft+F0AGNQc+kIG743fOhC017/CtUAnclSknNYwE4K3qPALS zlTk4kQcsuL1McbhyHM6XQ== 0000016099-97-000012.txt : 19971126 0000016099-97-000012.hdr.sgml : 19971126 ACCESSION NUMBER: 0000016099-97-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971125 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBYS CAFETERIAS INC CENTRAL INDEX KEY: 0000016099 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 741335253 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08308 FILM NUMBER: 97727976 BUSINESS ADDRESS: STREET 1: 2211 NE LOOP 410 STREET 2: P O BOX 33069 CITY: SAN ANTONIO STATE: TX ZIP: 78265-3069 BUSINESS PHONE: 2106549000 FORMER COMPANY: FORMER CONFORMED NAME: CAFETERIAS INC DATE OF NAME CHANGE: 19810126 10-K 1 FORM 10-K TEXT FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended August 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _________________ to ______________________ Commission file number: 1-8308 LUBY'S CAFETERIAS, INC. ______________________________________________________________________________ (Exact name of registrant as specified in its charter) Delaware 74-1335253 _________________________ ____________________________________` (State of Incorporation) (I.R.S. Employer Identification No.) 2211 Northeast Loop 410 Post Office Box 33069 San Antonio, Texas 78265-3069 Area Code 210 654-9000 _______________________________________ _______________________________ (Address of principal executive office) (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of Class which registered ______________ ______________________ Common Stock ($.32 par value) New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ____ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the shares of Common Stock of the registrant held by non-affiliates of the registrant as of November 12, 1997, was approximately $431,453,000 (based upon the assumption that directors and officers are the only affiliates). As of November 12, 1997, there were 23,270,675 shares of the registrant's Common Stock outstanding, exclusive of 4,132,392 treasury shares. Portions of the following documents are incorporated by reference into the designated parts of this Form 10-K: annual report to shareholders for the fiscal year ended August 31, 1997, (in Part II) and proxy statement relating to 1998 annual meeting of shareholders (in Part III). Item 1. Business. Luby's Cafeterias, Inc. (the "Company") operates 232 cafeterias under the name "Luby's" located in suburban shopping areas in Arizona, Arkansas, Florida, Kansas, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, and Texas. Of the 232 cafeterias operated by the Company, 135 are at locations owned by the Company and 97 are on leased premises. Luby's Cafeterias, Inc. was originally incorporated in Texas in 1959 and was reincorporated in Delaware on December 31, 1991. The Company's executive offices are at 2211 Northeast Loop 410, P. O. Box 33069, San Antonio, Texas 78265-3069. The Company was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby's Restaurants Limited Partnership, a Texas limited partnership composed of two wholly owned indirect corporate subsidiaries of the Company. All cafeteria operations are conducted by the partnership. Unless the context indicates otherwise, the word "Company" as used herein includes the partnership and the consolidated corporate subsidiaries of Luby's Cafeterias, Inc. Marketing The Company's product strategy is to provide a wide variety of freshly prepared foods in an attractive and informal environment. The Company's research has shown that its products appeal to a broad range of value-oriented consumers with particular success among senior citizens, families with children, shoppers, and business people looking for a quick, healthy meal at a reasonable price. Prior to 1991 the Company relied primarily on customers' word-of-mouth recommendations and community relations activities to promote its business, spending approximately .5% of sales annually on these efforts. In 1991 the Company began developing a new marketing program. Based on favorable results of radio and television advertising tests, the marketing budget increased and currently approximates two percent of sales. The Company intends to continue expending the majority of the marketing budget on television and radio advertising, as well as supporting the increased local marketing activities of the individual cafeterias. Operations The Company's operations combine the food quality and atmosphere of a good restaurant with the simplicity and visual food selection of cafeteria service. Food is prepared in small quantities throughout serving hours, and frequent quality checks are made. Each cafeteria offers a broad and varied menu and normally serves 12 to 14 entrees, 12 to 14 vegetable dishes, 22 to 25 salads, and 18 to 20 desserts. The Company's cafeterias cater primarily to shoppers and office or store personnel for lunch and to families for dinner. The Company's cafeterias are open for lunch and dinner seven days a week. All of the cafeterias sell take-out orders, and most of them have separate food to go entrances. Take- out orders accounted for approximately 11 percent of sales in fiscal 1997. Each cafeteria is operated as a separate unit under the control of a manager who has responsibility for day-to-day operations, including food purchasing, menu planning, and personnel employment and supervision. Each cafeteria manager is compensated on the basis of his or her cafeteria's profits. Management believes that granting broad authority to its cafeteria managers and compensating them on the basis of their performance are significant factors in the profitability of its cafeterias. Of the 232 cafeteria managers employed by the Company, 177 have been with the Company for more than ten years. Generally, an individual is employed for a period of seven to ten years before he or she is considered qualified to become a cafeteria manager. Each cafeteria cooks or prepares substantially all of the food served, including breads and pastries. The cafeterias prepare food from the same recipes, with minor variations to suit local tastes, although menus are not uniform in all of the Company's cafeterias on any particular day. Menus are prepared to reflect local and seasonal food preferences and to take advantage of any special food purchasing opportunities. Substantially all of the food served by each cafeteria is purchased from local suppliers. None of the cafeterias are dependent upon any one supplier, and the Company believes that alternative sources of supply are readily available. Quality control teams, each consisting of experienced cooks and a supervisor, help to maintain uniform standards of food preparation. The teams primarily assist in the training of new personnel during the opening of new cafeterias. The teams also visit the cafeterias periodically and work with the regular staffs to check adherence to the Company's recipes, train personnel in new techniques, and evaluate procedures for possible use throughout the Company. The Company conducts a training program comprised of both on-the-job training and classroom instruction in its training facilities in San Antonio. The training program is approximately three months in duration. Management personnel receive one week of classroom instruction and spend the remaining time on practical training in operating cafeterias. In order to draw management trainees from regional talent pools, the Company has set up satellite training schools in several key cafeterias to make on-the-job training more accessible on a local level. As of August 31, 1997, the Company had approximately 13,000 employees, consisting of 12,104 nonmanagement cafeteria personnel; 754 cafeteria managers, associate managers, and assistant managers; and 142 executive, administrative, and clerical personnel. Employee relations are considered to be good, and the Company has never had a strike or work stoppage. Expansion During the fiscal year ended August 31, 1997, the Company relocated two cafeterias in Longview and San Antonio, Texas, closed two cafeterias in Dallas, Texas, and Topeka, Kansas, and opened 27 new cafeterias in Peoria, Arizona; Hot Springs and Little Rock, Arkansas; St. Petersburg, Florida; Joplin, Missouri; Albuquerque, New Mexico; Memphis, Tennessee; and Abilene, Austin, College Station, Dallas, Del Rio, Houston, Irving, Jacinto City, Laredo, McAllen, Mesquite, Orange, Rosenberg, and San Antonio, Texas. Included in the new units were 15 cafeteria locations acquired from Triangle FoodService Corporation (formerly Wyatt Cafeterias, Inc.). The net increase in the number of cafeterias for the 1997 fiscal year was 25. Since August 31, 1997, the Company has closed two cafeterias in Leavenworth, Kansas, and Muskogee, Oklahoma, and has opened five new cafeterias in Phoenix, Arizona; Clearwater, Florida; Meridian, Mississippi; and Greenville and Tyler, Texas. During fiscal year 1998, the Company expects to open a total of approximately seven new cafeterias. The Company continually evaluates prospective new cafeteria sites and typically has several sites for new cafeterias under active consideration at any given time. The rate at which new cafeterias are opened is governed by the Company's policy of controlled growth, which takes into account the resources and capabilities of all departments involved, including real estate, construction, equipment, and operations. It has been the Company's experience that new cafeterias generally become profitable within a few months after opening. The costs of opening new cafeterias vary widely, depending on whether the facilities are to be leased or owned, and if owned, on site acquisition and construction costs. The Company estimates that in recent years it has cost $2,500,000 to $2,700,000 to construct, equip, and furnish a new cafeteria in a freestanding building under normal conditions, including land acquisition costs. The approximate cost to finish out, equip, and furnish a new cafeteria in a leased facility has ranged from $1,200,000 to $1,400,000. Waterstreet Joint Venture In January 1996 the Company announced a joint venture agreement with Waterstreet, Inc., a seafood restaurant company operating in Corpus Christi, Fort Worth, and San Antonio, Texas. The agreement provides for the opening of up to five "Water Street Seafood Company" restaurants during the term of the joint venture. Two of the restaurants have been opened in Houston and San Antonio, Texas. Two others are under construction in Austin and Lewisville, Texas. Service Marks The Company uses several service marks, including "Luby's" and believes that such marks are of material importance to its business. The Company has federal service mark registrations for several of such marks. The Company is not the sole user of the name "Luby's" in the cafeteria business. One cafeteria using the name "Luby's" and one cafeteria using the name "Pat Luby's" are being operated in two different cities in Texas by two different owners not affiliated with the Company. The Company's legal counsel is of the opinion that the Company has the paramount right to use the name "Luby's" as a service mark in the cafeteria business in the United States and that such other users can be precluded from expanding their use of the name as a service mark. Competition and Other Factors The food service business is highly competitive, and there are numerous restaurants and other food service operations in each of the markets where the Company operates. The quality of the food served, in relation to its price, and public reputation are important factors in food service competition. Neither the Company nor any of its competitors has a significant share of the total market in any area in which the Company competes. The Company believes that its principal competitors are conventional restaurants and other cafeterias. The Company's facilities and food products are subject to state and local health and sanitation laws. In addition, the Company's operations are subject to federal, state, and local regulations with respect to environmental and safety matters, including regulations concerning air and water pollution and regulations under the Americans with Disabilities Act and the Federal Occupational Safety and Health Act. Such laws and regulations, in the Company's opinion, have not materially affected its operations, although compliance has resulted in some increased costs. Item 2. Properties. The Company owns the underlying land and buildings in which 135 of its cafeterias are located. In addition, the Company owns several cafeteria sites being held for future development. Of the 232 cafeterias operated by the Company, 97 are at locations held under leases, including 61 in regional shopping malls. Most of the leases provide for a combination of fixed-dollar and percentage rentals. Most of the leases require the lessee to pay additional amounts related to property taxes, hazard insurance, and maintenance of common areas. See Notes 5 and 8 of Notes to Financial Statements for information concerning the Company's lease rental expenses, lease commitments, and construction commitments. Of the 97 cafeteria leases, the current terms of 30 expire from 1998 to 2002, 22 from 2003 to 2007, and 45 thereafter. Eighty of the leases can be extended beyond their current terms at the Company's option. A typical cafeteria seats 250 to 300 guests and contains 9,000 to 10,500 square feet of floor space. Most of the cafeterias are located in modern buildings and all are in good condition. It is the Company's policy to refurbish and modernize cafeterias as necessary to maintain their appearance and utility. The equipment in all cafeterias is well maintained. Several of the Company's cafeteria properties contain excess building space which is rented to tenants unaffiliated with the Company. The towns and cities in which the Company's 232 cafeterias are located are listed below, with numbers in parentheses indicating the number of units in each locale: Arizona (14) Baytown (1) Chandler (1) Beaumont (1) Glendale (1) Bedford (1) Mesa (2) Bellmead (1) Peoria (1) Brownsville (2) Phoenix (5) Bryan/College Station (2) Scottsdale (1) Carrollton (1) Surprise (1) Conroe (1) Tucson (2) Corpus Christi (4) Dallas (12) Arkansas (7) Deer Park (1) Fayetteville (1) Del Rio (1) Fort Smith (1) Denton (1) Hot Springs (1) DeSoto (1) Little Rock (3) Duncanville (1) North Little Rock (1) El Paso (5) Fort Worth (9) Florida (7) Galveston (1) Clearwater (2) Garland (1) Pinellas Park (1) Grand Prairie (1) St. Petersburg (1) Grapevine (1) Sebring (1) Greenville (1) Tampa (2) Harlingen (2) Houston (31) Kansas (3) Humble (1) Mission (1) Irving/Las Colinas (2) Wichita (2) Jacinto City (1) Kerrville (1) Louisiana (2) Killeen (1) Bossier City (1) Kingwood (1) Shreveport (1) Lake Jackson (1) Laredo (2) Mississippi (2) Lewisville (1) Hattiesburg (1) Longview (1) Meridian (1) Lubbock (1) Lufkin (1) Missouri (4) McAllen (3) Independence (1) McKinney (1) Joplin (1) Mesquite (3) Kansas City (2) Midland (1) Mission (1) New Mexico (5) New Braunfels (1) Albuquerque (3) Odessa (1) Las Cruces (1) Orange (1) Santa Fe (1) Pasadena (1) Pharr (1) Oklahoma (8) Plano (2) Bartlesville (1) Port Arthur (2) Broken Arrow (1) Richardson (1) Oklahoma City (3) Rosenberg (1) Shawnee (1) Round Rock (1) Tulsa (2) San Angelo (1) San Antonio (21) Tennessee (12) San Marcos (1) Franklin (1) Sherman (1) Memphis (5) Stafford (1) Morristown (1) Sugar Land (1) Murfreesboro (1) Temple (1) Nashville (3) Texarkana (1) Oak Ridge (1) The Woodlands (1) Tomball (1) Texas (168) Tyler (3) Abilene (2) Victoria (1) Amarillo (2) Waco (1) Arlington (3) Weslaco (1) Austin (7) The Company's corporate offices are located in a building owned by the Company containing approximately 40,000 square feet of office space. The Company utilizes the space for its executive offices and related facilities. The Company maintains public liability insurance and property damage insurance on its properties in amounts which management believes to be adequate. Item 3. Legal Proceedings. The Company is from time to time subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such claims and lawsuits will not have a material adverse effect on the Company's operations or consolidated financial position. There are no material legal proceedings to which any director, officer, or affiliate of the Company, or any associate of any such director or officer, is a party, or has a material interest, adverse to the Company. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the fourth quarter of the fiscal year ended August 31, 1997, to a vote of security holders of the Company. Item 4A. Executive Officers of the Registrant. Certain information is set forth below concerning the executive officers of the Company, each of whom has been elected to serve until the 1998 annual meeting of shareholders and until his or her successor is duly elected and qualified. Served as Officer Positions with Company and Name Since Principal Occupation Last Five Years Age ________________________ ________ ____________________________________ ___ David B. Daviss 1997 Chairman of the Board (since Oct. 64 1997); Acting Chief Executive Officer (May-Oct. 1997); Director since 1984; Chairman of the Executive Committee and member of the Corporate Governance Committee; investor. Barry J.C. Parker 1997 President, Chief Executive Officer, 50 and Director (since Oct. 1997); member of the Executive Committee; Chairman of the Board, President, and Chief Executive Officer of County Seat Stores, Inc. 1989-1996; principal of Hoak Capital Corp. (1997) William E. Robson 1982 Executive Vice President-Operations 56 and Director (since 1993); Senior Vice President-Operations 1992-1995; Senior Vice President-Operations Development prior to 1992. Clyde C. Hays III 1985 Senior Vice President-Operations 46 (since Jan. 1996); Vice President- Operations 1993-1995; Area Vice President prior to 1993. Raymond C. Gabrysch 1988 Senior Vice President-Operations 46 (since Sept. 1997); Senior Vice President-Human Resources (Jan.- Aug. 1997); Vice President-Human Resources (1996); Area Vice President prior to 1996. Laura M. Bishop 1995 Senior Vice President and Chief 36 Financial Officer (since Jan. 1997); Vice President-Finance (1996); Vice President-Financial Planning (1995); Director of Financial Planning (1993-1995); Director of Internal Audit (1992-1993). Robert P. Burke 1996 Senior Vice President-Marketing 48 (since Jan. 1997); Vice President- Marketing 1996; Vice President of Sales and Marketing, Pace Foods/ Campbell Soup Company prior to 1996. Ronald E. Riemenschneider 1990 Vice President and Treasurer (since 39 1995); Controller 1990-1995. James R. Hale 1980 Secretary; Member of law firm of 68 Cauthorn Hale Hornberger Fuller Sheehan & Becker Incorporated since 1992; member of law firm of Cox & Smith Incorporated prior to 1992. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Stock Prices and Dividends The Company's common stock is traded on the New York Stock Exchange under the symbol LUB. The following table sets forth, for the last two fiscal years, the high and low sales prices on the New York Stock Exchange from the consolidated transaction reporting system and the per share cash dividends declared on the common stock. Fiscal Quarters Quarterly Ended High Low Cash Dividend _________________ ______ ______ ______________ November 30, 1995 $22.88 $19.88 $.18 February 29, 1996 23.00 20.13 .18 May 31, 1996 25.25 20.38 .18 August 31, 1996 25.25 22.50 .20 November 30, 1996 24.38 20.75 .20 February 28, 1997 22.88 19.88 .20 May 31, 1997 20.63 17.63 .20 August 31, 1997 20.63 18.81 .20 As of September 12, 1997, there were approximately 4,733 record holders of the Company's common stock. Item 6. Selected Financial Data. Five Year Summary of Operations (Thousands of dollars except per share data) Years ended August 31,
