FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________
Commission File Number 1-13116
FRANCHISE FINANCE CORPORATION OF AMERICA
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(Exact name of registrant as specified in its charter)
Delaware 86-0736091
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(State of incorporation) (I.R.S. Employer
Identification No.)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 585-4500
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value New York Stock Exchange
$.01 per share
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 (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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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 voting stock held by non-affiliates
of the Registrant as of February 1, 1996 was $868,023,836.
The number of shares of the Registrant's $.01 par value common stock as
of February 1, 1996 was 40,294,822.
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 10, 11, 12 and 13 are incorporated by reference to the
definitive proxy statement for the registrant's Annual Meeting of Shareholders
to be held on May 8, 1996, to be filed pursuant to Regulation 14A.
<PAGE>
PART I
Item 1. Business.
Franchise Finance Corporation of America, a Delaware corporation
("FFCA"), was organized on June 22, 1993 to facilitate the consolidation by
merger (the "Consolidation") of Franchise Finance Corporation of America I, a
Delaware corporation ("FFCA I"), and eleven public limited partnerships with and
into FFCA. The Consolidation was completed on June 1, 1994. The common stock of
FFCA began trading on the New York Stock Exchange on June 29, 1994 and there are
currently 40,294,822 shares outstanding. During 1994, FFCA created two
wholly-owned subsidiaries, FFCA Acquisition Corporation and FFCA Institutional
Advisors, Inc., both Delaware corporations. In January 1996, FFCA created a
third wholly-owned subsidiary, FFCA Mortgage Corporation, also a Delaware
corporation.
FFCA has elected to be taxed as a real estate investment trust ("REIT")
under the applicable provisions of the Internal Revenue Code of 1986, as
amended. To qualify, FFCA must meet certain tests which, among other things,
require that its assets consist primarily of real estate, its income be derived
primarily from real estate, and at least 95% of its REIT taxable income be
distributed annually to its shareholders. As a REIT, FFCA is generally not
subject to federal income taxes.
FFCA is a fully integrated and self-administered equity REIT. Together
with its predecessors, FFCA has been engaged in the financing of chain
restaurant real estate since 1981. FFCA and its wholly-owned subsidiaries have
provided financing principally through sale and leaseback transactions and
through participating mortgage loans, both of which generally provide for
payment escalations based upon participations in the gross sales of the
restaurant or upon specified contractual increases. FFCA's primary investment
strategy is to invest in quality chain restaurant properties located throughout
the United States which have experienced management and operate under
established restaurant concepts. Chain restaurant properties financed by FFCA
are anticipated to be primarily existing restaurant locations which are either
being refinanced or financed in connection with acquisitions by restaurant
operating companies. FFCA also anticipates financing new chain restaurant
locations, primarily for expansion by multi-unit operators in existing markets
or in markets adjacent to those markets in which the restaurant chain brand is
established and recognized. In addition, FFCA will finance existing chain
restaurant properties by purchasing properties subject to existing long-term
lease arrangements with operators. FFCA's portfolio of properties is generally
diversified by tenant, restaurant concept and geographic location. As of
December 31, 1995, FFCA had investments in 1,508 properties and as of February
8, 1996, FFCA had investments in 1,529 properties operated by approximately 400
restaurant operators in over 35 chains located in 46 states. No real estate
investments by FFCA are located outside of the United States.
FFCA's lease transactions provide that the lessees are responsible for
the payment of all operating expenses, including property taxes, maintenance and
insurance expenses. FFCA is generally not required to make significant capital
expenditures in connection with any property it finances. Both lease and
participating mortgage loan financing provided by FFCA generally are for
twenty-year terms. FFCA targets a rate of return for leases and participating
mortgage loans which typically ranges
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between 400 and 500 basis points over the interest rate for ten-year United
States Treasury Bonds at the time of investment, with escalations over time.
FFCA also monitors and administers its real estate investment portfolio
through seven departments including Real Estate Acquisitions, Asset Management,
Property Management, Research and Underwriting, Accounting, Legal Services and
Information Systems, with a total of 91 employees as of February 8, 1996. FFCA's
properties are regularly inspected by an in-house staff to monitor the physical
condition of the restaurants. Asset Management staff monitor payment receipts,
as well as property tax and insurance compliance. Lease and participating
mortgage loan payments are generally collected from the restaurant operators by
electronic account debits on the first day of each month. Underperforming leases
and loans are administered by Property Management and Legal Services personnel
who also oversee the in-house administration of property dispositions and tenant
substitutions.
Although an individual restaurant's sales may vary by season, FFCA does
not believe that any aspect of its business is significantly seasonal in nature.
FFCA's portfolio is generally diversified by restaurant concept; however, FFCA
may be dependent to a certain extent upon one or more of the franchisors or
restaurant concepts since a failure of any of the franchisors or restaurant
systems to support their franchisees or restaurants could materially affect the
ability of their franchisees to make payments to FFCA or result in financial
difficulty for such franchisees. FFCA is not affiliated with any of the
franchisors or franchisees.
Approximately 90% of FFCA's investments are in real estate properties
occupied by 16 national and regional restaurant chains. Other restaurant chains
within the portfolio are each less than one-half of one percent of FFCA's total
investments. Management anticipates that FFCA's portfolio will grow more diverse
through future financings. The restaurant chain distribution shown below does
not represent concentration of tenants under the leases or participating
mortgage loan agreements. These agreements are with the restaurant operators,
not the restaurant chains, and there are over 400 restaurant operators
represented within FFCA's investment portfolio.
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Restaurant Chain Distribution by Number of Restaurants as of December 31, 1995
Number of Percentage of
Chain Restaurants Total
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Arby's 276 18%
Hardee's 184 12
Jack In The Box 172 11
Wendy's 157 10
Burger King 152 10
Kentucky Fried Chicken 90 6
Mrs. Winner's Chicken & Biscuits 70 5
Taco Bell 69 5
Lee's Chicken 41 3
Applebee's 27 2
Perkins 23 2
Whataburger 20 1
Pizza Hut 12 1
Fuddruckers 12 1
Bojangles 11 1
Denny's 10 1
Non-restaurant properties 9 1
All other restaurant concepts 173 10
--- --
Totals 1,508 100%
===== ===
One restaurant operator, Foodmaker, Inc. ("Foodmaker"), contributed
12.5% of FFCA's total rental and mortgage loan interest revenues in 1995.
Foodmaker accounted for 14% of FFCA's total rental and mortgage loan interest
revenues in both 1994 and 1993. Foodmaker operates and franchises Jack In The
Box restaurants. The relative decrease in revenue from Foodmaker between 1994
and 1995 is due to the fact that FFCA's portfolio is growing and Foodmaker is
becoming a relatively smaller portion of the entire portfolio. This decrease is
expected to continue. For information on Foodmaker, Inc., see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Tenant Concentration" in Item 7 below.
Competitive Conditions
The financing of chain restaurant real estate for multi-unit chain
restaurant operating companies is both competitive and fragmented, and
competition exists in every geographic market in which FFCA seeks to invest.
Other competing participants include banks, insurance companies, finance
companies and leasing companies. FFCA believes that it is the largest
independent source of real estate capital to the chain restaurant industry, even
though it has less than a two percent share of the chain restaurant real estate
market.
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FFCA believes that it has several competitive advantages which enable
it to be selective with respect to its real estate investments. The
capitalization of FFCA permits it to make both large and small real estate
investments and to obtain capital from numerous sources at competitive rates.
FFCA's real estate investments comprise properties which are diversified by
restaurant operator, restaurant chain and geographic location. As FFCA grows, it
anticipates that this diversification will further reduce risk and have a
favorable impact upon its access to, and cost of, capital. In 1994, FFCA
instituted a "Preferred Client Program" designed to offer forward financing
commitments and a streamlined financing process for leading chain restaurant
operators in order to build on long-term business relationships instead of the
historic industry practice of financing real estate on an inefficient,
transaction-by-transaction basis. FFCA believes it offers superior client
service resulting from continuity of its management and industry specialization
and knowledge. FFCA also believes that its ability to provide both sale and
leaseback financing and participating mortgage loans improves its restaurant
operators' flexibility and provides a competitive advantage to FFCA in obtaining
financing opportunities.
The Food Service Industry
The food service industry employs more people and has more locations
than any other retail industry in the United States. According to industry
publications, total food service industry sales during 1995 were approximately
$298 billion. In 1995 there were approximately 180,000 chain restaurant
locations in the United States. During 1994 and 1995 the largest 70 chains, as
targeted by FFCA's management for potential investment, had increases of
approximately 6.2% and 6.7%, respectively, in the number of restaurant units.
Industry sources estimated that during 1995 the fast food segment of the food
service industry had revenues of approximately $94 billion.