1997 1996 1995 1994 1993 ________ ________ ________ ________ ________ Sales $495,446 $450,128 $419,024 $390,692 $367,757 Costs and expenses: Cost of food 121,287 110,008 103,611 98,223 92,957 Payroll and related costs 146,940 124,333 113,952 104,543 99,233 Occupancy and other operating expenses 150,638 132,595 123,907 113,546 104,958 General and administrative expenses 19,451 20,217 18,672 15,330 15,967 Provision for asset impairments and store closings 12,432 - - - - ________ ________ ________ ________ ________ 450,748 387,153 360,142 331,642 313,115 Income from operations 44,698 62,975 58,882 59,050 54,642 Other income (expenses): Interest expense (4,037) (2,130) (1,749) - - Interest and other 2,001 1,697 1,805 1,385 1,574 ________ ________ ________ ________ ________ (2,036) (433) 56 1,385 1,574 ________ ________ ________ ________ ________ Income before income taxes and accounting change 42,662 62,542 58,938 60,435 56,216 Provision for income taxes 14,215 23,334 21,923 22,663 20,687 ________ ________ ________ ________ ________ Income before accounting change 28,447 39,208 37,015 37,772 35,529 Cumulative effect of change in accounting for income taxes - - - 1,563 - ________ ________ ________ ________ ________ Net income (a) $ 28,447 $ 39,208 $ 37,015 $ 39,335 $ 35,529 Income per share before accounting change $ 1.22 $ 1.66 $ 1.55 $ 1.45 $ 1.31 Net income per common share $ 1.22 $ 1.66 $ 1.55 $ 1.51 $ 1.31 Cash dividend declared per common share $ .80 $ .74 $ .68 $ .62 $ .56 At year-end: Total assets $368,778 $335,290 $312,380 $289,668 $302,099 Long-term debt $ 84,000 $ 41,000 $ - $ - $ - Number of cafeterias 229 204 187 176 168 (a) Net income in 1994 includes the cumulative effect of change in accounting for income taxes of $1,563, or $.06 per share.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources During the last three years the Company has funded all capital expenditures from internally-generated funds, cash equivalents, short-term borrowings, and long-term debt. Capital expenditures for fiscal 1997 were $62,432,000, a 29% increase from fiscal 1996. This increase resulted from the opening of 29 new cafeterias in fiscal 1997, including two relocations, as compared to 19 in fiscal 1996, which included one relocation. Fiscal 1997 capital expenditures included the purchase of 20 locations from Triangle FoodService Corporation, formerly Wyatt Cafeterias, Inc., for approximately $14 million in cash. After additional capital expenditures of approximately $5 million to repair and refurbish these units, 15 of the 20 locations were opened as "Luby's" and are included in the 29 new openings in fiscal 1997. In addition, the Company purchased eight sites as land held for future use, which was the same number of land sites purchased during fiscal 1996. Plans for fiscal 1998 include the opening of approximately seven new cafeterias: five on sites owned by the Company, one on land held under a long-term ground lease, and one in a regional shopping mall. In addition to the recurring capital expenditures in existing locations, the Company expects fiscal 1998 capital expenditures to include approximately $5 to $6 million related to upgrading the cafeteria information systems. During the fourth quarter of fiscal 1997, the Company identified several properties which it no longer intends to use for future cafeteria development; therefore, the sites are now held for sale. The Company anticipates that proceeds from the sale of these properties will partially offset future capital requirements. As part of a joint venture agreement with Waterstreet, Inc. signed in January 1996, the Company opened one seafood restaurant in fiscal 1997 on property held under a long-term ground lease. Two seafood restaurants are planned to open in fiscal 1998, both on sites owned by the Company. These Water Street Seafood Company restaurants will be leased by the joint venture from the Company and operated by Waterstreet, Inc. As of August 31, 1997, the Company owned three undeveloped cafeteria sites, and several land site acquisitions were in varying stages of negotiation. As a result of fewer new store openings planned for next year, the Company expects a decrease in total capital expenditures for fiscal 1998. Construction costs for new cafeterias and seafood restaurants are expected to be funded by cash flow from operations, cash currently held in cash equivalent investments, and long-term debt. The Company generated cash from operations of $57,368,000 in fiscal 1997. The Company had a balance of $84,000,000 outstanding at August 31, 1997, under a $125,000,000 credit facility with a syndication of four banks. At August 31, 1997, the Company had a working capital deficit of $29,711,000 which compares to the prior year's working capital deficit of $35,096,000. The working capital position improved during fiscal 1997 due primarily to the increase in cash and cash equivalents of $3,743,000. The Company typically carries current liabilities in excess of current assets because cash generated from operating activities is reinvested in capital expenditures. The Board of Directors authorized the purchase in the open market of up to 1,000,000 shares of the Company's outstanding common stock through December 31, 1998, of which 149,700 shares were purchased in fiscal 1997. Under this and a previous authorization, the Company purchased a total of 897,500 shares of its common stock during fiscal 1997 at a cost of $19,918,000, which are being held as treasury stock. The Company believes that funds generated from operations and short-term or long-term financing from external sources, which can be obtained on terms acceptable to the Company, are adequate for its foreseeable needs. Results of Operations Fiscal 1997 Compared to Fiscal 1996 Sales increased $45,318,000, or 10%, due to the addition of 27 new cafeterias in fiscal 1997 and 18 cafeterias in fiscal 1996. The average sales volume of cafeterias opened over one year decreased to $2,264,000 in fiscal 1997 from $2,332,000 in fiscal 1996 due primarily to a negative trend in customer counts. This trend was a result of intense competition in the restaurant industry and sales transfer from our established cafeterias caused by the significant number of fiscal 1997 and 1996 openings in our existing markets. The impact of the same-store customer count decline was partially offset by a 3.5% increase in average tray revenues. The Company implemented a price increase on September 15, 1996, to help offset the pressure on profit margins from the increase in the Federal minimum wage. Cost of food increased $11,279,000, or 10%, due primarily to the increase in sales. Payroll and related costs increased $22,607,000, or 18%, due primarily to the increase in sales, the increase in the Federal minimum wage which became effective October 1, 1996, and higher wage costs associated with increased expansion over the prior year. Although a price increase was implemented to help offset higher wage rates, the decline in same-store sales experienced during fiscal 1997 resulted in significant pressure on labor costs. With the subsequent increase of the Federal minimum wage on September 1, 1997, the Company expects continued pressure on labor costs during fiscal 1998. This should be partially mitigated by fewer new store openings since labor costs are typically higher during the first year of operation. Occupancy and other operating expenses increased $18,043,000, or 14%, due primarily to the increase in sales and the opening of 27 new cafeterias. Preopening expenses and start-up costs, which are expensed as incurred, totaled approximately $3 million for new openings in fiscal 1997. The decline in same-store sales caused fixed costs within this expense category to increase as a percent of sales. However, managers' salaries, which are based on the profitability of the cafeterias, decreased as a percent of sales due to lower store profits. General and administrative expenses decreased $766,000, or 4%. As a result of lower earnings, the Company's contribution to the profit sharing plan totaled $1.5 million, or $3.6 million less than fiscal 1996. This decrease was partially offset by retirement costs, executive search firm fees, and higher legal and professional fees associated with the Company's restructuring into a holding company. In addition, manager trainee salaries and moving expenses were higher than fiscal 1996 due to the increased expansion. During fiscal 1997 the Company adopted Financial Accounting Standards No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and recorded a $12.4 million pretax charge during the fourth quarter. The charge included $4.6 million for the closing of four cafeterias, $3 million for the write-down of certain cafeteria properties which the Company plans to continue to operate, the write-down of $2.1 million for surplus properties the Company plans to sell, $1.4 million for the write-down of computer hardware, and $1.3 million for various other charges. Interest expense of $4,037,000 for fiscal 1997 was incurred in conjunction with borrowings under the credit facility and is net of $1,029,000 capitalized on qualifying properties. The increase over fiscal 1996 of $1,907,000, or 86%, was due to higher average outstanding borrowings relating to the increase in expansion during fiscal 1997 and the purchase of treasury stock. The provision for income taxes decreased $9,119,000, or 39%, due to lower income before income taxes and lower state taxes resulting from the Company's restructuring into a holding company. The Company's effective income tax rate decreased from 37.3% in fiscal 1996 to 33.3% in fiscal 1997. A portion of the decline in the provision for income taxes in fiscal 1997 is nonrecurring since it resulted from lowering the deferred tax liability based on a lower expected state tax rate. The Company anticipates that the effective tax rate will be approximately 35.6% for fiscal 1998. Fiscal 1996 Compared to Fiscal 1995 Sales increased $31,104,000, or 7%, due in part to the addition of 18 new cafeterias in fiscal 1996 and 11 cafeterias in fiscal 1995. The average sales volume of cafeterias opened over one year increased slightly to $2,332,000 in fiscal 1996 from $2,321,000 in fiscal 1995 due primarily to higher average tray revenues over the prior year. The same-store customer count trend was negative for the first time since 1992. This decline was not wholly unexpected because all but four of the fiscal 1996 openings occurred in existing markets. Accordingly, our market share improved in these areas; however, customer traffic and sales at established cafeterias were negatively impacted. This, combined with increased competition and the lack of full recovery from the peso devaluation in fiscal 1995, resulted in the negative same-store customer count trend. Cost of food increased $6,397,000, or 6%, due primarily to the increase in sales. Food cost margins improved from the price increase on the Lu Ann Platter, which took effect on December 1, 1995. Payroll and related costs increased $10,381,000, or 9%, due primarily to the increase in sales, higher wages for hourly employees in existing cafeterias, and higher wage costs associated with increased expansion over the prior year. Occupancy and other operating expenses increased $8,688,000, or 7%, due primarily to the increase in sales and the opening of 18 new cafeterias. General and administrative expenses increased $1,545,000, or 8%, due primarily to two additional area vice president positions, higher management trainee salaries, and higher moving expenses, all associated with the increased expansion. Interest expense of $2,130,000 for fiscal 1996 was incurred in conjunction with borrowings under the credit facility and is net of $1,100,000 capitalized on qualifying properties. The increase over fiscal 1995 of $381,000, or 22%, was due to higher average outstanding borrowings. The provision for income taxes increased $1,411,000, or 6%, due to higher income before income taxes. The Company's effective income tax rate increased slightly from 37.2% in fiscal 1995 to 37.3% in fiscal 1996. New Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share, which is required to be adopted for financial statements issued after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. The change is not expected to have a material impact on the Company's earnings per share. Inflation The Company's policy is to maintain stable menu prices without regard to seasonal variations in food costs. General increases in costs of food, wages, supplies, and services make it necessary for the Company to increase its menu prices from time to time. To the extent prevailing market conditions allow, the Company intends to adjust menu prices to maintain profit margins. Forward-Looking Statements Except for the historical information contained in this annual report, certain statements made herein are forward-looking regarding cash flow from operations, restaurant openings, operating margins, capital requirements, the availability of acceptable real estate locations for new restaurants, and other matters. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, the success of operating initiatives, changes in cost and supply of food and labor, the seasonality of the Company's business, taxes, inflation, and governmental regulations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. See information in Item 8 of Part II of this Report appearing in the Notes to Consolidated Financial Statements under the caption "Interest-Rate Swap Agreements" in Note 1 and under the caption "Debt" in Note 4. Item 8. Financial Statements and Supplementary Data. LUBY'S CAFETERIAS, INC. FINANCIAL STATEMENTS Years Ended August 31, 1997, 1996, and 1995 with Report of Independent Auditors Report of Independent Auditors The Board of Directors and Shareholders Luby's Cafeterias, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Luby's Cafeterias, Inc. and Subsidiaries at August 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended August 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Luby's Cafeterias, Inc. and Subsidiaries at August 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, in fiscal 1997 the Company changed its method of accounting for the impairment of long-lived assets and for long-lived assets to be disposed of in accordance with Financial Accounting Standard No. 121. ERNST & YOUNG LLP San Antonio, Texas October 6, 1997 Luby's Cafeterias, Inc. Consolidated Balance Sheets August 31, 1997 1996 ________ _______ (Thousands of dollars) Assets Current assets: Cash and cash equivalents $ 6,430 $ 2,687 Trade accounts and other receivables 510 541 Food and supply inventories 4,507 4,517 Prepaid expenses 3,586 3,195 Deferred income taxes 937 418 ________ ________ Total current assets 15,970 11,358 Property held for sale 12,680 - Investments and other assets - at cost: Land held for future use 1,582 8,040 Other assets 4,529 4,303 ________ ________ Total investments and other assets 6,111 12,343 Property, plant, and equipment - at cost, less accumulated depreciation and amortization 334,017 311,589 ________ ________ Total assets $368,778 $335,290 ________ ________ Liabilities and Shareholders' Equity Current liabilities: Accounts payable - trade $ 13,584 $ 14,568 Dividends payable 4,653 4,796 Accrued expenses and other liabilities 25,038 24,336 Income taxes payable 2,406 2,754 ________ ________ Total current liabilities 45,681 46,454 Long-term debt 84,000 41,000 Deferred income taxes and other credits 20,257 22,163 Commitments and contingencies - - Shareholders' equity: Common stock, $.32 par value; authorized 100,000,000 shares, issued 27,403,067 shares 8,769 8,769 Paid-in capital 26,945 26,945 Retained earnings 276,140 267,374 Less cost of treasury stock, 4,136,693 shares in 1997 and 3,425,525 shares in 1996 (93,014) (77,415) ________ ________ Total shareholders' equity 218,840 225,673 ________ ________ Total liabilities and shareholders' equity $368,778 $335,290 ________ ________ See accompanying notes. Luby's Cafeterias, Inc. Consolidated Statements of Income Years Ended August 31, 1997 1996 1995 ________ ________ ________ (Thousands of dollars except per share data) Sales $495,446 $450,128 $419,024 Costs and expenses: Cost of food 121,287 110,008 103,611 Payroll and related costs 146,940 124,333 113,952 Occupancy and other operating expenses 150,638 132,595 123,907 General and administrative expenses 19,451 20,217 18,672 Provision for asset impairments and store closings 12,432 - - ________ ________ ________ 450,748 387,153 360,142 ________ ________ ________ Income from operations 44,698 62,975 58,882 Interest expense (4,037) (2,130) (1,749) Other income, net 2,001 1,697 1,805 ________ ________ ________ Income before income taxes 42,662 62,542 58,938 Provision (benefit) for income taxes: Current 17,616 20,940 21,750 Deferred (3,401) 2,394 173 ________ ________ ________ 14,215 23,334 21,923 ________ ________ ________ Net income $ 28,447 $ 39,208 $ 37,015 ________ ________ ________ Net income per share $ 1.22 $ 1.66 $ 1.55 ________ ________ ________ See accompanying notes. Luby's Cafeterias, Inc. Consolidated Statements of Shareholders' Equity
Common Stock Total Issued Treasury Paid-In Retained Shareholders' Shares Amount Shares Amount Capital Earnings Equity __________________________________________________________________________________________ (Amounts in thousands except per share data) Balance at August 31, 1994 27,403 $8,769 (2,285) $(51,202) $26,945 $229,014 $213,526 Net income for the year - - - - - 37,015 37,015 Common stock issued under employee bene- fit plans, net of shares tendered in partial payment - - 195 4,395 - (1,086) 3,309 Cash dividends, $.675 per share - - - - - (15,970) (15,970) Purchases of treasury stock - - (2,000) (45,176) - - (45,176) ______ ______ ______ _______ _______ _______ _______ Balance at August 31, 1995 27,403 8,769 (4,090) (91,983) 26,945 248,973 192,704 Net income for the year - - - - - 39,208 39,208 Common stock issued under employee bene- fit plans, net of shares tendered in partial payment and including tax benefits - - 916 20,565 - (3,218) 17,347 Cash dividends, $.74 per share - - - - - (17,589) (17,589) Purchases of treasury stock - - (252) (5,997) - - (5,997) ______ ______ ______ _______ _______ _______ _______ Balance at August 31, 1996 27,403 8,769 (3,426) (77,415) 26,945 267,374 225,673 Net income for the year - - - - - 28,447 28,447 Common stock issued under employee bene- fit plans, net of shares tendered in partial payment and including tax benefits - - 186 4,319 - (1,027) 3,292 Cash dividends, $.80 per share - - - - - (18,654) (18,654) Purchases of treasury stock - - (897) (19,918) - - (19,918) ______ ______ ______ _______ _______ _______ _______ Balance at August 31, 1997 27,403 $8,769 (4,137) $(93,014) $26,945 $276,140 $218,840 ______ ______ ______ _______ _______ ________ ________ See accompanying notes.