The commercial food service sector of the food service industry
includes a category identified as "Total Eating Places," which represents
quickservice (fast food), midscale and upscale restaurants in addition to
commercial cafeterias, social caterers and ice cream, frozen-custard and yogurt
retail outlets. NPD Crest, an industry analyst for the food service industry,
defines the quickservice (fast food) segment as those restaurants perceived by
consumers as fast food or take-out establishments, without table service,
specializing in food items such as pizza, chicken, hamburgers and similar food
items. The upscale segment typically represents casual and fine dining
restaurants that accept major credit cards, offer an improved level of table
service and provide full liquor service. The midscale segment comprises those
restaurants that do not meet the criteria for fast food or upscale. Although
these segments can be further differentiated by price, NPD Crest emphasizes that
consumer perception, as opposed to average meal price, provides the dominant
influence with respect to the classification of restaurants. However, research
indicates that the sale receipts for quickservice (fast food) items averages
approximately $3 per person, and that sale receipts for upscale items are
usually in excess of $18 per person. Sales receipts for midscale items typically
range between $5 and $18 per person. Since 1990, menu prices have remained
relatively stable as a result of the greater use of promotions and other efforts
by restaurant operators to limit increases in menu prices due to an increasingly
competitive environment.
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The fast food segment represented 71% of all visits to the commercial
food service sector, with midscale and upscale segments responsible for the
remaining 29%. According to the National Restaurant Association, the trade group
for this industry, the fast food sector represented 49.5% of the Total Eating
Places dollar market share in 1995 (excluding commercial cafeterias, social
caterers, ice cream, frozen-custard and yogurt retail outlets) versus a combined
50.5% share for the midscale and upscale sectors.
Development and maturation of the fast food segment of the food service
industry has led to a consolidation of restaurant operators. Increased
competition has decreased profit margins which has contributed to the emergence
of increasingly large and professionally managed restaurant operating companies.
Large operators typically have greater economies of scale and better management
systems which allow them to compete more effectively. As size and
diversification become increasingly important, many chain restaurant operators
are becoming affiliated with multiple restaurant systems. FFCA believes that the
maturation of the fast food segment is likely to result in greater stability for
this industry segment. Chain restaurant consolidation has also created real
estate investment opportunities for FFCA arising from the demand by restaurant
operators for acquisition financing.
Over 90% of FFCA's portfolio is represented by fast food restaurants
which include, but are not limited to, Arby's, Burger King, Hardee's, Jack In
The Box, Kentucky Fried Chicken, Pizza Hut, Taco Bell, Whataburger and Wendy's.
Midscale restaurant chains represented in FFCA's portfolio include Applebee's,
Denny's, T.G.I. Friday's and Fuddruckers. FFCA anticipates that its investment
emphasis will continue to emphasize fast food properties, although the
proportion of midscale and upscale establishments may increase.
Restaurant Chains
Beyond a concentration on real estate for fast food restaurants, FFCA's
investment focus has been on real estate which is used by the national and
regional restaurant chains. According to Restaurant Consulting Group, restaurant
chains having three or more properties accounted for approximately 45% of all
restaurants in the United States in 1995. The majority of these properties are
fast food restaurants, with others generally in the midscale segment. Of the
slightly more than 180,000 restaurants having an identified restaurant concept
as of December 31, 1995, approximately 91,500 were within the 40 largest
restaurant chains. Each of these restaurant chains had 1995 projected total
system-wide sales exceeding $500 million.
FFCA believes that the largest national restaurant chains, along with
prominent regional chains, are best positioned to compete effectively and retain
or increase market share in the food service industry. These chains have strong
regional or national positions which in essence provide them with a "brand
equity" which translates into resilience within a mature and competitive
industry. Accordingly, FFCA believes that a diversified portfolio of real estate
investments primarily centered in major restaurant chains will lessen investment
risk. Restaurant chains with numerous corporate locations and extensive
franchisee networks have effectively become significant food distribution
systems with distinct competitive advantages over smaller chains and many
independent restaurant operators. The establishment of such food distribution
networks requires significant time and effort which results in
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certain restaurant chains having longer term track records and more predictable
performance patterns. This has resulted in the larger restaurant chains gaining
greater dominance in the industry and growth in market share. However, the chain
restaurant industry is a regional-market type of business and nationally
prominent restaurant chains often have definitive regional areas of strength and
weakness. Therefore, FFCA's investment policy emphasizes strong restaurant
operators who can successfully manage known restaurant chains in their markets
and also takes into account the specific restaurant chain.
Regulation
FFCA, through its ownership and financing of real estate, is subject to
a variety of environmental, health, land-use, fire and safety, and other
regulation by federal, state and local governments that affects the development
and regulation of chain restaurant properties. FFCA's leases and participating
mortgage loans impose the primary obligation for regulatory compliance on the
operators of the restaurant properties. In most instances, FFCA does not have
primary responsibility for regulatory compliance and any obligation of FFCA
would be based upon the failure of restaurant operators to comply with
applicable laws and regulations.
Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removal or remediation of certain hazardous substances released on or
within its property. Such liability may be imposed without regard to whether the
owner or operator knew of, or caused the release of the hazardous substances. In
addition to liability for cleanup costs, the presence of hazardous substances on
a property could result in the owner or operator incurring liability as a result
of a claim by an employee or another person for personal injury or a claim by an
adjacent property owner for property damage.
Environmental assessments have been performed on each property financed
by FFCA since the Consolidation on June 1, 1994, as is the current practice in
the real estate industry. Properties acquired from FFCA's predecessors did not
have environmental audits performed either at the time of the Consolidation or
when such properties were acquired by such predecessor entities. FFCA is not
currently a party to any litigation or administrative proceeding with respect to
any property's compliance with environmental standards. Furthermore, FFCA is not
aware of nor does it anticipate any such action, or the need to expend any of
its funds in the foreseeable future in connection with its operations or
ownership of existing properties which would have a material adverse effect upon
FFCA.
No portion of FFCA's business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the United States
Government. FFCA does not manufacture any products and therefore does not
require any raw materials in order to conduct its business.
Item 2. Properties.
FFCA has provided financing to the chain restaurant industry primarily
through sale/leaseback and participating mortgage loan financing transactions.
Of the 1,508 restaurant properties included in FFCA's investment portfolio at
December 31, 1995, FFCA has an ownership interest in approximately
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1,250 restaurant properties on a fee-simple basis in which FFCA holds title to
the restaurant property (the "owned" properties). FFCA also holds title to the
restaurant equipment on approximately one fourth of these properties. The real
estate owned by FFCA consists of the land and buildings comprising each chain
restaurant property, except for approximately 85 properties at December 31, 1995
on which FFCA held title to the land only and made participating mortgage loans
for the related restaurant buildings (the "hybrid mortgages"). The remaining
restaurant properties represent participating mortgage loan financing
transactions in which FFCA holds a first mortgage on the land and buildings
comprising the restaurant properties (the "financed properties"). The properties
owned by FFCA and the land related to the hybrid mortgages are leased to the
restaurant operators under long-term net leases. FFCA also owns its corporate
headquarters located at The Perimeter Center in Scottsdale, Arizona, consisting
of approximately 60,000 square feet of building on approximately five acres of
land. The land and building comprising FFCA's corporate headquarters serve as
collateral on the related mortgage note payable.
FFCA's chain restaurant properties are typically located on commercial
corridors with significant automobile traffic and are characterized by high
visibility and easy access required for retail property. Locations generally
fall into five categories, including shopping center and mall pad or outparcel
sites, interstate highway locations, central business district locations,
residential neighborhood locations and retail and commercial corridor locations.
A restaurant is located on each of the properties except nine, which were
converted to other uses, such as a bank and an optical retail outlet.
All restaurants owned or financed by FFCA are free-standing and
surrounded by paved parking areas. The land size for a chain restaurant
generally ranges from 15,000 to 50,000 square feet, with original acquisition
costs generally ranging from $75,000 to $650,000. The restaurant buildings are
principally of the current design of the restaurant concept and are rectangular
buildings constructed from various combinations of stucco, steel, wood, brick
and tile. Buildings generally range from 1,500 to 4,000 square feet in size,
with the larger restaurants having a greater seating capacity and equipment
area. Site preparation varies depending upon the area in which the restaurant is
located and on the size of the building and site. Building and site preparation
costs generally range from $150,000 to $750,000 for each restaurant.
Management believes that its chain restaurant properties are covered by
adequate comprehensive liability, fire, flood and extended loss insurance
provided by reputable companies, with commercially reasonable and customary
deductibles and limits. Certain types and amounts of insurance are required to
be carried by each restaurant operator under the financing agreements with FFCA.
There are, however, certain types of losses (such as from wars or earthquakes)
that may be either uninsurable or not economically insurable in some or all
locations. An uninsured loss could result in a loss to FFCA of both its capital
investment and anticipated profits from the affected property.