Luby's Cafeterias, Inc. Consolidated Statements of Cash Flows Years Ended August 31, 1997 1996 1995 ________ ________ ________ (Thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $28,447 $ 39,208 $ 37,015 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,196 17,693 16,417 Provision for asset impairments and store closings 12,132 - - Gain on disposal of land held for future use - - (106) (Gain) loss on disposal of property, plant, and equipment (110) 31 (313) ________ ________ ________ Cash provided by operating activities before changes in operating assets and liabilities 60,665 56,932 53,013 Changes in operating assets and liabilities: (Increase) decrease in trade accounts and other receivables 31 (230) (36) (Increase) decrease in food and supply inventories 10 (483) (183) Increase in prepaid expenses (391) (346) (9) Increase in other assets (226) (1,115) (353) Increase in accounts payable-trade 174 2,441 1,368 Increase (decrease) in accrued expenses and other liabilities 817 (337) 3,082 Increase (decrease) in income taxes payable (48) 1,263 (479) Increase (decrease) in deferred income taxes and other credits (3,664) 2,229 (5) _______ ________ ________ Net cash provided by operating activities 57,368 60,354 56,398 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of land held for future use - - 495 Proceeds from disposal of property, plant, and equipment 2,803 153 474 Purchases of land held for future use (11,649) (5,776) (7,531) Purchases of property, plant, and equipment (50,783) (42,753) (29,715) _______ ________ ________ Net cash used in investing activities (59,629) (48,376) (36,277) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock under stock option plans 2,878 16,145 3,196 Net proceeds (payments) of short-term borrowings - (57,000) 40,000 Proceeds from long-term debt 979,000 268,000 - Reductions of long-term debt (936,000) (227,000) - Purchases of treasury stock (21,077) (4,839) (45,916) Dividends paid (18,797) (16,989) (15,918) _______ _______ _______ Net cash provided by (used in) financing activities 6,004 (21,683) (18,638) _______ _______ _______ Net increase (decrease) in cash and cash equivalents 3,743 (9,705) 1,483 Cash and cash equivalents at beginning of year 2,687 12,392 10,909 ________ ________ ________ Cash and cash equivalents at end of year $ 6,430 $ 2,687 $ 12,392 ________ ________ ________ See accompanying notes. Luby's Cafeterias, Inc. Notes to Consolidated Financial Statements August 31, 1997, 1996, and 1995 1. Significant Accounting Policies Nature of Operations Luby's Cafeterias, Inc. and Subsidiaries (the Company), based in San Antonio, Texas, owns and operates cafeterias in the southern United States. As of August 31, 1997, the Company operated a total of 229 units. The Company locates its cafeterias convenient to shopping and business developments as well as to residential areas. Accordingly, the cafeterias cater primarily to shoppers, store and office personnel at lunchtime, and to families at dinner. Principles of Consolidation Effective February 1, 1997, the Company was restructured into a holding company. The accompanying consolidated financial statements include the accounts of Luby's Cafeterias, Inc. and its wholly owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories The food and supply inventories are stated at the lower of cost (first-in, first-out) or market. Property Held for Sale Property held for sale is stated at the lower of cost or estimated net realizable value. Depreciation and Amortization The Company depreciates the cost of plant and equipment over their estimated useful lives using both straight-line and accelerated methods. Leasehold improvements are amortized over the related lease lives, which are in some cases shorter than the estimated useful lives of the improvements. Long-Lived Assets During 1997 the Company adopted FAS Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of." Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. Impairment losses are also recorded for long-lived that are expected to be disposed of. Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. Preopening Expenses New store preopening costs are expensed as incurred. Advertising Expenses Advertising costs are expensed as incurred. Advertising expense as a percentage of sales approximates two percent for fiscal years 1997, 1996, and 1995. Income Taxes Deferred income taxes are computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Stock-Based Compensation During 1997 the Company adopted FAS Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which encourages, but does not require the Company to record compensation cost for stock-based compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB 25. The disclosure requirements prescribed by FAS 123 are not significant to the Company. Interest-Rate Swap Agreements The Company enters into interest-rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest-rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on a fixed interested rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair values of these agreements are estimated by obtaining quoted market prices. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates. 2. Impairment of Long-Lived Assets As a result of the Company adopting Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," during 1997, a charge to operating costs of $12.4 million was recorded. The charge included $4.6 million for the closing of four cafeterias, $3 million for the write-down of certain cafeteria properties which the Company plans to continue to operate, the write-down of $2.1 million for surplus properties the Company plans to sell, $1.4 million for the write-down of computer hardware, and $1.3 million for various other charges. For those assets which the Company plans to continue to operate, the carrying values were written down to estimated future discounted cash flows or fully written off in the case of negative future cash flows. All charges were recorded in the provision for asset impairments and store closings. 3. Property, Plant, and Equipment The cost and accumulated depreciation of property, plant, and equipment at August 31, 1997 and 1996, together with the related estimated useful lives used in computing depreciation and amortization, are reflected below: Estimated 1997 1996 Useful Lives ________ ________ _______________ (Thousands of dollars) Land $ 78,540 $ 74,699 - Cafeteria equipment and furnishings 124,188 117,227 3 to 10 years Buildings 222,316 209,404 20 to 40 years Leasehold and leasehold improvements 52,833 46,403 Term of leases Office furniture and equipment 3,540 2,536 5 to 10 years Transportation equipment 657 688 5 years Construction in progress 8,788 7,506 - ________ ________ 490,862 458,463 Less accumulated depreciation and amortization 156,845 146,874 ________ ________ $334,017 $311,589 ________ ________ Total interest expense incurred for 1997, 1996, and 1995 was $5,066,000, $3,230,000, and $2,644,000, respectively, which approximated the amount paid in each year. The amounts capitalized on qualifying properties in 1997, 1996, and 1995 were $1,029,000, $1,100,000, and $895,000, respectively. 4. Debt During 1996 the Company entered into a $100 million credit facility with a syndication of four banks. As part of this credit facility, the Company has a revolving credit agreement which allows borrowings for varying periods through February 27, 2001, at the lower of the prime rate or other rate options available at the time of borrowing. The credit facility includes a maximum commitment for letters of credit of $20 million. The credit facility contains business covenants which, among other things, impose certain financial restrictions on the Company relating primarily to leverage and net worth. During 1997 the Company increased the credit facility to $125 million, extended the agreement through June 30, 2002, and negotiated a facility fee of .085% on the total commitment. Additionally, the Company entered into two Interest Rate Protection Agreements (swaps) to fix the rate on a portion of the floating-rate debt outstanding under its revolving line of credit. The swaps are fixed-rate agreements in the notional amounts of $30 million and $15 million. Both swaps have an interest rate of 6.4975% and a termination date of June 30, 2002. At August 31, 1997, the Company estimates it would have to pay $300,000 to terminate the agreements. As of August 31, 1997, the balance outstanding under the revolving credit agreement was $84,000,000 at an interest rate of 5.95%. At August 31, 1997, letters of credit of approximately $5,659,000 have been issued as security for the payment of insurance obligations classified as accrued expenses on the balance sheets. 5. Leases The Company conducts a major part of its operations from facilities which are leased under noncancelable lease agreements. Most of the leases are for periods of ten to 25 years and provide for contingent rentals based on sales in excess of a base amount. Approximately 80% of the leases contain renewal options ranging from five to 30 years. Annual future minimum lease payments under noncancelable operating leases as of August 31, 1997, are as follows: Years ending August 31: (Thousands of dollars) 1998 $ 7,353 1999 7,290 2000 7,069 2001 6,791 2002 6,294 Thereafter 48,302 _______ Total minimum lease payments $83,099 _______ Total rent expense for operating leases for the years ended August 31, 1997, 1996, and 1995 was as follows: 1997 1996 1995 _______ ________ ________ (Thousands of dollars) Minimum rentals $6,884 $5,807 $5,477 Contingent rentals 996 1,126 1,229 ______ ______ ______ $7,880 $6,933 $6,706 ______ ______ ______ 6. Employee Benefit Plans and Agreements Incentive Compensation The Company has various incentive compensation plans covering officers and other key employees that are based upon the achievement of specified earnings goals and performance factors. Awards under the plans are payable in cash and/or in shares of common stock. Charges to expense for current and future distributions under the plans amounted to $-0-, $400,000, and $431,000 in 1997, 1996, and 1995, respectively. During the years ended August 31, 1997, 1996, and 1995, 4,790, 10,590, and 4,820 shares of common stock were issued under the plans out of treasury stock, respectively. Stock Option Plans The Company has a Management Incentive Stock Plan to provide for market-based incentive awards, including stock options, stock appreciation rights, restricted stock, and performance share awards. Under the terms of the Management Incentive Stock Plan, nonqualified stock options, incentive stock options, and other types of awards for not more than 2,700,000 shares of the Company's common stock may be granted to eligible employees of the Company, including officers. Stock options may be granted at prices not less than 100% of fair market value at date of grant. Options granted to the participants of the plan are exercisable over staggered periods and expire, depending upon the type of grant, in five to seven years. The plan provides for various vesting methods, depending upon the category of personnel. Following is a summary of activity in the stock option plans for the three years ended August 31, 1997, 1996, and 1995:
Common Option Price Shares Options Options Per Share Reserved Outstanding Exercisable ________________ _________ ___________ ___________ Balances - August 31, 1994 $15.00 to $23.25 2,463,328 1,916,234 225,762 Granted 22.75 to 23.75 - 136,100 - Became exercisable 15.00 to 23.75 - - 582,379 Cancelled or expired 15.00 to 23.75 - (95,467) (43,552) Exercised 15.00 to 21.75 (209,753) (209,753) (209,753) _________ _________ _______ Balances - August 31, 1995 15.00 to 23.75 2,253,575 1,747,114 554,836 Granted 21.00 to 21.63 - 223,648 - Became exercisable 15.00 to 23.75 - - 1,167,766 Cancelled or expired 16.42 to 23.75 - (53,415) (38,903) Exercised 15.00 to 23.25 (980,600) (980,600) (980,600) _________ _________ ________ Balances - August 31, 1996 15.00 to 23.75 1,272,975 936,747 703,099 Granted 20.25 to 23.13 - 33,675 - Became exercisable 21.00 to 23.73 - - 173,658 Cancelled or expired 17.75 to 23.75 - (295,623) (281,723) Exercised 15.00 to 23.25 (277,501) (277,501) (277,501) _________ _________ ________ Balances - August 31, 1997 $16.25 to $23.75 995,474 397,298 317,533 _________ _________ ________
Deferred Compensation Deferred compensation agreements exist for several key management employees, all of whom are current or former officers. Under the agreements, the Company is obligated to provide for each such employee or his beneficiaries, during a period of ten years after the employee's death, disability, or retirement, annual benefits ranging from $15,500 to $43,400. The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants. The net expense incurred for this plan for the years ended August 31, 1997, 1996, and 1995 amounted to $47,000, $239,000, and $79,000, respectively. The Company also has a Supplemental Executive Retirement Plan (SERP) for key executives and officers. The SERP is a "target" benefit plan, with the annual lifetime benefit based upon a percentage of average salary during the final five years of service at age 65, offset by several sources of income including benefits payable under deferred compensation agreements, if applicable, the profit sharing plan, and Social Security. SERP benefits will be paid from the Company's assets. The net expense incurred for this plan for the years ended August 31, 1997 and 1996, was $120,000 and $80,000, respectively, and the unfunded accumulated benefit obligation as of August 31, 1997 and 1996, was approximately $315,400 and $250,000, respectively. Profit Sharing The Company has a profit sharing plan and retirement trust covering substantially all employees who have attained the age of 21 years and have completed one year of continuous service. The plan is administered by a corporate trustee, is a "qualified plan" under Section 401(a) of the Internal Revenue Code, and provides for the payment of the employee's vested portion of the plan upon retirement, termination, disability, or death. The plan is funded by contributions of a portion of the net earnings of the Company. The plan provides that for each fiscal year in which the Company's net income (before income taxes and before any contribution to the plan) meets certain minimum standards, the Company is obligated to contribute to the plan, at a minimum, an amount equal to a defined percentage of the participants' compensation. In no event will the required contribution exceed 10% of the Company's income before income taxes and before any contribution to the plan. The Company's annual contribution to the plan amounted to $1,500,000, $5,100,000, and $4,888,000, for 1997, 1996, and 1995, respectively. During 1997 the Company established a voluntary 401(k) employee savings plan to provide substantially all salaried and hourly employees of the Company an opportunity to accumulate personal funds for their retirement. These contributions may be made on a before-tax basis to the plan. The Company does not match the participants' contributions to the plan. 7. Income Taxes The tax effect of temporary differences results in deferred income tax assets and liabilities as of August 31 as follows: 1997 1996 ________ ___________ (Thousands of dollars) Deferred tax assets: Workers' compensation insurance $ 937 $ 418 Deferred compensation 651 779 Asset impairments and store closing reserves 3,453 - _______ _______ Total deferred tax assets 5,041 1,197 Deferred tax liabilities: Amortization of capitalized interest 439 494 Depreciation and amortization 18,960 19,085 Other 1,706 1,083 _______ _______ Total deferred tax liabilities 21,105 20,662 _______ _______ Net deferred tax liability $16,064 $19,465 _______ _______ The reconciliation of the provision for income taxes to the expected income tax expense (computed using the statutory tax rate) is as follows: 1997 1996 1995 Amount % Amount % Amount % _______ ____ _______ ____ _______ ____ (Thousands of dollars and as a percent of pretax income) Normally expected income tax expense $14,932 35.0% $21,890 35.0% $20,628 35.0% State income taxes 745 1.7 1,488 2.4 1,616 2.7 Jobs tax credits (101) (.2) (1) - (151) (.2) Other differences (1,361) (3.2) (43) (.1) (170) (.3) _______ _____ _______ ____ ______ ____ $14,215 33.3% $23,334 37.3% $21,923 37.2% _______ _____ _______ ____ _______ ____ During 1997 the Company restructured into a holding company which effectively decreased future expected state taxes. The deferred tax assets and liabilities were reduced accordingly, and the effect on total income tax expense is included above with "Other differences." Cash payments for income taxes for 1997, 1996, and 1995 were $17,664,000, $19,677,000, and $22,229,000, respectively. 8. Commitments and Contingencies At August 31, 1997, the Company had seven restaurants under construction. The aggregate unexpended costs under the construction contracts were approximately $2,935,000. The Company has unconditionally guaranteed a $2,000,000 loan under a line of credit for an unrelated limited partnership in exchange for advertising rights and a participation in future profits of the venture. The Company is presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these pending legal proceedings will not have a material adverse effect on the Company's operations or consolidated financial position. 9. Common Stock In 1991 the Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one common stock purchase right for each outstanding share of common stock. The rights are not initially exercisable. The rights may become exercisable under circumstances described in the Plan if any person or group (an Acquiring Person) becomes the beneficial owner of 15% or more of the common stock. Once the rights become exercisable, each right will be exercisable to purchase, for $27.50 (the Purchase Price), one-half of one share of common stock, par value $.32 per share, of the Company. If any person becomes the beneficial owner of 15% or more of the common stock, each right will entitle the holder, other than the Acquiring Person, to purchase for the Purchase Price a number of shares of the Company's common stock having a market value of four times the Purchase Price. The Board of Directors authorized the purchase in the open market of up to 1,000,000 shares of the Company's outstanding common stock through December 31, 1998, of which 149,700 shares were purchased in fiscal year 1997. Under this and previous authorizations, the Company purchased 897,500 and 252,200 shares of its common stock at a cost of $19,918,000 and $5,997,000 during 1997 and 1996, respectively, which are being held as treasury stock. 10. Per Share Information The weighted average number of shares used in the net income per share computation was 23,406,191 for 1997, 23,688,813 for 1996, and 23,908,087 for 1995. 11. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at August 31 consisted of: 1997 1996 _______ _______ (Thousands of dollars) Salaries and bonuses $ 6,662 $ 6,185 Rent 721 777 Taxes, other than income 7,245 5,742 Profit sharing plan 1,452 5,057 Insurance 7,747 6,273 Other 1,211 302 _______ _______ $25,038 $24,336 _______ _______ 12. Quarterly Financial Information (Unaudited) The following is a summary of quarterly unaudited financial information for 1997 and 1996: Three Months Ended November 30, February 28, May 31, August 31, 1996 1997 1997 1997 ________ ________ ________ _________ (Thousands of dollars except per share data) Sales $122,287 $118,830 $127,630 $126,699 Gross profit 55,887 54,908 59,387 57,037 Net income 8,166 8,404 9,583 2,294 Net income per share .35 .36 .41 .10 Three Months Ended November 30, February 29, May 31, August 31, 1995 1996 1996 1996 ________ ________ ________ _________ (Thousands of dollars except per share data) Sales $108,337 $108,835 $117,132 $115,824 Gross profit 51,027 52,634 57,140 54,986 Net income 8,565 9,322 10,964 10,357 Net income per share .37 .40 .46 .43 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. There is incorporated in this Item 10 by reference that portion of the Company's definitive proxy statement for the 1998 annual meeting of shareholders appearing therein under the captions "Election of Directors," "Information Concerning Directors and Executive Officers," and "Certain Relationships and Related Transactions." See also the information in Item 4A of Part I of this Report. Item 11. Executive Compensation. There is incorporated in this Item 11 by reference that portion of the Company's definitive proxy statement for the 1998 annual meeting of shareholders appearing therein under the captions "Executive Compensation," "Deferred Compensation," and "Certain Relationships and Related Transactions." Item 12. Security Ownership of Certain Beneficial Owners and Management. There is incorporated in this Item 12 by reference that portion of the Company's definitive proxy statement for the 1998 annual meeting of shareholders appearing therein under the captions "Principal Shareholders" and "Management Shareholders." Item 13. Certain Relationships and Related Transactions. There is incorporated in this Item 13 by reference that portion of the Company's definitive proxy statement for the 1998 annual meeting of shareholders appearing therein under the caption "Certain Relationships and Related Transactions." PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents. 1. Financial Statements The following financial statements are filed as part of this Report: Consolidated balance sheets at August 31, 1997 and 1996 Consolidated statements of income for each of the three years in the period ended August 31, 1997 Consolidated statements of shareholders' equity for each of the three years in the period ended August 31, 1997 Consolidated statements of cash flows for each of the three years in the period ended August 31, 1997 Notes to consolidated financial statements Report of independent auditors 2. Financial Statement Schedules All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. 3. Exhibits The following exhibits are filed as a part of this Report: 2 - Agreement and Plan of Merger dated November 1, 1991, between Luby's Cafeterias, Inc., a Texas corporation, and Luby's Cafeterias, Inc., a Delaware corporation (filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 3(a) - Certificate of Incorporation of Luby's Cafeterias, Inc., a Delaware corporation, as in effect February 28, 1994 (filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 3(b) - Bylaws of Luby's Cafeterias, Inc., as currently in effect (filed as Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 4(a) - Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc. in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No.1-8308, and incorporated herein by reference). 4(b) - Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 4(c) - Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). 4(d) - Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). 4(e) - Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). 