FFCA's lease and participating mortgage loan financing documents
require each restaurant operator to make any expenditure necessary to comply
with applicable laws and as may be required under any applicable franchise
agreement; therefore, FFCA is generally not required to make significant
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capital expenditures in connection with any property it financed. Capital
expenditures in 1995 amounted to approximately $40,000, with similar amounts
expended in 1994 and 1993.
As of February 8, 1996, FFCA owned or financed 1,529 properties in 46
states and all but 28 of the properties were being leased or were performing
under a mortgage loan agreement. Of these nonperforming properties, seven are
being actively remarketed and 21 are currently held for sale after extensive
efforts to remarket these properties did not produce suitable lessees. Vacant
properties held for sale represent approximately 1% of FFCA's total real estate
investment portfolio.
FFCA invests in chain restaurant real estate throughout the United
States. No one property is a principal property of FFCA, because each property
represents less than 1% of FFCA's total assets. Reference is made to the
Schedule of Real Estate and Accumulated Depreciation (Schedule III) filed with
this Report for a summary of the geographic diversity of the properties owned by
FFCA as of December 31, 1995. In addition, FFCA has financed, through
participating mortgage loans, certain chain restaurant properties located
throughout the United States. Reference is made to the Schedule of Mortgage
Loans on Real Estate (Schedule IV) filed with this Report for a summary of
properties financed through participating mortgages.
During 1995, approximately 85% of FFCA's revenues were derived from net
lease equity real estate investments. The leases have been originated by FFCA
and its predecessors since 1981. Few leases were originated between 1989 and
June 1, 1994, the date of the Consolidation. The leases are generally 20 years
in length with two or four five-year renewal options. One lessee, which
represented approximately 2.5% of FFCA's lease and mortgage loan interest
revenues in 1995, operates Hardee's restaurants under a one-year lease
agreement. The expiration schedule of the initial term of FFCA's leases extends
through 2017, with a weighted term of such investments of 12 years as of
December 31, 1995. Approximately 22% of FFCA's lease revenues are derived from
leases which expire in 2005 and 12% of FFCA's lease revenues are derived from
leases which expire in 2015. In all other years, the lease expirations are less
than 10% of total lease revenues. FFCA views the expirations as the potential
opportunity to increase revenues, although there can be no assurance that such
expirations will result in any increase in revenues. With expected continued
investment activity, FFCA anticipates that its exposure to annual lease
expirations will become more diversified.
Item 3. Legal Proceedings.
FFCA is not presently involved in any material litigation nor, to its
knowledge, is any material litigation threatened against FFCA or its properties,
other than routine litigation arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of FFCA's security holders during
the fourth quarter ended December 31, 1995.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
FFCA's common stock is currently traded on the New York Stock Exchange
("NYSE") under the symbol FFA. FFCA began trading on the NYSE on June 29, 1994.
The following table sets forth the high and low sales prices per share as quoted
by the NYSE for the following quarters of the fiscal years indicated:
Sales Prices Distributions
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Fiscal 1994 High Low
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Second Quarter(a) $22 $20-3/4 $ .15(b)
Third Quarter 21-3/8 17-3/4 .45
Fourth Quarter 18-7/8 16-1/2 .45
-----
$1.05
=====
Fiscal 1995
-----------
First Quarter $20 $17-3/4 $ .45
Second Quarter 21-3/4 18 .45
Third Quarter 22-1/2 20-3/8 .45
Fourth Quarter 23-3/8 19-3/4 .45
-----
$1.80
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(a) Common stock began trading June 29, 1994.
(b) For period June 1 through June 30, 1994.
Future distributions will be dependent upon cash flow from operations,
financial position and cash requirements of FFCA. Management of FFCA believes
that cash generated from operations will be sufficient to meet operating
requirements and provide the level of shareholder distributions required to
maintain its status as a REIT.
Holders
There were 22,479 holders of record of FFCA's shares of common stock as
of February 1, 1996; however, FFCA believes the total number of shareholders of
FFCA to be in excess of 80,000 since, to the best knowledge of FFCA, certain
shares are held by nominees.
Dividend Reinvestment Plan
FFCA has a dividend reinvestment plan (the "Plan") which allows
shareholders to acquire additional shares of FFCA common stock by automatically
reinvesting dividends. Shares are acquired
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pursuant to the Plan at a price equal to 98% of the market price of such shares
on the dividend payment date, without payment of any brokerage commission or
service charge. Shareholders who do not participate in the Plan continue to
receive dividends, as declared. As of February 9, 1996, shareholders owning
approximately 6% of the outstanding shares participate in the Plan.
Item 6. Selected Financial Data.
The selected financial data presented in the table below summarizes
certain consolidated financial information of FFCA and its wholly-owned
subsidiaries, as well as that of its predecessor companies, for the five years
in the period ended December 31, 1995. The Consolidation occurred on June 1,
1994 and was accounted for as a reorganization of affiliated companies under
common control in a manner similar to a pooling of interests. Under this method,
the assets and liabilities of the Partnerships and FFCA I were carried over at
their historical book values and their operations have been recorded on a
combined historical basis.
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SELECTED FINANCIAL DATA
Operations data presented below for periods prior to June 1, 1994
represent the operations of the predecessor companies. This data has been
restated on a combined basis to provide comparative information; however, it
does not necessarily represent results of operations as they would have been had
FFCA operated as a REIT for all periods presented. The predecessor companies
were primarily public real estate limited partnerships with a declining number
of properties in their investment portfolios and no opportunity for growth
through acquisitions; therefore, the investment objectives of FFCA are different
than the objectives of its predecessor companies.
<TABLE>
<CAPTION>
In thousands, except per share data 1995 1994 1993 1992 1991
(as restated on a combined basis)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations Data(a)
Total revenues $102,583 $91,062 $93,789 $95,572 $98,524
Income before gain (loss) on sale of property and
REIT transaction-related costs 52,816 51,319 53,867 53,044 48,665
Income before extraordinary item(c) 53,793 25,905(b) 53,711 50,186 49,221
Net income 51,329 25,905(b) 53,711 50,186 49,221
Funds from operations (d) 76,256 75,068 76,571 78,080 80,323
Dividends/Distributions declared 72,471 75,913 75,200 77,901 87,698
Per share:
Income before gain (loss) on sale of property
and REIT transaction-related costs $1.31 $1.27 $1.34 $1.32 $1.21
Income before extraordinary item(c) $1.33 $0.64 $1.33 $1.25 $1.22
Net income $1.27 $0.64 $1.33 $1.25 $1.22
Dividends/Distributions declared $1.80 $1.82 $1.86 $1.94 $2.18
- ---------------------------------------------------------------------------------------------------------
Balance Sheet Data(a)
Real estate owned, at cost $794,580 $681,126 $661,576 $685,338 $696,220
Mortgage loans receivable 199,486 65,980 38,091 42,038 53,161
Total assets 843,504 612,228 619,443 643,113 675,985
Senior Notes 198,702 -- -- -- --
Notes payable 110,000 59,000 -- -- --
Other debt 8,500 8,500 10,942 12,540 14,420
Shareholders' equity $493,817 $514,107 $576,775 $598,264 $626,092
Number of shares outstanding 40,295 40,251 40,251 40,251 40,251
</TABLE>
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(a) The information for periods prior to June 1, 1994 is, in effect, a
restatement of the historical operating results of FFCA I and the Partnerships
as if they had been consolidated since January 1, 1991. The per share amounts
for the same periods were computed as if 40.251 million shares of FFCA stock
were outstanding each year.
(b) Net income for the year ended December 31, 1994 was impacted by REIT
transaction costs recognized upon consummation of the Consolidation.
(c) Income before extraordinary item excludes debt extinguishment charges of
$2.5 million in 1995.
(d) Funds from operations is defined by the National Association of Real Estate
Investment Trusts ("NAREIT") to mean net income (loss) determined in accordance
with generally accepted accounting principles, excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and amortization,
and after adjustment for unconsolidated partnerships and joint ventures. In
March 1995, NAREIT modified the definition of funds from operations ("FFO") to,
among other things, eliminate amortization of deferred financing costs and
depreciation of non-real estate assets as items added back to net income when
computing FFO. The modified definition of FFO will become effective as of
January 1, 1996, at which time FFCA will adopt the modified definition.
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
General
FFCA was organized as a Delaware corporation in June 1993 to facilitate
the consolidation by merger (the "Consolidation") of Franchise Finance
Corporation of America I ("FFCA I") and eleven public real estate limited
partnerships (the "Partnerships") with and into FFCA. The Consolidation was
effected on June 1, 1994 and was accounted for as a reorganization of affiliated
companies under common control in a manner similar to a pooling of interests.
Under this method, the assets and liabilities of the Partnerships and FFCA I
were carried over at their historical book values and their operations have been
recorded on a combined historical basis. The Consolidation did not require any
material adjustments to conform the accounting policies of the Predecessor
Companies to that of FFCA; however, certain reclassifications have been made to
prior years' financial statements to conform with current year presentation.
The consolidated statement of income for the year ended December 31,
1994 includes the operations of the Predecessor Companies combined from the
beginning of the year through May 31, 1994 and those of FFCA from June 1, 1994
to December 31, 1994. The financial statements for 1993 have also been restated
on a combined basis to provide comparative information.
The most notable change in operations since June 1, 1994 is the
emphasis on growth through new investment in property. The Predecessor
Companies' structure did not provide the opportunity for new investments in
restaurant properties (through borrowings or otherwise). FFCA's potential for
increased distributions to shareholders and appreciation in the price of its
shares is expected to result from growth opportunities based on FFCA's
anticipated cost of capital (including borrowings) and the anticipated return
from investment in additional properties. In addition, FFCA believes that there
is potential for future increases in lease and loan payments from participating
revenues which are based on a percentage of the gross sales of the restaurants
(as discussed further below).
Liquidity and Capital Resources
At December 31, 1995, FFCA's portfolio included 1,508 chain restaurant
properties. Rental and mortgage interest revenue generated by this portfolio of
properties has, and will continue to, comprise the majority of the cash
generated from operations. Net cash provided by operations was $78.6 million in
1995 as compared to $76 million in 1994. Cash generated from operations is held
in temporary investment securities pending distribution to the shareholders in
the form of quarterly dividends. This cash also may be used on an interim basis
to fund investments.
During 1995, FFCA acquired or financed 354 restaurant properties
totaling approximately $278 million. These investment portfolio properties were
funded by cash generated from
13
<PAGE>
operations, proceeds of a debt offering of approximately $200 million and net
draws of approximately $50 million on FFCA's revolving credit facilities through
December 31, 1995. During 1995, FFCA sold 22 properties and related equipment,
ten of which were through the lessees' exercise of their purchase options on the
properties. Nine additional properties which exercised purchase options were
refinanced as mortgages by FFCA. Cash proceeds from these sales, the collection
of mortgage loan principal payments and the receipt of mortgage loan payoffs,
approximating $18 million in total, were used to partially fund new portfolio
investments in 1995. Net cash used in such investing activities increased to
$260 million in 1995 from $56 million in 1994, reflecting FFCA's focus on the
growth of the portfolio through real estate investments.
Currently, FFCA's primary source of funding for new investments is a
$200 million unsecured acquisition loan facility obtained from NationsBank in
December 1995. This two-year revolving credit facility bears annual interest
(payable monthly) at LIBOR (London Interbank Offered Rate) plus 1.5%, as
compared to the prior loan facility's original rate of LIBOR plus 2.25% during
1995. The loan facility expires in December 1997 with the possibility of three
annual extensions and an increase to $250 million in the loan facility during
1996. The interest rate in effect at December 31, 1995 was 7.35%.
In November 1995, FFCA issued senior unsecured debt consisting of $150
million of 7% Senior Notes due November 30, 2000 and $50 million of 7-7/8%
Senior Notes due November 30, 2005. The notes were issued at a discount and the
effective rates on the Senior Notes approximate 7.2% and 7.9%, respectively.
Interest on these fixed rate notes is payable semi-annually in arrears on each
May 30 and November 30, commencing May 30, 1996, with principal due at maturity.
The notes may not be redeemed prior to their respective maturities. The proceeds
of the Senior Notes were used to pay down the revolving credit facility
discussed below, while reducing FFCA's cost of borrowing. The debt issued by
FFCA has been rated investment grade as BBB- by Standard & Poor's and Duff &
Phelps and Baa3 by Moody's rating services.
Bank debt outstanding at December 31, 1994 totaled $59 million on a
credit facility scheduled to expire in July 1996. This debt, including
additional borrowings of $251 million in 1995, was repaid in 1995 in conjunction
with the Senior Note offering and the NationsBank acquisition loan facility. The
early termination of this credit facility enabled FFCA to reduce its cost of
borrowings while also removing the bank's security interest in the stock of
FFCA's wholly-owned subsidiary, FFCA Acquisition Corporation. As a result of the
early extinguishment of this debt, FFCA expensed $2.5 million in unamortized
loan costs in 1995 which is reported as an extraordinary item on the
consolidated statement of income.
At December 31, 1995, FFCA had cash and cash equivalents totaling $2
million and had $90 million available on its revolving credit facility. FFCA's
anticipated investments include commitments totaling $130 million at the end of
1995. These commitments were made to several large restaurant operators
including Arby's, Fuddruckers, Applebee's, Burger King and Wendy's to acquire or
finance (subject to FFCA's customary underwriting procedures) approximately 110
restaurant properties over the next 12 months. FFCA anticipates funding these
specific
14
<PAGE>
commitments, and other investments in restaurant properties, through amounts
available through its revolving credit facility, issuance of additional
unsecured debt similar to the senior note offering discussed above or issuance
of additional equity securities of FFCA. Although FFCA's cost of borrowings is
expected to be lower in 1996, debt and related interest expense will be higher
than 1995 amounts as a result of increased borrowings for continued portfolio
investments.
In November 1995, FFCA implemented a dividend reinvestment plan (the
"Plan") which allows shareholders to acquire additional shares of FFCA stock by
automatically reinvesting the quarterly dividends. Shares are acquired under the
Plan at a price equal to 98% of the market price of the shares on the dividend
payment date, without payment of any brokerage commission or service charge. As
of February 9, 1996, shareholders owning approximately 6% of the outstanding
shares of FFCA stock participate in the Plan. FFCA declared a fourth quarter
dividend of $.45 per share, or $1.80 per share on an annualized basis, payable
on February 20, 1996, to shareholders of record on February 9, 1996. Management
of FFCA believes that cash generated from operations will be sufficient to meet
operating requirements and provide the level of shareholder dividends required
to maintain its status as a REIT.
Results of Operations
Year Ended December 31, 1995
Compared to Year Ended December 31, 1994
FFCA reported net income of $51 million, or $1.27 per share, for the
year ended December 31, 1995 as compared to $26 million, or $.64 per share, for
the year ended December 31, 1994. Income before gain on the sale of property and
special charges rose to $53 million in 1995 from $51 million in 1994. These
results reflect the growth of FFCA's portfolio in 1995.
Total revenues rose to $102.6 million for the year ended December 31,
1995 from $91 million for the year ended December 31, 1994. Portfolio
investments were the primary source of revenue increases, despite the sale of 22
properties in the past 12 months. Portfolio investments in 1995, totaling
approximately $278 million, are represented by approximately $135 million in
mortgage loans and approximately $143 million in property subject to operating
leases; however, since these investments occurred throughout the year, their
weighted average balance in 1995 is equivalent to approximately $120 million of
investments and the impact of these 1995 investments on rental revenue and
mortgage interest income will not be fully reflected until 1996. Lease and loan
base rates on new investments ranged from approximately 10% to 11.5%, with a
weighted average rate of 10.9%. Both the leases and participating mortgage loans
provide for contingent revenues based on a percentage of the gross sales of the
related restaurants.
Rental revenues include both rental payments received from lessees and
rent guaranty insurance payments. Rental revenues collected under the rent
guaranty insurance policies for 1995 decreased to $3.3 million from $6.2 million
in 1994 due to expiring rent insurance policies. Rent guaranty insurance
policies covering FFCA's properties will continue to expire at various dates,
with the majority of the policies expiring in 1998; therefore, rental revenue
from rent guaranty insurance in 1996 is expected to be lower than in 1995.
15
<PAGE>
The restaurant leases and loans generally provide that lessees make
monthly payments equal to the greater of a fixed base rate or a percentage of
the gross sales of the restaurants (percentage rentals). Percentage rentals
approximated $4 million in 1995 as compared to $3.8 million in 1994. A portion
of the increase reflected in 1995 relates to lessees whose sales levels have,
for the first time, exceeded the threshold where percentage rent is due. In
addition, a portion of the increase relates to increases in individual
restaurant-level sales volumes related to lessees who have previously exceeded
the percentage rent threshold. FFCA believes there will be, in the near future,
increased lease payments from such percentage of gross sales rental provisions.