4(f) - First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 4(g) - ISDA Master Agreement dated June 17, 1997, between Luby's Cafeterias, Inc. and NationsBank, N.A., with Schedule and Confirmation dated July 7, 1997. 4(h) - ISDA Master Agreement dated July 2, 1997, between Luby's Cafeterias, Inc. and Texas Commerce Bank National Association, with Schedule and Confirmation dated July 2, 1997. 4(i) - Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. 10(a) - Form of Deferred Compensation Agreement entered into between Luby's Cafeterias, Inc. and various officers (filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1981, and incorporated herein by reference). 10(b) - Form of Amendment to Deferred Compensation Agreement between Luby's Cafeterias, Inc. and various officers and former officers adopted January 14, 1997 (filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(c) - Annual Incentive Plan for Area Vice Presidents of Luby's Cafeterias, Inc. adopted October 19, 1983 (filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1983, and incorporated herein by reference). 10(d) - Amendment to Annual Incentive Plan for Area Vice Presidents of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(e) - Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted October 19, 1983 (filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1983, and incorporated herein by reference). 10(f) - Amendment to Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(g) - Performance Unit Plan of Luby's Cafeterias, Inc. approved by the shareholders on January 12, 1984 (filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1984, and incorporated herein by reference). 10(h) - Amendment to Performance Unit Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(i) - Employment Contract dated January 8, 1988, between Luby's Cafeterias, Inc. and George H. Wenglein (filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, and incorporated herein by reference). 10(j) - Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference). 10(k) - Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(l) - Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference). 10(m) - Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(n) - Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. approved by the shareholders on January 13, 1995 (filed as Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). 10(o) - Amendment to Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(p) - Employment Contract dated January 12, 1996, between Luby's Cafeterias, Inc. and John B. Lahourcade (filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). 10(q) - Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(r) - Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(s) - Luby's Cafeterias, Inc. Welfare Benefit Plan Trust dated July 18, 1996 (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(t) - Retirement Agreement dated March 17, 1997, between Luby's Cafeterias, Inc. and Ralph Erben (filed as Exhibit 10(t) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(u) - Employment Agreement dated September 15, 1997, between Luby's Cafeterias, Inc. and Barry J.C. Parker. 10(v) - Term Promissory Note of Barry J.C. Parker in favor of Luby's Cafeterias, Inc., dated November 10, 1997, in the original principal sum of $199,999.00. 10(w) - Stock Agreement dated November 10, 1997, between Barry J.C. Parker and Luby's Cafeterias, Inc. 11 - Statement re computation of per share earnings. 21 - Subsidiaries of Luby's Cafeterias, Inc. 27 - Financial Data Schedule. 99 - Consent of Ernst & Young LLP. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this Report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 25, 1997 LUBY'S CAFETERIAS, INC. (Registrant) By: DAVID B. DAVISS ___________________________ David B. Daviss, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Date Name and Title DAVID B. DAVISS David B. Daviss, Chairman _______________________________ of the Board November 25, 1997 BARRY J.C. PARKER Barry J.C. Parker, President, _______________________________ Chief Executive Officer, November 25, 1997 and Director WILLIAM E. ROBSON William E. Robson, Executive Vice ________________________________ President-Operations and November 25, 1997 Director LAURA M. BISHOP Laura M. Bishop, Senior Vice ________________________________ President and Chief Financial November 25, 1997 Officer RONALD E. RIEMENSCHNEIDER Ronald E. Riemenschneider, Vice ________________________________ President, Treasurer, and November 25, 1997 Principal Accounting Officer LAURO F. CAVAZOS Lauro F. Cavazos, Director ________________________________ November 25, 1997 ROGER R. HEMMINGHAUS Roger R. Hemminghaus, Director ________________________________ November 25, 1997 JOHN B. LAHOURCADE John B. Lahourcade, Director ________________________________ November 25, 1997 WALTER J. SALMON Walter J. Salmon, Director ________________________________ November 25, 1997 GEORGE H. WENGLEIN George H. Wenglein, Director ________________________________ November 25, 1997 JOANNE WINIK Joanne Winik, Director ________________________________ November 25, 1997 EXHIBIT INDEX Exhibit 2 Agreement and Plan of Merger dated November 1, 1991, between Luby's Cafeterias, Inc., a Texas corporation, and Luby's Cafeterias, Inc., a Delaware corporation (filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 3(a) Certificate of Incorporation of Luby's Cafeterias, Inc., a Delaware corporation, as in effect February 28, 1994 (filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 3(b) Bylaws of Luby's Cafeterias, Inc., as currently in effect (filed as Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 4(a) Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc. in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No.1-8308, and incorporated herein by reference). 4(b) Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 4(c) Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). 4(d) Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). 4(e) Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). 4(f) First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 4(g) ISDA Master Agreement dated June 17, 1997, between Luby's Cafeterias, Inc. and NationsBank, N.A., with Schedule and Confirmation dated July 7, 1997. 4(h) ISDA Master Agreement dated July 2, 1997, between Luby's Cafeterias, Inc. and Texas Commerce Bank National Association, with Schedule and Confirmation dated July 2, 1997. 4(i) Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. 10(a) Form of Deferred Compensation Agreement entered into between Luby's Cafeterias, Inc. and various officers (filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1981, and incorporated herein by reference). 10(b) Form of Amendment to Deferred Compensation Agreement between Luby's Cafeterias, Inc. and various officers and former officers adopted January 14, 1997 (filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(c) Annual Incentive Plan for Area Vice Presidents of Luby's Cafeterias, Inc. adopted October 19, 1983 (filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1983, and incorporated herein by reference). 10(d) Amendment to Annual Incentive Plan for Area Vice Presidents of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(e) Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted October 19, 1983 (filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1983, and incorporated herein by reference). 10(f) Amendment to Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(g) Performance Unit Plan of Luby's Cafeterias, Inc. approved by the shareholders on January 12, 1984 (filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1984, and incorporated herein by reference). 10(h) Amendment to Performance Unit Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(i) Employment Contract dated January 8, 1988, between Luby's Cafeterias, Inc. and George H. Wenglein (filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, and incorporated herein by reference). 10(j) Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference). 10(k) Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(l) Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference). 10(m) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(n) Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. approved by the shareholders on January 13, 1995 (filed as Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). 10(o) Amendment to Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(p) Employment Contract dated January 12, 1996, between Luby's Cafeterias, Inc. and John B. Lahourcade (filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). 10(q) Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(r) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(s) Luby's Cafeterias, Inc. Welfare Benefit Plan Trust dated July 18, 1996 (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(t) Retirement Agreement dated March 17, 1997, between Luby's Cafeterias, Inc. and Ralph Erben (filed as Exhibit 10(t) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(u) Employment Agreement dated September 15, 1997, between Luby's Cafeterias, Inc. and Barry J.C. Parker. 10(v) Term Promissory Note of Barry J.C. Parker in favor of Luby's Cafeterias, Inc., dated November 10, 1997, in the original principal sum of $199,999.00. 10(w) Stock Agreement dated November 10, 1997, between Barry J.C. Parker and Luby's Cafeterias, Inc. 11 Statement re computation of per share earnings. 21 Subsidiaries of Luby's Cafeterias, Inc. 27 Financial Data Schedule. 99 Consent of Ernst & Young LLP. EX-4 2 INT RATE SWAP AGRMNT & AMENDMENT TO CREDIT AGRMNT Exhibit 4(g) (Multicurrency - Cross Border) ISDA International Swap Dealers Association. Inc. MASTER AGREEMENT dated as of June 17, 1997 NationsBank, N. A. and Luby's Cafeterias, Inc. have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows:- 1. Interpretation (a) Definitions. The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. Obligations (a) General Conditions. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. (b) Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) Netting. If on any date amounts would otherwise be payable:- (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of offices through which the parties make and receive payments or deliveries. (d) Deduction or Withholding for Tax. (i) Gross-Up. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:- (1) promptly notify the other party ("Y") of such requirement; (2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y; (3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and (4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:- (A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or (B) the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law. (ii) Liability. If:- (1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4); (2) X does not so deduct or withhold; and (3) a liability resulting from such Tax is assessed directly against X, then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)). (e) Default interest; Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. Representations Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:- (a) Basic Representations. (i) Status. It is duly organized and validly existing under the laws of the jurisdiction of its organizaion or incorporation and, if relevant under such laws, in good standing; (ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance; (iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Aftiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. (d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. (e) Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true. (f) Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true. 4. Agreements Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:- (a) Furnish Specified Information. It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:- (i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation; (ii) any other documents specified in the Schedule or any Confirmation; and (iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification, in each case by the date specified in the Schedule or such Confimnation or, if none is specified, as soon as reasonably practicable. (b) Maintain Authorizations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. (d) Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure. (e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party. 5. Events of Default and Termination Events (a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:- (i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) Credit Support Default. (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) Misrepresentation. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incotrrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, and acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (I) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (a) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:- (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:- (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:- (i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which hill be the Affected Party):- (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction: (ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (l) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B)); (iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next succeeding Scheduled Payment Date will either (l) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii); (iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or (v) Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 6. Early Termination (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) Right to Terminate Following Termination Event. (i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) Transfer to Avoid Termination Event. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist. If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i). Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed. (iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iv) Right to Terminate. If:- (1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party, either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) Effect of Designation. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) Calculations. (i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or''Loss", and a payment method, either the "First Method'' or the Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) Events of Default. If the Early Termination Date results from an Event of Default:- (1) First Method and Market Quotation. If the First Method and Market Quotatation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the 'on-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. (2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) Termination Events. If the Early Termination Date results from a Termination Event:- (1) One Affected Party . If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions arc being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) Affected Parties. If there are two Affected Parties:- (A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and (B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y. (iii) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). (iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. Transfer Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other partly except that:- (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8. Contractual Currency (a) Payment In the Contractual Currency. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess. (b) Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency. (c) Separate Indemnities. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement. (d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss bad an actual exchange or purchase been made. 9. Miscellaneous (a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. (c) Survival of Obligations. Without prejudice to Sections 9(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. (d) Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by late. (e) Counterparts and Confirmations. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. (f) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. (g) Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 10. Offices; Multibranch Parties (a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organization of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction Is entered into. (b) Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party. (c) If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation. 11. Expenses A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 12. Notices (a) Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:- (i) if in writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex, on the date the recipient's answerback is received: (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 13. Governing Law and Jurisdiction (a) Governing law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York; and the United States District Count located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (c) Service of Process. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 14. Definitions As used in this Agreement:- "Additional Termination Event" has the meaning specified in Section 5(b). "Affected Party" has the meaning specified in Section 5(b). "Affected Transactions" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "Affiliate" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "Applicable Rate" means:- (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and (d) in all other cases, the Termination Rate. "Burdened Party" has the meaning specified in Section 5(b). "Change in Tax Law" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into. "consent" includes a consent, approval, action, authorization, exemption, notice, filing, registration or exchange control consent. "Credit Event Upon Merger" has the meaning specified in Section 5(b). "Credit Support Document" means any agreement or instrument that is specified as such in this Agreement. "Credit Support Provider" has the meaning specified in the Schedule. "Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. "Defaulting Party" has the meaning specified in Section 6(a). "Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iv). "Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "Illegality" has the meaning specified in Section 5(b). "Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document). "law" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "lawful" and "unlawful" will be construed accordingly. "Local Business Day" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "Market Quotation" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Dare is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged. After consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "Non-default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount. "Non-defaulting Party" has the meaning specified in Section 6(a) "Office" means a branch or office of a party, which may be such party's head or home office. "Potential Event of Default" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Reference Market-makers" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made. "Scheduled Payment Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "Set off' means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "Settlement Amount" means, with respect to a party and any Early Termination Date, the sum of:- (a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "Specifics Entity" has the meaning specified in the Schedule. "Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "Stamp Tax" means any stamp, registration, documentation or similar tax. "Tax" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax. "Tax Event" has the meaning specified in Section 5(b). "Tax Event Upon Merger" has the meaning specified in Section S(b). "Terminated Transactions" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "Termination Currency" has the meaning specified in the Schedule. "Termination Currency Equivalent" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties. "Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 9(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such parry on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties. IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. NationsBank, N.A. Luby's Cafeterias, Inc. ______________________________ _____________________________ (Name of Party) (Name of Party) By: R. VAUGHAN DODD By: LAURA M. BISHOP __________________________ _________________________ Name: R. Vaughan Dodd Name: Laura M. Bishop Title: Senior Vice President Title: Senior Vice President and Chief Financial Officer Date: July 17, 1997 Date: July 9, 1997 SCHEDULE to the MASTER AGREEMENT dated as of June 17, 1997 between NATIONSBANK, N.A. ("Party A") and LUBY'S CAFETERIAS, INC. ("Party B") PART 1: Termination Provisions and Certain Other Matters (a) "Credit Agreement" means the Credit Agreement dated as of February 27, 1996 among Luby's Cafeterias, Inc., as "Borrower", certain "Lenders" referred to therein, and NationsBank of Texas, N.A., as "Administrative Lender", as amended, modified, restated or replaced from time to time. (b) "Specified Entity" means in relation to Party A for the purpose of:- Section 5(a)(v), none; Section 5(a)(vi), none; Section 5(a)(vii), none; and Section 5(b)(iv), none; in relation to Party B for the purpose of:- Section 5(a)(v), each Subsidiary (as defined in the Credit Agreement); Section 5(a)(vi), each Subsidiary; Section 5(a)(vii), each Subsidiary; and Section 5(b)(iv), each Subsidiary. (c) "Specified Transaction" will have the meaning specified in Section l4. (d) The "Cross-Default" provisions of Section 5(a)(vi) will apply to Party A and Party B and each Specified Entity of Party B. In connection therewith, "Specified Indebtedness" will have the meaning specified in Section 14, except that such term shall not include obligations in respect of deposits received in the ordinary course of a party's banking business, and "Threshold Amount" means [with respect to Party A, an amount equal to three percent of Party A's shareholders' equity, determined in accordance with generally accepted accounting principles in such party's jurisdiction of incorporation or organization, consistently applied, as at the end of such party's most recently completed fiscal year, and with respect to Party B, $1,000,000. With respect to Party B, an Event of Default (with Party B being the Defaulting Party) shall also occur under this Agreement upon the occurrence of any Event of Default specified in the Credit Agreement, as amended from time to time after the date hereof with the consent of Party A. (e) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will apply to Party A and Party B and each Specified Entity of Party B. (f) The "Automatic Early Termination" provision of Section 6(a) will not apply to Party A or Party B. (g) Payments on Early Termination. For the purpose of Section 6(e):- (i) Market Quotation will apply. (ii) The Second Method will apply. (h) "Termination Currency" means United States Dollars. (i) Additional Termination Event. Additional Termination Event will not apply. PART 2: Tax Representations Not applicable. PART 3: Agreement to Deliver Documents For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the following documents: (a) Tax forms, documents or certificates to be delivered are: none. (b) Other documents to be delivered are:- Party required Form/ Date by Covered by to deliver Document/ which to be Section 3(d) document Certificate delivered Representation _____________ _______________________ ____________________ ______________ Party A and Certified copies of all Upon execution and Yes Party B corporate authorizations delivery of this and any other documents Agreement with respect to the execution, delivery and performance of this Agreement Party A and Certificate of authority Upon execution and Yes Party B and specimen signatures of delivery of this individuals executing this Agreement and Agreement and thereafter upon request Confirmations. of the other party PART 4: Miscellaneous (a) Address for Notices. For the purpose of Section 12(a) of this Agreement:- Address for notice or communications to Party A: NationsBank, N.A. 100 N. Tryon St., NC1-007-13-01 Charlotte, North Carolina 28255 Attention: Derivatives Documentation Unit (Telex No: 669959; Answerback: NATIONSBK CHA) Facsimile No.: 704-386-4113 Address for notice or communications to Party B: Attention: Ron Riemenschneider Luby's Cafeterias, Inc. P.O. Box 33069 2211 Northeast Loop 410 San Antonio, TX 78265-3069 Telephone No.: 210-871-7515 Facsimile No.: 210-656-3836 (b) Process Agent. For the purpose of Section 13(c): Party A appoints as its Process Agent: Not applicable. Party B appoints as its Process Agent: Not applicable. (c) Offices. The provisions of Section 10(a) will apply to this Agreement. (d) Multibranch Party. For the purpose of Section 10(c) of this Agreement:- Party A is not a Multibranch Party. Party B is not a Multibranch Party. (e) Calculation Agent. The Calculation Agent is Party A, unless otherwise specified in a Confirmation in relation to the relevant Transaction. (f) Credit Support Document. Details of any Credit Support Document:- Not applicable. (g) Credit Support Provider. Credit Support Provider means in relation to Party A, Not applicable. Credit Support Provider means in relation to Party B, Not applicable. (h) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to that jurisdiction's choice of law doctrine). (i) Netting of Payments. Subparagraph (ii) of Section 2(c) will not apply to any Transaction unless specified in the relevant Confirmation. (j) "Affiliate" will have the meaning specified in Section 14 of this Agreement. PART 5: Other Provisions (a) Set-off. Nothing in this Agreement shall be treated as restricting or negating any right of set-off, lien, counterclaim or other right or remedy which might otherwise be available to either party. (b) Payments. Notwithstanding the provisions of any Transaction, in the event an Event of Default or an event that with the giving of notice or lapse of time (or both) would become an Event of Default shall have occurred and be continuing with respect to a party ("Party X"), or material adverse change in the business, operations, assets or financial or other condition of Party X shall have occurred, then, upon written notice being given to Party X by the other party ("Party Y") (or automatically, without any requirement for the giving of notice, in the case of an Event of Default or Potential Event of Default described in Section 5(a)(vii)), the following modifications shall be made, effective as of the date such notice is given or deemed to be given, to each Transaction where the originally-scheduled Payment Dates for Party Y occur more frequently than the Payment Dates for Party X: (i) Compounding shall apply; (ii) Party Y's Payment Dates shall be changed to coincide with Party X's Payment Dates; (iii) the Compounding Dates shall be the same dates as Party Y's originally-scheduled Payment Dates; and (iv) for purposes of calculating the amount of the payment to be made by Party Y on the Payment Date for Party Y (as modified hereby) next succeeding the effective date of the modifications provided for in this paragraph, the Calculation Period in respect of which such payment is being made will be deemed to have commenced on the date of the most recent payment made by Party Y. (c) Exchange of Confirmations. For each Transaction entered into hereunder, Party A shall promptly send to Party B a Confirmation, via telex or facsimile transmission. Party B agrees to respond to such Confirmation within three (3) Business Days, either confirming agreement thereto or requesting a correction of any error(s) contained therein. Failure by Party B to respond within such period shall not affect the validity or enforceability of such Transaction and shall be deemed to be an affirmation of the terms contained in such Confirmation, absent manifest error. The parties agree that any such exchange of telexes or facsimile transmissions shall constitute a Confirmation for all purposes hereunder. (d) Notice by Facsimile Transmission. Section 12(a) is hereby amended by inserting the words "or 13(c)" between the number "6" and the word "may" in the second line thereof. (e) Waiver of Right to Trial by Jury. Each party hereby irrevocably waives any and all rights to trial by jury with respect to any legal proceeding arising out of or relating to this Agreement or any Transaction contemplated hereby. (f) Recording of Conversations. Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. (g) Eligible Swap Participant. Each party represents to the other that it is an "eligible swap participant" as defined under the regulations of the Commodity Futures Trading Commission, currently at 17 C.F.R. Section 35.1(b)(2). (h) Relationship Between Parties. Each party represents to the other party and will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):- (i) Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. Further, such party has not received from the other party any assurance or guarantee as to the expected results of that Transaction. (ii) Evaluation and Understanding. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the financial and other risks of that Transaction. (iii) Status of Parties. The other party is not acting as an agent, fiduciary or advisor for it in respect of that Transaction. (i) Incorporation by Reference of Terms of Credit Agreement. The covenants, terms and provisions of, including all representations and warranties of Party B contained in, the Credit Agreement, as in effect as of the date of this Agreement, are hereby incorporated by reference in, and made part of, this Agreement to the same extent as if such covenants, terms, and provisions were set forth in full herein. Party B hereby agrees that, during the period commencing with the date of this Agreement through and including such date on which all of Party B's obligations under this Agreement are fully performed, Party B will (a) observe, perform, and fulfill each and every such covenant, term, and provision applicable to Party B, as such covenants, terms, and provisions, may be amended from time to time after the date of this Agreement and (b) deliver to Party A at the address for notices to Party A provided in Part 4 each notice, document, certificate or other writing as Party B is obligated to furnish to any other party to the Credit Agreement. In the event the Credit Agreement terminates or becomes no longer binding on Party B prior to the termination of this Agreement, such covenants, terms, and provisions (other than those requiring payments in respect of amounts owed under the Credit Agreement) will remain in force and effect for purposes of this Agreement as though set forth in full herein until the date on which all of Party B's obligations under this Agreement are fully performed, and this Agreement is terminated. Accepted and agreed: NATIONSBANK, N.A. LUBY'S CAFETERIAS, INC. R. VAUGHAN DODD LAURA M. BISHOP ___________________________ __________________________ Name: R. Vaughan Dodd Name: Laura M. Bishop Title: Senior Vice President Title: Senior Vice President and Chief Financial Officer CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION TO BE SUBJECT TO 1992 MASTER AGREEMENT TO: LUBY'S CAFETERIAS, INC. P.O. BOX 33069 2211 NORTHEAST LOOP 410 SAN ANTONIO, TX 78265-3069 ATTN: RON RIEMENSCHNEIDER TEL: 210-871-7515 FAX: 210-656-3836 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 FRANK TANTILLO / JOHN KAPUSTIAK Date: 07JUL97 Our Reference No. 632650/184154 The purpose of this letter agreement is to confirm the terms and conditions of the Swap Transaction entered into between us on the Trade Date specified below (the "Swap Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the Master Agreement specified below. 1. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc. (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. Each party represents and warrants to the other that (i) it is duly authorized to enter into this Swap Transaction and to perform its obligations hereunder and (ii) the person executing this Confirmation is duly authorized to execute and deliver it. 2. This Confirmation supplements, forms part of, and is subject to, the Master Agreement in the form published by ISDA in June, 1992 (the "Agreement"), as if you and we had executed that agreement (but without any Schedule thereto) and the Agreement shall be governed by and construed in accordance with the laws of the State of New York. All provisions contained or incorporated by reference in the Agreement shall govern this Confirmation except as expressly modified below. In addition, you and we agree to use our best efforts promptly to negotiate, execute and deliver a Master Agreement (in the form published by ISDA). Upon execution and delivery by you and us of that agreement (i) this Confirmation shall supplement, form part of, and be subject to that agreement and (ii) all provisions contained or incorporated by reference in that agreement shall govern this Confirmation except as expressly modified below. The terms of the Swap Transaction to which this Confirmation relates are as follows: Currency/Notional Amount: USD 30,000,000.00 Trade Date: 02JUL97 Effective Date: 14JUL97 Termination Date: 30JUN02 Fixed Amounts: Payer of Fixed: LUBY'S CAFETERIAS, INC. Fixed Rate Payer Payment Dates: EACH JANUARY 14, APRIL 14, JULY 14, AND OCTOBER 14, WITH FINAL PAYMENT JUNE 30, 2002, COMMENCING OCTOBER 14, 1997 AND ENDING JUNE 30, 2002, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Fixed Rate Payer Business Days: NEW YORK, LONDON Fixed Rate: 6.497500% Fixed Rate Payer Day Count Fraction: ACTUAL/360 Floating Amounts: Payer of Floating: NATIONSBANK, N.A. Floating Rate Payer Reset Dates: The First Day of Each Calculation Period Floating Rate Payer Payment Dates: EACH JANUARY 14, APRIL 14, JULY 14, AND OCTOBER 14, WITH FINAL PAYMENT JUNE 30, 2002, COMMENCING OCTOBER 14, 1997 AND ENDING JUNE 30, 2002, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. . Floating Rate Payer Business Days: NEW YORK, LONDON Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 3 MONTHS Spread: NONE Floating Rate for Initial Calculation Period: TO BE SET Floating Rate Payer Day Count Fraction: ACTUAL/360 Averaging: INAPPLICABLE Rounding Factor: One-Hundred-Thousandth of One Percent Calculation Agent: NationsBank, N.A. Assignment: This Swap Transaction may be assigned only with prior written consent. Legal and Out-of-Pocket Expenses: For each party's own account. Governing Law: The Laws of the State of New York. Recording of Conversations: Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. Payment Instructions: Payment to NationsBank: Payment to LUBY'S CAFETERIAS, INC.: NATIONSBANK, N.A. - CHARLOTTE PLEASE PROVIDE LUBY'S CAFETERIAS, INC. ABA 053000196 AB 111000025 ACCT: 1085201651100 ACCT: 7110062300 ATTN: DERIVATIVE OPERATIONS ATTN: Ronald E. Riemenschneider Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within three (3) Business Days by returning via telecopier an executed copy of this Confirmation to the attention of the Swaps Documentation Group at Fax No. (312) 234-3160. Failure to respond within such period shall not affect the validity or enforceability of this Swap Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NATIONSBANK, N.A. NICK KOLIC By: ______________________ Nick Kolic Vice President Confirmed as of the date first written above: LUBY'S CAFETERIAS, INC. LAURA M. BISHOP By: ______________________ Authorized Signatory Exhibit 4(h) (Multicurrency - Cross Border) ISDA International Swap Dealers Association. Inc. MASTER AGREEMENT dated as of July 2, 1997 Texas Commerce Bank National Association and Luby's Cafeterias, Inc. have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows:- 1. Interpretation (a) Definitions. The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. Obligations (a) General Conditions. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. (b) Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) Netting. If on any date amounts would otherwise be payable:- (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of offices through which the parties make and receive payments or deliveries. (d) Deduction or Withholding for Tax. (i) Gross-Up. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:- (1) promptly notify the other party ("Y") of such requirement; (2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y; (3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and (4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:- (A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or (B) the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law. (ii) Liability. If:- (1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4); (2) X does not so deduct or withhold; and (3) a liability resulting from such Tax is assessed directly against X, then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)). (e) Default interest; Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. Representations Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:- (a) Basic Representations. (i) Status. It is duly organized and validly existing under the laws of the jurisdiction of its organizaion or incorporation and, if relevant under such laws, in good standing; (ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance; (iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Aftiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. (d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. (e) Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true. (f) Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true. 4. Agreements Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:- (a) Furnish Specified Information. It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:- (i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation; (ii) any other documents specified in the Schedule or any Confirmation; and (iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification, in each case by the date specified in the Schedule or such Confimnation or, if none is specified, as soon as reasonably practicable. (b) Maintain Authorizations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. (d) Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure. (e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party. 5. Events of Default and Termination Events (a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:- (i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) Credit Support Default. (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) Misrepresentation. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incotrrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, and acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (I) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (a) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:- (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:- (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:- (i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which hill be the Affected Party):- (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction: (ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (l) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B)); (iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next succeeding Scheduled Payment Date will either (l) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii); (iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or (v) Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 6. Early Termination (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) Right to Terminate Following Termination Event. (i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) Transfer to Avoid Termination Event. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist. If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i). Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed. (iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iv) Right to Terminate. If:- (1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party, either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) Effect of Designation. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) Calculations. (i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or''Loss", and a payment method, either the "First Method'' or the Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) Events of Default. If the Early Termination Date results from an Event of Default:- (1) First Method and Market Quotation. If the First Method and Market Quotatation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the 'on-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. (2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) Termination Events. If the Early Termination Date results from a Termination Event:- (1) One Affected Party . If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions arc being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) Affected Parties. If there are two Affected Parties:- (A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and (B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y. (iii) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). (iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. Transfer Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other partly except that:- (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8. Contractual Currency (a) Payment In the Contractual Currency. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess. (b) Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency. (c) Separate Indemnities. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement. (d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss bad an actual exchange or purchase been made. 9. Miscellaneous (a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. (c) Survival of Obligations. Without prejudice to Sections 9(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. (d) Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by late. (e) Counterparts and Confirmations. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. (f) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. (g) Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 10. Offices; Multibranch Parties (a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organization of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction Is entered into. (b) Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party. (c) If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation. 11. Expenses A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 12. Notices (a) Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:- (i) if in writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex, on the date the recipient's answerback is received: (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 13. Governing Law and Jurisdiction (a) Governing law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York; and the United States District Count located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (c) Service of Process. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 14. Definitions As used in this Agreement:- "Additional Termination Event" has the meaning specified in Section 5(b). "Affected Party" has the meaning specified in Section 5(b). "Affected Transactions" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "Affiliate" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "Applicable Rate" means:- (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and (d) in all other cases, the Termination Rate. "Burdened Party" has the meaning specified in Section 5(b). "Change in Tax Law" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into. "consent" includes a consent, approval, action, authorization, exemption, notice, filing, registration or exchange control consent. "Credit Event Upon Merger" has the meaning specified in Section 5(b). "Credit Support Document" means any agreement or instrument that is specified as such in this Agreement. "Credit Support Provider" has the meaning specified in the Schedule. "Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. "Defaulting Party" has the meaning specified in Section 6(a). "Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iv). "Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "Illegality" has the meaning specified in Section 5(b). "Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document). "law" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "lawful" and "unlawful" will be construed accordingly. "Local Business Day" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "Market Quotation" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Dare is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged. After consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "Non-default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount. "Non-defaulting Party" has the meaning specified in Section 6(a) "Office" means a branch or office of a party, which may be such party's head or home office. "Potential Event of Default" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Reference Market-makers" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made. "Scheduled Payment Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "Set off' means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "Settlement Amount" means, with respect to a party and any Early Termination Date, the sum of:- (a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "Specifics Entity" has the meaning specified in the Schedule. "Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "Stamp Tax" means any stamp, registration, documentation or similar tax. "Tax" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax. "Tax Event" has the meaning specified in Section 5(b). "Tax Event Upon Merger" has the meaning specified in Section S(b). "Terminated Transactions" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "Termination Currency" has the meaning specified in the Schedule. "Termination Currency Equivalent" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties. "Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 9(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such parry on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties. IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. Texas Commerce Bank Luby's Cafeterias, Inc. ______________________________ _____________________________ (Name of Party) (Name of Party) By: CAROLYN B. BETTI By: LAURA M. BISHOP __________________________ _________________________ Name: Carolyn B. Betti Name: Laura M. Bishop Title: Senior Vice President Title: Senior Vice President and Chief Financial Officer Date: July 17, 1997 Date: July 9, 1997 (Multicurrency-Cross Border) EXECUTION COPY #159473 SCHEDULE to the MASTER AGREEMENT dated as of July 2, 1997 between TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Party A") and LUBY'S CAFETERIAS, INC. ("Party B") PART 1: Termination Provisions and Certain Other Matters (a) "Specified Entity" means, in relation to Party A, for the purpose of: Section 5(a)(v), none; Section 5(a)(vi), none; Section 5(a)(vii), none; and Section 5(b)(iv), none; and, in relation to Party B, for the purpose of: Section 5(a)(v), none; Section 5(a)(vi), none; Section 5(a)(vii), none; and Section 5(b)(iv), none. (b) "Specified Transaction" will have the meaning specified in Section 14. (c) The "Cross-Default" provisions of Section 5(a)(vi) will apply to Party A and to Party B. In connection therewith, "Specified Indebtedness" will have the meaning specified in Section 14, except that such term shall not include obligations in respect of deposits received in the ordinary course of a party's banking business, and "Threshold Amount" means an amount equal to three percent of a party's shareholders' equity, determined in accordance with generally accepted accounting principles in the United States of America ("GAAP"), consistently applied, as at the end of such party's most recently completed fiscal year. (d) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will apply to Party A and to Party B. (e) The "Automatic Early Termination" provision of Section 6(a) will not apply to Party A or Party B. (f) Payments on Early Termination. For the purpose of Section 6(e): (i) Market Quotation will apply. (ii) The Second Method will apply. (g) "Termination Currency" means United States Dollars. PART 2: Tax Representations. Not applicable. PART 3: Agreement to Deliver Documents For the purpose of Sections 4(a)(i) and (iii) of this Agreement, each party agrees to deliver the following documents, as applicable: (a) Tax forms, documents or certificates to be delivered are: none. (b) Other documents to be delivered are: Party required Form/ Date by Covered by to deliver Document/ which to be Section 3(d) document Certificate delivered Representation Party B Annual Report of Party As soon as Yes B containing consolidated available and in financial statements any event within certified by independent 90 days after the certified public accountants end of each fiscal and prepared in accordance year of Party B with GAAP Party B Opinion of counsel satis- Upon execution and No factory to Party A substan- delivery of this tially in the form of Exhibit Agreement I hereto Party B Certified copies of all Upon execution and Yes corporate authorizations and delivery of this any other documents with Agreement respect to the execution, delivery and performance of this Agreement Party B Certificate of authority and Upon execution and Yes specimen signatures of indivi- delivery of this duals executing this Agree- Agreement and there- ment and Confirmations after upon request of Party A PART 4: Miscellaneous (a) Address for Notices. For the purpose of Section 12(a) of this Agreement: Address for notice or communications to Party A: Any notice shall be delivered to the address or facsimile or telex number specified below: Texas Commerce Bank National Association Attention: Derivatives Desk 707 Travis Houston, Texas 77002 Facsimile No.: (713) 216-6977 Address for notice or communications to Party B: Luby's Cafeterias, Inc. Attention: Chief Financial Officer 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Facsimile No.: (210) 654-3211 (b) Process Agent For the purpose of Section 13(c): Party A appoints as its Process Agent: Not applicable. Party B appoints as its Process Agent: Not applicable. (c) Offices. The provisions of Section 10(a) will apply to this Agreement. (d) Multibranch Party . For the purpose of Section 10 of this Agreement: Party A is not a Multibranch Party. Party B is not a Multibranch Party. (e) Calculation Agent. The Calculation Agent is Party A, unless otherwise specified in a Confirmation in relation to the relevant Transaction. (f) Credit Support Document. Details of any Credit Support Document: not applicable. (g) Credit Support Provider. Credit Support Provider means, in relation to either party, not applicable. (h) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE). (i) Netting of Payments. Subparagraph (ii) of Section 2(c) will not apply to any Transaction unless specified in the relevant Confirmation. (j) "Affiliate" will have the meaning specified in Section 14 of this Agreement. PART 5 : Other Provisions (a) Set-off. Any amount (the "Early Termination Amount") payable to one party (the "Payee") by the other party (the "Payer") under Section 6(e), in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5(b)(iv) has occurred, will, at the option of the party ("X") other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any amount(s) (the "Other Agreement Amount") payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer (irrespective of the currency, place of payment or booking office of the obligation) under any other agreement(s) between the Payee and the Payer or instrument(s) or undertaking(s) issued or executed by one party to, or in favor of, the other party (and the Other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off). X will give notice to the other party of any set-off effected under this section. For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency. If an obligation is unascertained, X may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained. Nothing in this section shall be effective to create a charge or other security interest. This section shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise). (b) Exchange of Confirmations. For each Transaction entered into hereunder, Party A shall promptly send to Party B a Confirmation via facsimile transmission, containing all material terms of payment and signed by Party A. Party B agrees to respond to such Confirmation within 10 Business Days, either confirming agreement thereto or requesting a correction of any error(s) contained therein. Failure by Party B to respond within such period shall not affect the validity or enforceability of such Transaction and shall be deemed to be an affirmation of the terms contained in such Confirmation, absent manifest error. The parties agree that any such exchange of facsimile transmissions shall constitute a Confirmation for all purposes hereunder. (c) Relationship Between Parties. The following representation shall be added as a new Section 3(g) of this Agreement: "(g) Relationship Between Parties. Absent a written agreement to the contrary: (i) It is not relying on any advice (whether written or oral) of the other party regarding any Transaction, other than the representations expressly made by that other party in this Agreement and in the Confirmation in respect of that Transaction; (ii) In respect of each Transaction under this Agreement, (1) it has the capacity to evaluate (internally or through independent professional advice) that Transaction and has made its own decision to enter into that Transaction; (2) It understands the terms, conditions and risks of that Transaction and is willing to accept those terms and conditions and to assume (financially and otherwise) those risks; and (3) the other party (a) is not acting as a fiduciary or financial, investment or commodity trading advisor for it: (b) has not given to it (directly or indirectly through any other person) any assurance, guaranty or representation whatsoever as to the merits (either legal, regulatory, tax, financial, accounting or otherwise) of that Transaction or any documentation related thereto; and (c) has not committed to unwind that Transaction." (d) Waiver of Right to Trial by Jury. Each party recognizes that, in matters related to this Agreement or any Transaction, either party may be entitled to a trial in which matters of fact are determined by a jury (as opposed to a trial in which such matters are determined by a judge). By execution of this Agreement, each party will give up its respective rights to trial by jury, and each party has carefully considered the consequences of signing this Agreement and has consulted with its respective attorneys. Each party acknowledges that this waiver is entered into to avoid delays, minimize trial expense, and streamline the legal proceedings in order to accomplish a quick resolution of claims arising under or in conjunction with this Agreement or any Transaction. TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, EACH PARTY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY TRANSACTION HEREUNDER. (e) Further Representations. (i) Party B represents to Party A (which representations will be deemed to be repeated by Party B on each date on which a Transaction is entered into) that: (i) Generally Accepted Accounting Principles. The financial information delivered pursuant to paragraph (b) of Part 3 of this Schedule, including the related schedules and notes thereto, has been prepared in accordance with GAAP, applied consistently throughout the periods involved (except as disclosed therein). (ii) No Material Contingent Obligation(s). Neither Party B nor any of its subsidiaries has any material contingent obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment, which is not reflected in the financial statements delivered to Party A pursuant to this Schedule or in the notes thereto. (iii) No Change. Since May 31, 1997, there has been no material adverse change in the business, operations, assets or financial or other condition of Party B. (ii) Each party represents to the other party that it is an "eligible swap participant" as such term is defined in Part 35 of Chapter I of Title 17 of the Code of Federal Regulations, promulgated by the Commodity Futures Trading Commission, entitled "Exemption of Swap Agreements". (f) Jurisdiction. Section 13(b) of this Agreement is hereby restated as follows: (b) JURISDICTION. WITH RESPECT TO ANY CLAIM ARISING OUT OF THIS AGREEMENT, (A) EACH PARTY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE UNITED STATES DISTRICT COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS; AND (B) EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. (g) Telephonic Recording. Each party (i) consents to the recording of the telephone conversations of trading and marketing personnel of the parties and their Affiliates in connection with this Agreement or any potential Transaction and (ii) agrees to obtain any necessary consent of, and give notice of such recording to, such personnel of it and its Affiliates. (h) Usury Not Intended; Savings Provisions. Notwithstanding any provision to the contrary contained in this Agreement, it is expressly provided that in no case or event shall the aggregate of any amounts accrued or paid pursuant to this Agreement which under applicable laws are or may be deemed to constitute interest ever exceed the maximum nonusurious interest rate permitted by applicable Texas or federal laws, whichever permit the higher rate. In this connection, Party A and Party B stipulate and agree that it is their common and overriding intent to contract in strict compliance with applicable usury laws. In furtherance thereof, none of the terms of this Agreement shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the maximum rate permitted by applicable laws. Neither party shall ever be liable for interest in excess of the maximum rate permitted by applicable laws. If, for any reason whatsoever, such interest paid or received during the full term of the applicable indebtedness produces a rate which exceeds the maximum rate permitted by applicable laws, the receiving party shall credit against the principal of such indebtedness (or, if such indebtedness shall have been paid in full, shall refund to the payor of such interest) such portion of said interest as shall be necessary to cause the interest paid to produce a rate equal to the maximum rate permitted by applicable laws. All sums paid or agreed to be paid for the use, forbearance or detention of money shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the applicable indebtedness, so that the interest rate is uniform throughout the full term of such indebtedness. The provisions of this paragraph shall control all agreements, whether now or hereafter existing and whether written or oral, between Party A and Party B. (i) Entire Agreement. THIS WRITTEN MASTER AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Accepted and agreed: TEXAS COMMERCE BANK LUBY'S CAFETERIAS, INC. NATIONAL ASSOCIATION By: CAROLYN B. BETTI LAURA M. BISHOP ____________________________ By: ________________________ Name:Carolyn B. Betti Name: Laura M. Bishop Title: Vice President Title: Senior Vice President and Chief Financial Officer Dated as of July 2, 1997 Luby's Cafeterias, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Attn: Ron Riemenschneider Re: Swap Transaction (Our Reference No. 697) Ladies and Gentlemen: The purpose of this letter agreement is to set forth the terms and conditions of the Swap Transaction entered into between us on the Trade Date below (the "Swap Transaction"). It constitutes a "Confirmation" as referred to in the Master Agreement described below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swap Dealers Association, Inc., now known as the International Swaps and Derivatives Association, Inc. ("ISDA")) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. Each party represents and warrants to the other that (i) it is duly authorized to enter into this Swap Transaction and to perform its obligations hereunder and (ii) the person executing this Confirmation is duly authorized to execute and deliver it. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement in the form published by ISDA (the "Agreement"), as if you and we had executed that agreement (but without any Schedule thereto) and the Agreement shall be governed by and construed in accordance with the laws of the State of Texas. All provisions contained or incorporated by reference in the Agreement shall govern this Confirmation except as expressly modified below. In addition, you and we agree to use our best efforts promptly to negotiate, execute and deliver a Master Agreement (in the form published by ISDA). Upon execution and delivery by you and us of that agreement (i) this Confirmation shall supplement, form a part of, and be subject to that agreement and (ii) all provisions contained or incorporated by reference in that agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Swap Transaction to which this Confirmation relates are as follows: Notional Amount: USD 15,000,000 Trade Date: July 2, 1997 Effective Date: July 14, 1997 Termination Date: June 30, 2002 FIXED AMOUNTS Fixed Rate Payer: Luby's Cafeterias, Inc. ("Counterparty") Fixed Rate Payer Payment Dates: The 14th day of each July, October, January, and April of each year, commencing October 14, 1997 to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention. Fixed Rate: 6.4975 percent Fixed Rate Day Count Fraction: Actual/360 FLOATING AMOUNTS Floating Rate Payer: Texas Commerce Bank National Association ("TCB") Floating Rate Payer Payment Dates: Same as the Fixed Rate Payer Payment Dates Floating Rate for Initial Calculation Period: To be determined Floating Rate Option: USD-LIBOR-BBA Designated Maturity: Three months, provided however, that the Designated Maturity for the final Calculation Period shall be the interpolation of 2 months and 3 months. Floating Rate Day Count Fraction: Actual/360 Reset Dates: The first day of each Calculation Period Compounding: Inapplicable Business Days: New York Business Days and London Business Days Calculation Agent: TCB Payments to TCB: Texas Commerce Bank - Houston ABA No. 113-000-609 Capital Markets Dept. - Rate Swaps CR Acct. No. 00100381608 Attn: Ginger Vollert Payments to Counterparty: Account No.: [Please Advise] Depository: Favor Of: Governing Law: The laws of the State of Texas Each party has entered into this Swap Transaction solely in reliance on its own judgment. Neither party has any fiduciary obligation to the other party relating to this Swap Transaction. In addition, neither party has held itself out as advising, or has held out any of its employees or agents as having the authority to advise, the other party as to whether or not the other party should enter into this Swap Transaction, any subsequent actions relating to this Swap Transaction or any other matters relating to this Swap Transaction. Neither party shall have any responsibility or liability whatsoever in respect of any advice of this nature given, or views expressed, by it or any of such persons to the other party relating to this Swap Transaction, whether or not such advice is given or such views are expressed at the request of the other party. THE AGREEMENT AND THIS WRITTEN CONFIRMATION REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within ten (10) Business Days by returning via facsimile an executed copy of this Confirmation to the attention of JIM SHIELDS (facsimile no. (713) 216-4919; telephone no. (713) 216-5482.) Texas Commerce Bank is pleased to have concluded this transaction with you. Very truly yours, TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: CAROLYN BETTI ________________________________ Carolyn Betti Vice President Accepted and confirmed as of the date first written: LUBY'S CAFETERIAS, INC. By: LAURA M. BISHOP ______________________________________ Name: Laura M. Bishop Title: Senior Vice President and Chief Financial Officer Exhibit 4(i) SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"), dated as of July 3, 1997, is entered into among LUBY'S CAFETERIAS, INC., a Delaware corporation (the "Borrower"), the banks listed on the signature pages hereof (the "Lenders"), and NATIONSBANK OF TEXAS, N.A., as Administrative Lender for the Lenders (in said capacity, the "Administrative Lender"). BACKGROUND A. The Borrower, the Lenders, and the Administrative Lender heretofore entered into that certain Credit Agreement, dated as of February 27, 1996, as amended by that certain First Amendment to Credit Agreement, dated as of January 24, 1997 (said Credit Agreement, as amended, the "Credit Agreement"; the terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement). B. The Borrower, the Lenders, and the Administrative Lender desire to amend the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders, and the Administrative Lender covenant and agree as follows: 1. AMENDMENTS. (a) The dollar amount of "$100,000,000" set forth in (i) the BACKGROUND Section and (ii) the definition of "Commitment" in Section 1.1 of the Credit Agreement is hereby amended to be "$125,000,000". (b) The definition of "Applicable Margin" set forth in Section 1.1 of the Credit Agreement is hereby amended to read as follows: "'Applicable Margin' means the following per annum percentages, applicable in the following situations: LIBOR Basis for Advances of LIBOR Basis Base Rate one, two,three for Advances of Applicability Basis or six months 7 or 14 days (a) If the Leverage Ratio is not less than 2.00 to 1 0.000 0.225 0.325 (b) If the Leverage Ratio is less than 2.00 to 1 0.000 0.200 0.300 The Applicable Margin payable by the Borrower on the Revolving Credit Advances hereunder shall be subject to reduction or increase, as applicable, and as set forth in the table above, on a quarterly basis according to the performance of the Borrower as tested by using the Leverage Ratio for the most recent fiscal quarter. Each adjustment in the LIBOR Basis shall be effective on the date of receipt by the Administrative Lender of the financial statements (and related Officer's Certificate) required pursuant to Section 6.1(a) or 6.1(b) hereof, as applicable, provided that until the Administrative Lender shall have received the financial statements (and related Officer's Certificate) required to be delivered pursuant to Section 6.1(b) hereof for the fiscal quarter ending May 31, 1997, the Applicable Margin with respect to the LIBOR Basis shall be determined as if the Leverage Ratio is less than 2.00 to 1. If the financial statements (and related Officer's Certificate) of the Borrower setting forth the Leverage Ratio are not received by the date required pursuant to Section 6.1(a) or 6.1(b) hereof, as applicable, the Applicable Margin shall be determined as if the Leverage Ratio is not less than 2.0 to 1 until such time as such financial statements (and related Officer's Certificate) are received." (c) The definition of "Maturity Date" set forth in Section 1.1 of the Credit Agreement is hereby amended to read as follows: "'Maturity Date' means June 30, 2002, or the earlier date of termination in whole of the Commitment pursuant to Section 2.6 or 7.2 hereof." (d) Section 2.4(a) of the Credit Agreement is hereby amended to read as follows: "(a) Facility Fee. Subject to Section 10.9 hereof, the Borrower agrees pay to the Administrative Lender, for the ratable account of the Lenders, a facility fee on the daily average amount of the Commitment at the following per annum percentages, applicable in the following situations: Applicability Percentage (a) If the Leverage Ratio is not less than 2.00 to 1 0.100% (b) If the Leverage Ratio is less than 2.00 to 1 0.085% Such facility fee payable by the Borrower shall be subject to reduction or increase, as applicable, and as set forth in the table above, on a quarterly basis according to the performance of the Borrower as tested by using the Leverage Ratio for the most recent fiscal quarter. Each adjustment in the facility fee shall be effective on the date of receipt by the Administrative Lender of the financial statements (and related Officer's Certificate) required pursuant to Section 6.1(a) or 6.1(b) hereof, as applicable, provided that until the Administrative Lender shall have received the financial statements (and related Officer's Certificate) required to be delivered pursuant to Section 6.1(b) hereof for the fiscal quarter ending May 31, 1997, the facility fee shall be determined as if the Leverage Ratio is less than 2.00 to 1. If the financial statements (and related Officer's Certificate) of the Borrower setting forth the Leverage Ratio are not received by the date required pursuant to Section 6.1(a) or 6.1(b) hereof, as applicable, the facility fee shall be determined as if the Leverage Ratio is not less than 2.00 to 1 until such time as such financial statements (and related Officer's Certificate) are received. The facility fee shall be (i) payable in arrears on each Quarterly Date and on the Maturity Date, (ii) fully earned when due, (iii) subject to Section 10.9 hereof, non-refundable when paid, and (iv) computed on the basis of a year of 360 days, for the actual number of days elapsed." (e) Section 5.6 of the Credit Agreement is hereby amended to read as follows: "Section 5.6 [Intentionally Omitted]" (f) Section 5.9 of the Credit Agreement is hereby amended to read as follows: "Section 5.9 Leverage Ratio. The Borrower covenants and agrees that it will not allow the Leverage Ratio to be greater than 2.50 to 1 at the end of any fiscal quarter." (g) Section 5.10 of the Credit Agreement is hereby amended to read as follows: "Section 5.10 Liens. The Borrower covenants and agrees that it will not create, assume or suffer to exist, or permit any of its Restricted Subsidiaries to create, assume or suffer to exist, any Lien on any asset now owned or hereafter acquired by it except Permitted Liens." 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof and after giving effect to the amendments contemplated by the foregoing Section 1: (a) the representations and warranties contained in the Credit Agreement are true and correct on and as of the date hereof as made on and as of such date; (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) the Borrower has full power and authority to execute, deliver and perform this Second Amendment, the Revolving Credit Notes referred to in Section 3(c) of this Second Amendment (collectively, the "Replacement Notes"), and the Credit Agreement, as amended by this Second Amendment, the execution, delivery and performance of this Second Amendment, the Replacement Notes and the Credit Agreement, as amended by this Second Amendment, have been authorized by all corporate action of the Borrower, and this Second Amendment, the Replacement Notes and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Second Amendment, the Replacement Notes or the Credit Agreement, as amended by this Second Amendment, nor the consummation of any transactions herein or therein, will contravene or conflict with any law, rule or regulation to which the Borrower or any of its Subsidiaries is subject or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property issubject; and (e) no authorization, approval consent, or other action by, notice to, or filing with, any Tribunal or other Person (other than the Board of Directors of the Borrower) is required for the (i) execution, delivery or performance by the Borrower of this Second Amendment, the Replacement Notes and the Credit Agreement, as amended by this Second Amendment, or (ii) acknowledgement of this Second Amendment by any Guarantor. 3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be effective as of the date first above written, subject to the following: (a) the Administrative Lender shall have received counterparts of this Second Amendment executed by each Lender; (b) the Administrative Lender shall have received counterparts of this Second Amendment executed by the Borrower and acknowledged by each Guarantor; (c) the Administrative Lender shall have received a duly executed Replacement Note, payable to the order of each Lender in an amount equal to such Lender's Specified Percentage of the Commitment, as increased by this Second Amendment; (d) the representations and warranties set forth in Section 2 of this Second Amendment shall be true and correct; (e) the Administrative Lender shall have received a copy of the certified resolutions of the Borrower authorizing the execution, delivery and performance of this Second Amendment and the Replacement Notes; and (f) the Administrative Lender shall have received, in form and substance satisfactory to the Administrative Lender and its counsel, such other documents, certificates and instruments as the Administrative Lender shall require. 4. GUARANTORS' ACKNOWLEDGEMENT. By signing below, each Guarantor (i) acknowledges, consents and agrees to the execution, delivery and performance by the Borrower of this Second Amendment, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Second Amendment or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and agrees that its obligations under its Subsidiary Guaranty cover the Commitment as increased by this Second Amendment, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty. 5. REFERENCE TO THE CREDIT AGREEMENT. (a) Upon the effectiveness of this Second Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended hereby. (b) The Credit Agreement, as amended by the amendments referred to above, shall remain in full force and effect and is hereby ratified and confirmed. 6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all costs and expenses of the Administrative Lender in connection with the preparation, reproduction, execution and delivery of this Second Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Lender with respect thereto and with respect to advising the Administrative Lender as to its rights and responsibilities under the Credit Agreement, as hereby amended). 7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. 8. GOVERNING LAW: BINDING EFFECT. This Second Amendment shall be governed by and construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower and each Lender and their respective successors and assigns. 9. HEADINGS. Section headings in this Second Amendment are included herein for convenience of reference only and shall not constitute a part of this Second Amendment for any other purpose. 10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as the date first above written. LUBY'S CAFETERIAS, INC. LAURA M. BISHOP By: ______________________________ Name: Laura M. Bishop Title: Senior Vice President and CFO NATIONSBANK OF TEXAS, N.A. SHARON M. ELLIS By: _____________________________ Sharon M. Ellis Vice President SUNTRUST BANK, ATLANTA TODD C. DAVIS By: ______________________________ Name: Todd C. Davis Title:Assistant Vice President F. MCCLELLAN DEAVER III By: _______________________________ Name: F. McClellan Deaver III Title: Group Vice President TEXAS COMMERCE BANK NATIONAL ASSOCIATION ROBERT CARSWELL By: ______________________________ Name: Robert Carswell Title: Senior Vice President THE BANK OF TOKYO, LTD., DALLAS AGENCY CHRIS W. HOLDER By: _______________________________ Name: Chris W. Holder Title: Vice President ACKNOWLEDGED AND AGREED: LUBY'S HOLDINGS, INC. LAURA M. BISHOP By: _____________________________ Name: Laura M. Bishop Title: Senior Vice President and CFO LUBCO, INC. LAURA M. BISHOP By: _____________________________ Name: Laura M. Bishop Title: Senior Vice President and CFO LUBY'S LIMITED PARTNER, INC. LAURA M. BISHOP By: _____________________________ Name: Laura M. Bishop Title: Senior Vice President and CFO LUBY'S MANAGEMENT, INC. LAURA M. BISHOP By: _____________________________ Name: Laura M. Bishop Title: Senior Vice President and CFO LUBY'S RESTAURANTS LIMITED PARTNERSHIP By: LUBY'S MANAGEMENT, INC., its general partner LAURA M. BISHOP By:__________________________ Name: Laura M. Bishop Title: Senior Vice President and CFO EX-10 3 EMPL AGRMNT, PROM. NOTE, & STOCK AGRMNT Exhibit 10(u) September 15, 1997 Mr. Barry J. C. Parker 6519 Riverview Lane Dallas, Texas 75248 Dear Mr. Parker: Upon your acceptance, this letter will confirm the terms and conditions of your employment as President and Chief Executive Officer of Luby's Cafeterias, Inc. (the "Company"). 1. Employment and Term. You will be employed as President and Chief Executive Officer (the "Offices") of Luby's Cafeterias, Inc., and each of its wholly-owned subsidiaries. You will be elected to the Offices effective as of October 1, 1997, and will be re-elected annually during the term of your employment. This employment agreement will be effective as of October 1, 1997, and will continue in effect to and including September 30, 2000, or until such earlier date as termination may occur pursuant to this agreement (the "Term"). During the Term, you will devote your full working time and attention to the business and affairs of the Company and its subsidiaries to the best of your ability. 2. Base Salary. During the Term, you will be paid a minimum base salary of $360,000 per year payable in monthly installments commencing November 1, 1997. Your base salary will be reviewed annually and will be subject to increase from time to time at the discretion of the Board of Directors (the "Board") based upon recommendations of the Compensation Committee (the "Committee"). Your base salary will not be reduced below $360,000 per year during the Term. 3. Cash Bonus. During the Term, you will be a participant in the Company's annual incentive bonus plan. For the fiscal year ending August 31, 1998, your cash bonus will be not less than $132,000 (being 11/12 of $144,000 for a full year). For subsequent fiscal years during the Term, your cash bonus will be determined by the Committee (with the approval of the Board) in accordance with the plan and with criteria commensurate with your position as the senior executive officer of the Company. The Company does not guarantee you a cash bonus for any fiscal year subsequent to August 31, 1998. 4. Hiring Stock Options. On October 1, 1997, the Committee will grant you two six-year options under the Company's management incentive stock plan for a total of 100,000 shares of the Company's common stock at an option price equal to fair market value on the date of grant. One of the options will be an "incentive stock option" for the maximum allowable shares and the other will be a "nonqualified stock option" for the remaining shares. Each option will become exercisable in cumulative increments of 20% per year, with each option becoming fully exercisable on the fifth anniversary of the date of grant. Subject to the foregoing, the options will be in customary form as determined by the Committee. Each option will provide that it shall become fully exercisable upon a "change in control" (as hereinafter defined). 5. Annual Stock Options. During the Term, the Committee will grant you a stock option annually under the Company's management incentive stock plan (or successor plan), commencing in October 1997. Such options will be granted in accordance with normal grant guidelines established by the Committee and with criteria commensurate with your position as the senior executive officer of the Company. 6. Performance Units. In October 1997, the Committee will grant you under the Company's management incentive stock plan (i) a prorata performance unit award of 5,000 units for the three-year performance cycle ending August 31, 1998, (ii) a prorata performance unit award of 5,000 units for the three-year performance cycle ending August 31, 1999, and (iii) a full performance unit award of 5,000 units for the three-year performance cycle ending August 31, 2000. Thereafter, during the Term, the Committee will grant you a performance unit award annually when grants are made to other executive officers of the Company. Such awards will be granted in accordance with normal grant guidelines established by the Committee and with criteria commensurate with your position as the senior executive officer of the Company. 7. Relocation Allowance. The Company agrees to pay you a relocation allowance not to exceed $100,000 to reimburse you for costs incurred in relocating yourself and your family from Dallas to San Antonio, including, but not limited to, moving expenses and any loss on the sale of your residence in Dallas. 8. Stock Purchase. Prior to November 1, 1997, you agree to purchase in your own name and for your own account in the open market 20,000 shares of the Company's common stock, which shares, together with any shares received by you as stock dividends or stock splits attributable thereto, are referred to as the "Shares." At the time you purchase the Shares, the Company will make you a personal loan in a principal sum equal to the lesser of $200,000 or an amount equal to 50% of your cost of the Shares (the "Stock Loan"), bearing interest at the lowest rate under Internal Revenue Service regulations necessary to avoid imputed interest. 9. Stock Agreement. When the Shares are purchased by you, the Company will enter into an agreement with you (the "Stock Agreement") pursuant to which the Shares will be pledged to secure payment of the Stock Loan. The Stock Agreement will provide that on each anniversary date of the Stock Agreement while you remain in the employ of the Company, the Company will forgive 20% of the original principal amount of the Stock Loan. The Stock Agreement will provide that in the event of a "change in control" (as hereinafter defined), the entire principal balance of the Stock Loan will be forgiven. 