FFCA recorded gains of $4.4 million on the sale of properties both in
1995 and in 1994. Results of operations may be largely impacted by gains or
losses on the sale of properties, however, FFCA anticipates that the sale of
properties, if any, will occur primarily through the exercise of purchase
options and does not expect losses on such sales. The lessee generally has the
option to purchase land and building any time after the first ten years of the
lease. Generally, leases entered into in 1995 provide for 90 day option windows
at various dates during the lease term and the participating mortgage loans
funded in 1995 provide for no prepayment for the first ten years of the loan or
provide for prepayment penalties. Where applicable, the lessee has the option to
purchase equipment at the end of the lease term. Equipment leases expire at
various dates through 1997. Rental revenue from equipment leases is expected to
be approximately $350,000 lower in 1996 than in 1995. Purchase options, where
applicable, are exercisable at fair market value (but generally not less than
original cost, in the case of land and building). To the extent these purchase
options are exercised, FFCA expects to invest the proceeds from such sales in
new properties. The impact on FFCA's rental revenues of such activity is a
function of the amount of proceeds received on any properties sold and the base
lease rate generated on new properties acquired.
Approximately two-thirds of FFCA's land and building leases provide for
purchase options. Although approximately two-thirds of these options are
currently exercisable, in 1995 only 10 properties were sold through the exercise
of purchase options. Management believes that the exercise of purchase options
will continue to be insignificant, because past experience has shown that the
increase in the fair market value of the properties will generally offset any
decrease in interest or lease rates the lessee could obtain upon exercise of the
purchase option, providing no measurable change in cash flow.
FFCA periodically reviews its real estate portfolio for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the property may not be recoverable, such as may be the case with vacant
restaurant properties. If an impairment loss is indicated, the loss is measured
as the amount by which the carrying amount of the asset exceeds the fair value
of the asset. Gain (loss) on sale of property on the consolidated statements of
income for the years ended December 31, 1995, 1994 and 1993 includes
approximately $3.4 million, $1.6 million and $534,000, respectively, of loss
related to vacant properties held for sale. These vacant properties held for
sale represent approximately 1% of the total real estate investment portfolio.
16
<PAGE>
The increase in interest expense from $2.5 million in 1994 to $15
million in 1995 is due to the use of borrowings during 1995 for the investment
in restaurant properties. During 1995, FFCA entered into an interest rate
agreement to enhance its ability to manage interest rate exposures in its debt
portfolio which exist as part of its ongoing business operations. The costs of
this hedge were deferred and are being amortized to interest expense over the
term of the associated debt. FFCA issued $200 million of unsecured senior notes
in November 1995. The issuance of these fixed rate notes allowed FFCA to pay
down its acquisition loan facility while also reducing its cost of borrowing. In
December 1995, FFCA replaced its original secured revolving credit facility
scheduled to expire in July 1996 (originally bearing interest at LIBOR plus
2.25%) with an unsecured revolving loan facility bearing interest at LIBOR plus
1.50%. As a result of the early extinguishment of the original revolving credit
facility, FFCA expensed $2.5 million in unamortized loan costs which is reported
as an extraordinary item on the consolidated statement of income.
Operating, general and administrative expenses decreased by
approximately $900,000, or 8%, primarily due to a decrease in professional fees
which include legal, accounting, consulting and appraisal services. Depreciation
and amortization decreased to $21.2 million from $22.8 million, despite the
investment in restaurant property during 1995 due to the sale of over $8 million
in restaurant equipment at the expiration of the related lease terms in 1995.
Results of Operations
Year Ended December 31, 1994
Compared to Year Ended December 31, 1993
FFCA reported earnings per share, before REIT transaction-related
costs, of $1.34 for the year ended December 31, 1994 as compared to the combined
earnings per share of the Predecessor Companies of $1.33 for the year ended
December 31, 1993. Earnings per share for 1994 after REIT transaction-related
costs amounted to $.64.
Rental and mortgage loan interest revenues accounted for approximately
96% of FFCA's total revenues of $91 million for the year ended December 31, 1994
as compared to 94% of the total revenues of $94 million for the year ended
December 31, 1993. The sale of properties, together with the expiration of the
original equipment leases and the sale of property in the prior year, had
resulted in decreasing revenues of the Predecessor Companies due to a declining
number of properties in the portfolio. This trend is now expected to reverse
because, subsequent to the Consolidation, FFCA's property portfolio has grown
through investments despite the sale of properties through lessee purchase
options exercised during the year. Since all of the real estate investments
occurred in the late third quarter and early fourth quarter of 1994, their
impact on rental and mortgage loan interest revenue was not fully reflected
until 1995. Portfolio investments in 1994, totaling approximately $82 million,
are represented by $34 million in mortgage loans bearing interest at 10.5% and
$48 million in property subject to operating leases with base lease rates
ranging from 10.5% to 11.5%.
17
<PAGE>
Rental revenues include both rental payments received from lessees and
rent guaranty insurance payments. Rental revenue collected under the rent
guaranty insurance policies for 1994 decreased to $6.2 million from $6.8 million
in 1993 due to expiring rent insurance policies. The decrease in base rentals
and rent insurance revenues was partially offset by a $1.3 million increase in
percentage rentals to $3.8 million in 1994 as compared to $2.5 million in 1993.
A portion of the increase reflected in 1994 relates to lessees whose sales
levels have, for the first time, exceeded the threshold where percentage rent is
due. In addition, a portion of the increase in percentage rental revenue relates
to increases in individual restaurant-level sales volumes.
FFCA recorded gains totaling $4.4 million on the sale of properties in
1994 as compared to gains totaling $378,000 in 1993. Gain (loss) on sale of
property for the years ended December 31, 1994 and 1993 include an impairment
loss of approximately $1.6 million and $534,000, respectively, to reflect the
estimated decline in value of eight vacant properties held for sale.
Operating, general and administrative costs were reduced from
approximately $16 million in 1993 to $13.5 million in 1994 principally due to a
decrease in compensation levels. The increase in interest expense from $316,000
in 1993 to $2.5 million in 1994 is due to the use of the acquisition loan
facility during the last half of 1994 for the investment in portfolio
properties.
REIT transaction-related costs aggregating $28 million for the year
ended December 31, 1994 represent costs incurred to effect the Consolidation and
integrate the continuing operations of the entities into FFCA. Under the
pooling-of-interests method of accounting for the Consolidation, these costs are
charged to expense upon consummation of the Consolidation in 1994. Such costs
included, among other things, the costs of registration, costs to furnish
information to stockholders, fees of underwriters and consultants and the legal
fees related to the settlement of the class action litigation related to the
Consolidation. These costs also include the payoff of deferred compensation
arrangements related to FFCA I.
Upon consummation of the Consolidation, FFCA I and investors in the
Partnerships received an aggregate of 40,250,719 shares of FFCA's common stock.
Certain investors elected to receive variable rate senior notes (the Variable
Rate Notes) totaling $10,825,911. Rather than issuing the Variable Rate Notes,
FFCA paid to those investors an amount equal to the Variable Rate Notes plus
interest at an annualized rate of 5.0625% for the period June 1, 1994 through
June 30, 1994. In addition, cash was used to pay REIT transaction-related costs
aggregating approximately $24 million in 1994 as compared to $4 million in 1993.
These factors contributed to the overall decrease in cash and cash equivalents
at December 31, 1994 as compared to 1993.
Tenant Concentration
During the years ended December 31, 1995, 1994 and 1993, one lessee,
Foodmaker, Inc. ("Foodmaker"), accounted for approximately 12.5% in 1995 and 14%
in both 1994 and 1993 of total rental and mortgage loan interest revenues of
FFCA. Foodmaker operates and franchises Jack In The Box restaurants. The
relative decrease in the percentage of FFCA's revenue from Foodmaker between
1994 and 1995 is due to the fact that FFCA's portfolio is growing and
18
<PAGE>
Foodmaker is becoming a relatively smaller portion of the entire portfolio. This
decrease is expected to continue. The following table represents selected
financial data of Foodmaker, Inc. and Subsidiaries as reported by Foodmaker in
its 1995 annual report.
19
<PAGE>
<TABLE>
Foodmaker, Inc. and Subsidiaries
Selected Financial Data
(in Thousands)
<CAPTION>
Consolidated Balance Sheet Data: October 1, 1995 October 2, 1994
- ------------------------------- --------------- ---------------
<S> <C> <C> <C>
Current Assets $ 97,889 $107,486
Noncurrent Assets 564,785 632,799
Current Liabilities 132,017 140,238
Noncurrent Liabilities 499,404 499,996
Fifty-two Weeks Ended/Fifty-two Weeks Ended/Fifty-three Weeks Ended
-------------------- -------------------- -----------------------
Consolidated Statements of Operations Data: October 1, 1995 October 2, 1994 October 3, 1993
- ------------------------------------------ --------------- --------------- ---------------
Gross Revenues $1,018,716 $1,053,326 $1,240,727
Costs and Expenses (including taxes) 1,087,674 1,089,594 1,284,855
Extraordinary Item - loss on early
extinguishment of debt, net of taxes -- (3,302) --
Cumulative effect on prior years of
adopting SFAS 106 and SFAS 109 -- -- (53,980)
----------- ----------- ------------
Net Loss $ (68,958) $ (39,570) $ (98,108)
=========== =========== ============
Loss per share - primary and fully diluted:
Loss before extraordinary item $(1.77) $ (.94) $(1.15)
Extraordinary item -- (.09) --
Cumulative effect of accounting change -- -- (1.40)
---------- ----------- ------------
Net loss per share $(1.77) $(1.03) $(2.55)
========== =========== ============
</TABLE>
In January 1994, Foodmaker contributed its Chi-Chi's Mexican restaurant
chain to Family Restaurants, Inc. ("FRI") in exchange for an approximate 39%
equity interest in FRI and other consideration including cash and debt
assumption. Therefore, the consolidated statements of operations for the years
reflected above include Chi Chi's results of operations for a full year in 1993
as compared to only 16 weeks in 1994 (the first fiscal quarter) and none in
1995. Chi-Chi's revenues were $123.9 million, its costs of sales were $32.7
million, its restaurant operating costs were $80.7 million, and its selling,
general and administrative expenses were $9.1 million in the first quarter of
1994.