10. Benefits. During the Term, you will be entitled to participate in all of the Company's benefit plans in which other executive officers are entitled to participate. Such benefits will include, but not by way of limitation, Company-paid health and disability insurance, participation in the Company's profit sharing plan, a Company-furnished automobile, an annual physical examination at the Company's expense, a $3,000 annual allowance for tax planning and preparation, and a $1,000 annual reimbursement for out-of- pocket medical expenses. You will also be designated as an eligible participant in the Company's supplemental executive retirement plan on the same basis as other executive officers, except that you will be credited with 1.8 years of service for each year of your employment with the Company so that full benefits will be available to you at age 65. 11. Directorships. The Board will elect you to a seat on the Board, effective as of October 1, 1997, for a term expiring at the annual meeting of shareholders in the year 2000. You will also be elected a director of each of the Company's wholly-owned subsidiaries, effective as of October 1, 1997. In 1999, the Board will nominate you for re-election to the Board if you are an employee at that time and otherwise eligible. Likewise, during your employment with the Company, you will be re-elected annually as a director of each of the Company's wholly-owned subsidiaries. 12. Death or Disability. If, as a result of your incapacity during the Term due to physical illness or injury or mental illness, you are absent from your duties with the Company for 180 consecutive days, the Company may terminate your employment for "disability." If your employment is terminated by reason of death or disability, you will not be entitled to further employment compensation or benefits except with respect to vested rights under the Company's benefit plans. 13. Termination for Cause. The Company may terminate your employment "for cause" upon (a) your willful and continued failure to substantially perform your duties with the Company, except as a result of death or "disability," or (b) your willfully engaging in gross misconduct materially injurious to the Company. If your employment is terminated during the Term by the Company "for cause," you will not be entitled to further employment compensation or benefits except with respect to vested rights under the Company's benefit plans. 14. Resignation for Good Reason. You may terminate your employment for "good reason," which shall mean: (a) assignment to you of duties inconsistent with your position as the chief executive officer of the Company without your consent; (b) removal of you from or failure to elect you to the Offices to which you are entitled to be elected pursuant to this agreement; (c) reduction of the minimum salary to which you are entitled under this agreement; (d) a material reduction or denial of the benefits to which you are entitled under this agreement; or (e) the Company's requiring that you be based anywhere except the Company's executive offices in San Antonio, Texas, without your consent. If you terminate your employment during the Term for "good reason" you will be entitled to continue to receive all of your compensation and benefits under this agreement until September 30, 2000, or the expiration of one year from the date your employment is so terminated, whichever is later. 15. Termination without Cause. If, during the Term, your employment is terminated by the Company without "cause" (as defined above), you will be entitled to continue to receive all of your compensation and benefits under this agreement until September 30, 2000, or the expiration of one year from the date your employment is so terminated, whichever is later. 16. Resignation without Good Reason. If, during the Term, you resign your employment without "good reason" (as defined above), you will not be entitled to further employment compensation or benefits except with respect to vested rights under the Company's benefit plans. 17. Change in Control. The term "change in control" as used in this agreement shall mean a change in the control of the Company of a nature that would be required to be reported in response to Item 1 of Form 8-K promulgated under the Securities Exchange Act of 1934. If the foregoing is acceptable, please indicate your concurrence by signing a copy of this letter. Sincerely, LUBY'S CAFETERIAS, INC. By: DAVID B. DAVISS ___________________________________ David B. Daviss Acting Chief Executive Officer Accepted and agreed to: BARRY J.C. PARKER _______________________________________ Barry J.C. Parker Exhibit 10(v) TERM PROMISSORY NOTE $199,999.00 San Antonio, Texas November 10, 1997 1. FOR VALUE RECEIVED, the undersigned, BARRY J.C. PARKER ("Maker"), promises to pay to the order of LUBY'S CAFETERIAS, INC. ("Payee") at 2211 Northeast Loop 410 San Antonio, Texas 78217-4673, the principal sum of One Hundred Ninety Nine Thousand Nine Hundred Ninety Nine and No/100 Dollars ($199,999.00) together with interest on the unpaid principal balance at the rates hereinafter provided. 2. Principal is payable in annual installments of Thirty Nine Thousand Nine Hundred Ninety-Nine Dollars and 80/100 ($39,999.80) or more each, on the 10th of November of each year beginning November 10, 1998 and continuing regularly and annually until said principal has been paid. Interest on the principal balance hereof from time to time remaining unpaid prior to maturity shall accrue at a fixed rate per annum equal to 6.34% and is payable annually on the same dates as, and in addition to the installments of principal. All past due principal and interest shall bear interest from maturity thereof until paid at 10% per annum. In the event that it should ever be or become unlawful to charge or collect interest on past due interest, then, notwithstanding any contrary provision of this Note, no interest shall be charged or collected on past due interest. 3. Interest shall be calculated on sums actually advanced to or for the Maker from the date or dates of such advances until paid. Interest shall be computed on the basis of a 365/366 day year for the actual number of days occurring in the period (including the first but excluding the last day) for which such interest is payable. 4. Payment of this Note is secured by, and is subject to the terms of that certain Stock Agreement of even date herewith by and between Maker and Payee covering the rights and properties more fully described therein. 5. Maker may prepay this Note in full at any time or in part from time to time, without premium or penalty. 6. This Note shall be governed by and construed in accordance with Texas law and applicable federal law. The parties hereto intend to conform strictly to the applicable usury laws. In no event, whether by reason of acceleration of the maturity hereof or otherwise, shall the amount paid or agreed to be paid to Payee for the use, forbearance or detention of money hereunder or otherwise exceed the maximum amount permissible under applicable law. If fulfillment of any provision hereof or of any or other document now or hereafter evidencing, securing or pertaining to the indebtedness evidenced by this Note, at the time performance of such provision shall be due, would involve exceeding the limit of validity prescribed by law, then the obligation to be fulfilled shall be reduced automatically to the limit of such validity. If Payee shall ever receive anything of value deemed interest under applicable law which would exceed interest at the highest lawful rate, an amount equal to any amount which would have been excessive interest shall be applied to the reduction of the unpaid principal amount owing hereunder in the inverse order of its maturity and not to the payment of interest, or if such amount which would have been excessive interest exceeds the unpaid balance of principal hereof, such excess shall be refunded to Maker. All sums paid or agreed to be paid to Payee for the use, forbearance or detention of the indebtedness of Maker to Payee shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the maximum amount permitted by applicable law. IN WITNESS WHEREOF, Maker has duly executed this Note effective as of the day, month and year first above written. MAKER: BARRY J.C. PARKER __________________________________________ Barry J.C. Parker Exhibit 10(w) STOCK AGREEMENT This Stock Agreement (the "Stock Agreement") is entered into to be effective the 10th day of November, 1997 by and between BARRY J.C. PARKER (the "Employee"), and LUBY'S CAFETERIAS, INC. (the "Company"). WHEREAS, the Company loaned Employee the sum of One Hundred Ninety Nine Thousand Nine Hundred Ninety Nine and No/100 Dollars ($199,999.00) represented by that certain Term Promissory Note of even date herewith executed by Employee, payable to the Company (the "Note"); WHEREAS, the proceeds of the Note shall be used by Employee to pay a portion of the purchase price of twenty thousand (20,000) shares of the common stock of the Company; WHEREAS, as security for the payment of the indebtedness evidenced by the Note, Employee agrees to grant the Company a security interest in the common stock purchased by Employee; and WHEREAS, so long as Employee remains employed by the Company, the Company was agreed to periodically forgive payment of principal under the Note. NOW THEREFORE, in consideration of the covenants and agreements contained herein, financial accommodations given, and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Stock Pledge. As security for the payment and performance of the Note, Employee hereby grants to the Company a security interest, lien, and mortgage, in and to, and agrees and acknowledges that the Company has, and shall continue to have, a security interest, lien and mortgage against those certain twenty thousand shares of common stock of Luby's Cafeterias, Inc., par value $.32, (the "Pledged Shares") owned by Employee, certificates representing which are being delivered to the Company in connection with the execution hereof, and the following: (a) the certificates representing the Pledged Shares, and all cash, securities, dividends, increases, distributions and profits received therefrom or in connection therewith, including distributions or payments in partial or complete liquidation or redemption, or as a result of reclassifications, readjustments, reorganizations or changes in the capital structure of the Company and any other property at any time and from time to time received, receivable or otherwise distributed or delivered to Employee in connection therewith, and all rights and privileges pertaining thereto; (b) all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (c) all securities hereafter delivered to Company in substitution for, or in addition to, any of the foregoing, as required or permitted by Company, all certificates representing or evidencing such securities, and all cash, securities, instruments, documents, dividends, increases, distributions and profits received therefrom, and any other property at any time and from time to time received by, receivable by, or otherwise distributed or delivered to Company in respect of or in exchange for any or all of the property described above; (d) all subscriptions, warrants, options and any other rights issued now or hereafter by the Company or any other person whatsoever upon or in connection with the Pledged Shares and any part of the Collateral (hereinafter defined); and (e) all products and proceeds of the foregoing and all general intangibles and contract rights related thereto, including without limitation, all revenues, distributions, dividends, property, registration rights, contract rights and other rights and interests that Employee is, or may hereafter become, entitled to receive on account of any collateral described in subsections (a) through (e), (all such Pledged Shares, certificates, securities, instruments, documents, dividends, increases, distributions, profits, intangibles, contract rights and other property being herein collectively called the "Collateral" or the "Pledged Collateral"). Notwithstanding any provision herein, before an Event of Default, Employee has the right to receive, use and enjoy any and all cash dividends from the Pledged Collateral. 2. Employee's Representations and Warranties. Employee hereby represents and warrants that: (a) Employee is the legal and equitable owner of the Pledged Collateral free and clear of all liens, charges, pledges, encumbrances and security interests of every kind and nature; and (b) Employee has good right and lawful authority to pledge the Pledged Collateral in the manner hereby done or contemplated. 3. Default. An "Event of Default" shall exist if either or both of the following events (herein collectively called "Events of Default") shall occur: (a) Employee fails to pay when due any principal of the Note; or (b) Employee fails to pay when due any interest on the Note. 4. Remedies On Event of Default. If an Event of Default occurs and is not cured within fifteen (15) days after written notice of default is given, then the Company, at its option may (i) declare the principal of, and all interest then accrued on, the Note to be forthwith due and payable, whereupon the same shall forthwith become due and payable without further notice, presentment, demand, protest, notice of intention to accelerate, notice of acceleration, or other notice of any kind (except as specifically required herein), all of which Employee hereby expressly waives, anything contained herein or in the Note to the contrary notwithstanding, and/or (ii) without further notice of default or demand, pursue and enforce any of the Company's rights and remedies hereunder or under the Note or otherwise provided under or pursuant to any applicable law. 5. Company As Custodian. The Company (or an agent designated by the Company) shall have physical possession of the certificates or instruments representing or evidencing the Pledged Collateral. Pledgor agrees that the Pledgor will deposit with the Company, along with the certificates or instruments representing or evidencing the Pledged Collateral, duly executed stock powers in favor of the Company or its nominee with signatures guaranteed by a member or member organization of the New York Stock Exchange or by a commercial bank or trust company acceptable to the transfer agent. 6. Waiver. The Company's acceptance of partial or delinquent payments, or failure of the Company to exercise any right available hereunder or otherwise shall not be construed as a waiver of the right to exercise the same or any other right at any other time, nor as a modification of this Stock Agreement or of the Employee's obligations under this Stock Agreement. 7. Successors and Assigns. The provisions of this Stock Agreement apply to and shall inure to the benefit of the Company's successors and assigns and bind the Employee's successors in interest and assigns. Nothing contained in this paragraph, however, shall be deemed a consent to the Employee's sale, assignment, or transfer of any of the Collateral or obligations of the Employee hereunder. 8. Forgiveness of Principal. Notwithstanding anything contained elsewhere herein or in the Note, it is agreed that if, during the term of the Note, Employee is in the employ of the Company on the day that an annual payment of principal is due pursuant to the Note, the Company shall, and hereby does forgive the repayment of said installment of principal then due. Employee shall be required to pay the annual interest payments. If, during the term of the Note, Employee ceases to be employed by the Company, Employee shall be obligated to repay the balance of the Note strictly pursuant to the terms thereof. 9. Change in Control. Should a "change in control" of the Company occur prior to the maturity date of the Note of a nature that would be required to be reported in response to Item 1 of Form 8-K promulgated under the Securities Exchange Act of 1934 as that requirement exists on the effective date of this Stock Agreement, then, upon the occurrence of, and on the date of said change in control ("Change Date"), the Company shall, and hereby does forgive the entire remaining principal balance of the Note. Employee shall pay the accumulated interest through the Change Date on or before the date the next annual payment of principal and interest would be due pursuant to the Note. Executed this 10th day of November, 1997. EMPLOYEE: COMPANY: LUBY'S CAFETERIAS, INC., a Delaware corporation BARRY J.C. PARKER DAVID B. DAVISS ______________________________ By: ______________________ Barry J.C. Parker David B. Daviss Chairman of the Board EX-11 4 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 COMPUTATION OF PER SHARE EARNINGS The following is a computation of the weighted average number of shares outstanding which is used in the computation of per share earnings for Luby's Cafeterias, Inc. for the three and twelve months ended August 31, 1997 and 1996. Three months ended August 31, 1997: 23,266,374 x shares outstanding for 92 days 2,140,506,408 Divided by number of days in the period 92 _____________ 23,266,374 Twelve months ended August 31, 1997: 23,892,819 x shares outstanding for 30 days 716,784,570 23,666,720 x shares outstanding for 31 days 733,668,320 23,281,927 x shares outstanding for 30 days 698,457,810 23,329,990 x shares outstanding for 31 days 723,229,690 23,404,092 x shares outstanding for 31 days 725,526,852 23,409,028 x shares outstanding for 28 days 655,452,784 23,410,574 x shares outstanding for 31 days 725,727,794 23,406,574 x shares outstanding for 30 days 702,197,220 23,280,909 x shares outstanding for 31 days 721,708,179 23,266,374 x shares outstanding for 92 days 2,140,506,408 _____________ 8,543,259,627 Divided by number of days in the period 365 _____________ 23,406,191 Three months ended August 31, 1996: 24,125,505 x shares outstanding for 30 days 723,765,150 24,125,419 x shares outstanding for 31 days 747,887,989 24,072,780 x shares outstanding for 31 days 746,256,180 ______________ 2,217,909,319 Divided by number of days in the period 92 ______________ 24,107,710 Twelve months ended August 31, 1996: 23,313,132 x shares outstanding for 21 days 489,575,772 23,315,089 x shares outstanding for 21 days 489,616,869 23,320,721 x shares outstanding for 18 days 419,772,978 23,331,311 x shares outstanding for 8 days 186,650,488 23,334,503 x shares outstanding for 23 days 536,693,569 23,340,118 x shares outstanding for 11 days 256,741,298 23,345,163 x shares outstanding for 21 days 490,248,423 22,398,704 x shares outstanding for 30 days 701,961,120 23,529,859 x shares outstanding for 13 days 305,888,167 23,590,511 x shares outstanding for 16 days 377,448,176 23,693,381 x shares outstanding for 31 days 734,494,811 23,925,105 x shares outstanding for 30 days 717,753,150 24,043,597 x shares outstanding for 31 days 745,351,507 24,125,505 x shares outstanding for 30 days 723,765,150 24,125,419 x shares outstanding for 31 days 747,887,989 24,072,780 x shares outstanding for 31 days 746,256,180 _______________ 8,670,105,647 Divided by number of days in the period 366 ______________ 23,688,813 EX-21 5 SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF LUBY'S CAFETERIAS, INC. 1. Luby's Holdings, Inc., a Delaware corporation, doing business under its corporate name 2. Luby's Limited Partner, Inc., a Delaware corporation, doing business under its corporate name 3. Luby's Management, Inc., a Delaware corporation, doing business under its corporate name 4. LUBCO, Inc., a Delaware corporation, doing business under its corporate name 5. L & W Seafood, Inc., a Delaware corporation, doing business under its corporate name 6. Luby's Restaurants Limited Partnership, a Texas limited partnership, doing business under the names "Luby's," "Luby's Cafeteria" and "Luby's Cafeterias" EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR AUG-31-1997 AUG-31-1997 6,430 0 510 0 4,507 15,970 490,862 156,845 368,778 45,681 0 0 0 8,769 210,071 368,778 495,446 495,446 268,227 268,227 150,638 12,432 4,037 42,662 14,215 28,447 0 0 0 28,447 1.22 1.22 Other stockholders' equity amount is less cost of treasury stock of $93,014.
EX-99 7 CONSENT Exhibit 99 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-36791) pertaining to the Luby's Cafeterias, Inc. Management Incentive Stock Plan, (Form S-8 No. 33-10559) pertaining to the Luby's Cafeterias, Inc. Performance Unit Plan, and (Form S-8 No. 333-19283) pertaining to the Luby's Cafeterias Savings and Investment Plan of Luby's Cafeterias, Inc. of our report dated October 6, 1997, with respect to the consolidated financial statements of Luby's Cafeterias, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended August 31, 1997. ERNST & YOUNG LLP San Antonio, Texas November 24, 1997 -----END PRIVACY-ENHANCED MESSAGE-----