Revenues increased $89.3 million, or 9.6% to $1,018.7 million in 1995 from
$929.4 million in 1994, excluding Chi-Chi's revenues of $123.9 million in the
first quarter of 1994. Sales by Jack In The Box, Foodmaker-operated restaurants,
increased $84.3 million, or 11.7% in 1995 from 1994. This increase is primarily
due to an increase in the average number of Foodmaker-operated restaurants to
839 in 1995 from 761 in 1994 (the average number of Foodmaker-operated
restaurants in 1993 was 717) reflecting the addition of 21 new restaurants and
the acquisition of 42 restaurants from franchisees during the fiscal year. Per
store average sales for comparable restaurants increased approximately 3.5% in
1995 as compared to 1994, strengthened by marketing strategies including a new
advertising campaign and the introduction of aggressive value-priced product
alternatives.
Foodmaker recorded a loss in 1995 relating to its equity in FRI of $57.2
million, most of which was the result of the complete write-down of its
investment in FRI due to the write-off by FRI of the goodwill attributable to
Chi-Chi's. Subsequent to its fiscal year end, Foodmaker transferred its entire
equity interest in FRI to another entity with an equity interest in FRI. Jack In
The Box restaurant operating costs increased $33.1, or 8%, due to increases in
both the average number of Company-operated restaurants and variable costs
associated with improved sales volume. Jack In The Box selling, general and
administrative expenses increased $18.5 million, or 20%, principally due to
increased advertising and promotions costs and to an $8 million settlement with
stockholders in the first quarter of 1995. Foodmaker incurred an extraordinary
loss of $5.1 million, less currently recognizable income tax benefits of $1.8
million, on the early extinguishment of debt in 1994.
Foodmaker indicates that it expects that sufficient cash flow will be
generated from operations so that, combined with other financing alternatives
available to it, Foodmaker will be able to meet all of its debt service
requirements, as well as its capital expenditures and working capital
requirements, for the foreseeable future.
20
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and related financial information
required to be filed are attached to this Report. Reference is made to page F-1
of this Report for an index to the consolidated financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 8, 1996, to be filed pursuant to Regulation 14A.
Item 11. Executive Compensation.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 8, 1996, to be filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 8, 1996, to be filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 8, 1996, to be filed pursuant to Regulation 14A.
PART IV
21
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements. See Index to Financial Statements on
page F-1 of this Report.
2. Financial Statement Schedules. See Index to Financial
Statements on page F-1 of this Report. All other schedules are
omitted since they are not required, are inapplicable, or the
required information is included in the financial statements
or notes thereto.
3. Exhibits.
The following is a complete list of exhibits filed as part of
this Form 10-K. For electronic filing purposes only, this
report contains Exhibit 27, Financial Data Schedule. Exhibit
numbers correspond to the numbers in the Exhibit Table of Item
601 of Regulation S-K.
Exhibit No. Description
- ---------- -----------
3.02 Amended and Restated Bylaws of the Company(1)
3.03 Restated Certificate of Incorporation of the Company(2)
4.01 Indenture dated as of November 21, 1995 relating to the
7% Senior Notes due 2000 and the 7 7/8% Senior Notes
due 2005(3)
4.02 Specimen of Common Stock Certificate(1)
10.01 Acquisition, Construction and Term Loan Agreement, dated as
of December 29, 1988, by and between Franchise Finance
Corporation of America and Scottsdale Land Trust Limited
Partnership(1)
10.02 Promissory Note dated December 29, 1988, executed by
Franchise Finance Corporation of America in favor of
Scottsdale Land Trust Limited Partnership in the principal
amount of $8,500,000(1)
10.09 Revolving Acquisition Loan Agreement, dated as of July 22,
1994, between Franchise Finance Corporation of America and
Nomura Asset Capital Corporation(2)
22
<PAGE>
10.10 Termination Agreement dated December 28, 1995, between
Franchise Finance Corporation of America, Nomura Asset
Capital Corporation and the other signatories thereto,
terminating the Revolving Acquisition Loan Agreement, dated
as of July 22, 1994*
10.11 1995 Stock Option and Incentive Plan of Franchise Finance
Corporation of America*
21.01 Subsidiaries of the Registrant*
23.01 Consent of Arthur Andersen LLP*
99.01 Credit Agreement dated as of December 27, 1995 among
Franchise Finance Corporation of America, Certain Lenders
and NationsBank of Texas, N.A., providing a credit facility
in the principal amount of $200,000,000 (the "Credit
Agreement")(4)
99.02 Guaranty Agreement executed in connection with the Credit
Agreement(4)
99.03 Promissory Note executed in connection with the Credit
Agreement(4)
99.04 Subordination Agreement executed in connection with the
Credit Agreement(4)
99.05 Subordination Agreement executed in connection with the
Credit Agreement(4)
*Filed herewith.
- ---------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-4 and amendments thereto, registration number 33-65302, as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, as filed with the Securities and
Exchange Commission.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated November 24, 1995, as filed with the Securities and Exchange Commission.
(4) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated January 25, 1996, as filed with the Securities and Exchange Commission.
23
<PAGE>
(b) Reports on Form 8-K filed in the fourth quarter of 1995:
Form 8-K dated November 24, 1995
Item 5. Other Events--Authorization and
execution of Indenture establishing the
form and terms of Senior Notes
Item 7. Financial Statements and
Exhibits--Indenture, Legal Opinion of Kutak
Rock and Officer's Certificate
Form 8-K dated November 27, 1995
Item 5. Other Events--Purchase Agreement related
to the sale of Senior Notes
Item 7. Financial Statements and
Exhibits--Purchase Agreement
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FRANCHISE FINANCE CORPORATION OF AMERICA
Date: February 12, 1996 By /s/ M. H. Fleischer
-------------------
M. H. Fleischer,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: February 12, 1996 By /s/ M. H. Fleischer
-------------------
M. H. Fleischer, Chairman of the Board,
President, and Chief Executive Officer
Date: February 12, 1996 By /s/ John R. Barravecchia
------------------------
John R. Barravecchia, Executive Vice
President, Chief Financial Officer and
Treasurer
Date: February 12, 1996 By /s/ Catherine F. Long
---------------------
Catherine F. Long, Vice President-Finance
and Principal Accounting Officer
Date: February 12, 1996 By /s/ Willie R. Barnes
--------------------
Willie R. Barnes, Director
Date: February 12, 1996 By /s/ William C. Foxley
---------------------
William C. Foxley, Director
<PAGE>
Date: February 12, 1996 By /s/ Robert W. Halliday
----------------------
Robert W. Halliday, Director
Date: February 12, 1996 By /s/ Donald C. Hannah
--------------------
Donald C. Hannah, Director
Date: February 12, 1996 By /s/ Dennis E. Mitchem
---------------------
Dennis E. Mitchem, Director
Date: February 12, 1996 By /s/ Louis P. Neeb
-----------------
Louis P. Neeb, Director
Date: February 12, 1996 By /s/ Kenneth B. Roath
--------------------
Kenneth B. Roath, Director
Date: February 12, 1996 By /s/ Wendell J. Smith
--------------------
Wendell J. Smith, Director
Date: February 12, 1996 By /s/ Casey J. Sylla
------------------
Casey J. Sylla, Director
<PAGE>
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
- --------------------------------------------------------------------------------
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - December 31, 1995 and 1994 F-3
Consolidated Statements of Income For The Years Ended
December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Changes in Shareholders' Equity
For The Years Ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows For The Years Ended
December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7
Schedule III - Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1995 F-15
Schedule IV - Schedule of Mortgage Loans on Real Estate
as of December 31, 1995 F-17
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Franchise Finance Corporation of America:
We have audited the accompanying consolidated balance sheets of FRANCHISE
FINANCE CORPORATION OF AMERICA (a Delaware corporation) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Franchise Finance Corporation
of America and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 26, 1996.
F-2
<PAGE>
<TABLE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
(Amounts in thousands except share data)
<CAPTION>
1995 1994
--------- ---------
ASSETS
------
<S> <C> <C>
Investments:
Investments in Real Estate, at cost (Note 3):
Land $ 304,641 $ 252,733
Buildings and Improvements 448,427 378,503
Equipment 41,512 49,890
--------- ---------
794,580 681,126
Less-Accumulated Depreciation 176,232 169,570
--------- ---------
Net Real Estate Investments 618,348 511,556
Mortgage Loans Receivable (Note 4) 199,486 65,980
--------- ---------
Total Investments 817,834 577,536
Cash and Cash Equivalents 2,067 12,095
Accounts and Unsecured Notes Receivable, net of allowances
of $2,000 in 1995 and $1,500 in 1994 6,820 7,230
Other Assets (Note 2) 16,783 15,367
--------- ---------
Total Assets $ 843,504 $ 612,228
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts Payable and Accrued Expenses $ 5,608 $ 3,980
Dividends Payable 18,133 18,113
Senior Notes due 2000 - 2005 (Note 5) 198,702 --
Notes Payable to Bank (Note 6) 110,000 59,000
Mortgage Payable to Affiliate (Note 9) 8,500 8,500
Rent Deposits 5,630 6,180
Other Liabilities 3,114 2,348
--------- ---------
Total Liabilities 349,687 98,121
--------- ---------
Commitments (Note 11)
Shareholders' Equity (Notes 7 and 8):
Common Stock, par value $.01 per share, authorized 200
million shares, issued and outstanding 40,294,822 shares
in 1995 and 40,250,719 shares in 1994 403 403
Capital in Excess of Par Value 547,478 546,626
Cumulative Net Income 60,670 9,341
Cumulative Dividends (114,734) (42,263)
--------- ---------
Total Shareholders' Equity 493,817 514,107
--------- ---------
Total Liabilities and Shareholders' Equity $ 843,504 $ 612,228
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE>
<TABLE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
(Amounts in thousands except per share data)
<CAPTION>
1995 1994 1993
--------- --------- -------
(as restated on
a combined basis
- Note 13)
<S> <C> <C> <C>
Revenues:
Rental $ 86,182 $ 81,760 $ 83,095
Mortgage Loan Interest 14,118 5,596 4,889
Investment Income and Other 2,283 3,706 5,805
--------- --------- ---------
102,583 91,062 93,789
--------- --------- ---------
Expenses:
Depreciation and Amortization 21,201 22,810 22,704
Operating, General and Administrative 10,283 11,195 13,111
Property Costs 2,046 2,310 2,850
Interest 15,276 2,477 316
Related Party Interest (Note 9) 961 951 941
--------- --------- ---------
49,767 39,743 39,922
--------- --------- ---------
Income Before Gain (Loss) on Sale of Property
and REIT Transaction Related Costs 52,816 51,319 53,867
Gain (Loss) on Sale of Property (Note 2) 977 2,784 (156)
REIT Transaction Related Costs (Note 13) -- (28,198) --
--------- --------- ---------
Income Before Extraordinary Item 53,793 25,905 53,711
Extraordinary Item - Loss on Early
Extinguishment of Debt (Note 6) (2,464) -- --
--------- --------- ---------
Net Income $ 51,329 $ 25,905 $ 53,711
========= ========= =========
Net Income Per Share (Note 2):
Income Before Extraordinary Item $ 1.33 $ .64 $ 1.33
Extraordinary Item (.06) -- --
--------- --------- ---------
Net Income Per Share $ 1.27 $ .64 $ 1.33
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-4
<PAGE>
<TABLE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
(amounts in thousands except per share data)
<CAPTION>
Capital
Common in Excess Cumulative Cumulative
of
Stock Par Value Net Income Dividends Total
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 $ 10 $ 598,254 $ -- $ -- $ 598,264
Distributions -- (75,200) -- -- (75,200)
Net income -- 53,711 -- -- 53,711
------- --------- --------- --------- ---------
BALANCE, December 31, 1993 10 576,765 -- -- 576,775
Shareholders' contribution -- 3,189 -- -- 3,189
Distributions -- (33,650) -- -- (33,650)
Net income - -- 16,564 -- -- 16,564
------- --------- --------- --------- ---------
BALANCE, June 1, 1994 (date of Consolidation) 10 562,868 -- -- 562,878
Shares issued in exchange for FFCA I
stock and limited partnership interests 393 (393) -- -- --
Payment of Variable Rate Notes and
fractional shares (Note 13) -- (11,745) -- -- (11,745)
Net distribution upon consolidation
(Note 13) -- (4,104) -- -- (4,104)
Net income - -- -- 9,341 -- 9,341
Dividends declared - $1.05 per share -- -- -- (42,263) (42,263)
------- --------- --------- --------- ---------
BALANCE, December 31, 1994 403 546,626 9,341 (42,263) 514,107
Capital contributions - dividend
reinvestment plan -- 852 -- -- 852
Net income - -- -- 51,329 -- 51,329
Dividends declared - $1.80 per share -- -- -- (72,471) (72,471)
------- --------- --------- --------- ---------
BALANCE, December 31, 1995 $ 403 $ 547,478 $ 60,670 $(114,734) $ 493,817
======= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-5
<PAGE>
<TABLE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
(Amounts in thousands)
<CAPTION>
1995 1994 1993
--------- --------- ---------
(as restated on a
combined basis - Note 13)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,329 $ 25,905 $ 53,711
Adjustments to net income:
Depreciation and amortization 21,201 22,810 22,704
(Gain) loss on sale of property (977) (2,784) 156
REIT transaction related costs -- 28,198 --
Loss on early extinguishment of debt 2,464 -- --
Other 4,604 1,854 1,497
--------- --------- ---------
Net cash provided by operating activities 78,621 75,983 78,068
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (143,262) (48,233) (3,685)
Investment in mortgage loans (133,289) (33,868) (484)
Investment in note receivable (1,200) -- --
Proceeds from sale of property 12,210 18,628 11,160
Receipt of mortgage payoffs 489 5,345 5,415
Collection of mortgage and note principal 5,337 2,445 3,046
--------- --------- ---------
Net cash provided by (used in) investing activities (259,715) (55,683) 15,452
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends/distributions paid (72,471) (76,420) (76,848)
Capital contributions - dividend reinvestment plan 852 -- --
Proceeds from bank borrowings 361,412 64,475 --
Proceeds from issuance of senior notes 198,678 -- --
Payment of bank borrowings and loan fees (317,405) (12,190) (1,598)
Payment of variable rate notes and fractional shares -- (11,745) --
Payment of REIT transaction related costs -- (24,173) (3,669)
--------- --------- ---------
Net cash provided by (used in) financing activities 171,066 (60,053) (82,115)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (10,028) (39,753) 11,405
CASH AND CASH EQUIVALENTS, beginning of year 12,095 51,848 40,443
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 2,067 $ 12,095 $ 51,848
========= ========= =========
Supplemental Disclosure of Noncash Activities:
Mortgage loans obtained as part of property sale proceeds,
net of deferred gain $ 5,542 $ 2,356 $ 5,619
Acquisition of property and equipment through foreclosure -- $ 120 $ 3,295
Shares issued in exchange for limited partnership interests -- $ 393 --
Distribution of FFCA I assets to shareholders -- $ 4,104 --
Interest paid $ 12,802 $ 3,030 $ 1,282
Taxes paid/(refunds received) $ (816) $ 231 $ 580
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-6
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1995 AND 1994
--------------------------
(1) ORGANIZATION AND OPERATION:
--------------------------
Franchise Finance Corporation of America (FFCA) is a fully integrated
and self-administered real estate investment trust (REIT) which invests in chain
restaurant real estate throughout the United States. FFCA provides financing to
chain restaurant operators with experienced management in established restaurant
chains principally through sale and leaseback transactions and participating
mortgage loans. FFCA and its predecessor companies have provided financing to
the chain restaurant industry since 1981. FFCA's portfolio of properties is
diversified by tenant, restaurant concept and geographic location. At December
31, 1995, FFCA's portfolio included 1,508 restaurant properties operated by
approximately 400 restaurant operators in over 35 chains in 46 states.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Consolidation and Reorganization - The accompanying consolidated
financial statements include the accounts of FFCA and its wholly-owned
subsidiaries, FFCA Acquisition Corporation and FFCA Institutional Advisors. All
intercompany transactions have been eliminated. The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Although
management believes its estimates are reasonable, actual results could differ
from those estimates.
Federal Income Taxes - FFCA has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended, as of June 1, 1994. As a result, FFCA
generally will not be subject to federal income taxation at the corporate level
provided it meets certain tests which, among other things, require that its
assets consist primarily of real estate, its income be derived primarily from
real estate and at least 95% of its taxable income be distributed annually to
its shareholders. Prior to June 1, 1994, the majority of FFCA's operations were
conducted through public real estate limited partnerships. In accordance with
partnership taxation, each of the partners is responsible for reporting his or
her share of taxable income. Accordingly, no income tax provision has been made
in the accompanying consolidated financial statements. The tax basis of the
assets and liabilities has been recorded based upon the value of the
consideration exchanged upon the merger of FFCA with its predecessor companies
(see Note 13) and, accordingly, the tax basis of the net assets exceeds the book
basis by approximately $234 million at December 31, 1995.
Real Estate - FFCA records the acquisition of real estate at cost,
which includes miscellaneous acquisition and closing costs. Depreciation is
computed using the straight-line method over the estimated useful life of 24 to
30 years for the restaurant buildings and improvements and 7 to 8 years for
restaurant equipment. FFCA periodically reviews its real estate portfolio for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the property may not be recoverable, such as may be the case
with vacant restaurant properties. If an impairment loss is indicated, the loss
is measured as the amount by which the carrying amount of the asset exceeds the
estimated fair value of the asset. Gain (loss) on sale of property on the
consolidated statements of income for the years ended December 31, 1995, 1994
F-7
<PAGE>
and 1993 includes approximately $3.4 million, $1.6 million and $534,000,
respectively, of impairment loss related to certain vacant properties. Vacant
properties held for sale represent approximately 1% of the total real estate
investment portfolio at December 31, 1995.
Lease and Loan Origination Fees and Costs - FFCA generally receives a
fee related to activities performed to process a borrower's request for credit.
Direct costs associated with these activities are offset against the related
fees received and the balance is deferred and amortized into revenue over the
term of the related lease or loan.
Cash and Cash Equivalents - Cash and cash equivalents include all cash
and highly liquid investment securities with maturities at acquisition of three
months or less. Such investment securities are carried at cost plus accrued
interest which approximates fair market value.
Prepaid Rent Insurance - Other Assets include prepaid rent insurance
which is amortized over a period of 118 months using the straight-line method.
The policy guarantees 80% of rental payments for land and note payments on
buildings (but not equipment) for a period of 10 years. At December 31, 1995,
28% of the total cost of FFCA's real estate is covered by rent insurance.
Included in rental revenue for 1995, 1994 and 1993 is approximately $3.3
million, $6.2 million and $6.8 million, respectively, of rent insurance revenue.
Rent insurance coverage on FFCA properties expires at various dates, with the
majority of the policies expiring by 1998.
Debt Financing Costs - Included in Other Assets are costs totaling $5.3
million associated with the issuance in 1995 of FFCA's Senior Notes (see Note
5), which costs are amortized over the terms of the Senior Notes on a
straight-line basis. Amortization of these debt issuance costs for the year
ended December 31, 1995 amounted to $90,000, which is included in interest
expense in the accompanying financial statements.
Derivative Financial Instruments - FFCA may periodically use derivative
financial instruments to enhance its ability to manage interest rate exposures
in its debt portfolio which exist as part of its ongoing business operations.
FFCA does not hold or issue derivative financial instruments for speculative
trading purposes. The derivative instruments used are interest rate agreements
which are non-leveraged and involve little complexity. Gains and losses under
such agreements designated as hedges are deferred and amortized to interest
expense over the term of the associated debt.
Rental Revenue Recognition - FFCA leases its real estate under
long-term net leases which are classified as operating leases. Rental revenue
from operating leases is recognized as it is earned.
Investment Property Sales - FFCA records certain sales of property and
equipment under the installment or cost recovery method. Gains totaling
approximately $3 million in 1995, $600,000 in 1994 and $3.1 million in 1993 were
deferred on such sales. For financial reporting purposes, deferred gains on
property sales are deducted from the related mortgage loan receivable balances
and totaled $6.6 million and $3.8 million at December 31, 1995 and 1994,
respectively.
Net Income Per Share - Net income per share is calculated using
40,294,427 weighted average common and common equivalent shares outstanding
during the year. In 1994 and 1993, net income per share is calculated using
40,250,719 shares of FFCA's common stock issued upon consummation of the
Consolidation as if these shares were outstanding during both years.
Accounting Changes - Effective January 1, 1995, FFCA adopted Statement
of Financial Accounting Standards (SFAS) 114, "Accounting by Creditors for
Impairment of a Loan," as amended by
F-8
<PAGE>
SFAS 118. In addition, during 1995 FFCA elected early adoption of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". The adoption of these new accounting standards did not have a
material effect on FFCA's financial position or results of operations.
The Financial Accounting Standards Board recently issued SFAS 123,
"Accounting for Stock-Based Compensation". As is permitted under this recent
pronouncement, FFCA plans to continue to measure the compensation cost of its
employee stock compensation plans using the intrinsic value based method of
accounting prescribed by APB Opinion 25, "Accounting for Stock Issued to
Employees". FFCA will adopt the disclosure requirements of SFAS 123 in 1996.
(3) INVESTMENTS IN REAL ESTATE:
--------------------------
FFCA's real estate portfolio is leased to tenants under long-term net
operating leases. The lease agreements generally provide for monthly rentals
equal to the greater of a percentage of the property's cost or a percentage of
its gross sales. The term of the leases is generally 20 years for land and
buildings and seven or eight years for equipment (if any). The initial terms of
FFCA's leases extend through 2017 with a weighted average remaining term of 12
years as of December 31, 1995. Land and building leases generally provide for
two or four five-year renewal options. Generally, the lessee has the option to
purchase equipment at the end of the lease term and land and buildings anytime
after the first ten years of the lease at fair market value (but not less than
original cost in most cases). Approximately two-thirds of FFCA's land and
building leases provide for purchase options and approximately two-thirds of
these options are currently exercisable. One lessee (Foodmaker, Inc.), operating
171 Jack In The Box restaurants in the western United States, accounted for
approximately 12.5% of total rental and mortgage loan interest revenues in 1995
and 14% in both 1994 and 1993.
Minimum future rentals under noncancellable operating leases as of
December 31, 1995, are as follows (dollars in thousands):
Year ending December 31,
-----------------------
1996 $ 85,560
1997 82,678
1998 81,976
1999 81,202
2000 80,120
Thereafter 557,257
---------
Total minimum future rentals $968,793
=========
The above table assumes that all leases which expire are not renewed;
therefore, neither renewal rentals nor rentals from replacement lessees are
included. In addition, minimum future rentals do not include contingent rentals
which may be received under the leases based upon a percentage of the lessee's
gross sales ("percentage rentals"). These percentage rentals totaled
approximately $4 million in 1995, $3.8 million in 1994 and $2.5 million in 1993.
(4) MORTGAGE LOANS RECEIVABLE:
-------------------------
F-9
<PAGE>
At December 31, 1995, FFCA held first mortgage loans on the land and/or
buildings and/or equipment of approximately 430 restaurants. Generally, the
loans carry interest rates of 10.5 to 13.5 percent per annum and mature in 15 to
22 years from the date of origination. Total principal and interest payments are
due in level amounts with payments aggregating approximately $26 million per
year to maturity. In addition to the base interest, the mortgage agreements
generally provide for additional interest payments based on a percentage of the
mortgagor's gross restaurant sales. The estimated fair value of FFCA's mortgage
loans at December 31, 1995 approximates carrying value based on the current
rates at which similar loans would be made to borrowers with similar credit and
for the same remaining maturities. The scheduled collections of principal on
mortgage loans held at December 31, 1995, are as follows (dollars in thousands):
Year ending December 31,
-----------------------
1996 $ 7,229
1997 8,058
1998 8,727
1999 9,548
2000 10,254
Thereafter 163,761
---------
Subtotal 207,577
Less deferred gains and other (8,091)
---------
Total mortgage principal $199,486
=========
(5) SENIOR NOTES:
In November 1995, FFCA issued unsecured debt consisting of $150 million
of 7% Senior Notes due November 30, 2000 and $50 million of 7-7/8% Senior Notes
due November 30, 2005, with related discounts totaling $1,196,000 and $102,000,
respectively, at December 31, 1995. The effective rates on the Senior Notes
approximate 7.2% and 7.9%, respectively. Interest on the notes is payable
semi-annually in arrears on each May 30 and November 30, commencing May 30,
1996, with principal due at maturity. The proceeds of the Senior Notes were used
to pay down the revolving acquisition line of credit (see Note 6). The notes may
not be redeemed prior to their respective maturities. Based on the borrowing
rates currently available to FFCA for loans with similar terms and maturities,
the carrying value of the Senior Notes approximates fair value.
The Senior Note agreements contain certain covenants which, among other
restrictions, limit the incurrence of additional debt if FFCA's debt exceeds 60%
of total assets (40%, if secured debt) as defined, or if FFCA's debt service
coverage is less than 1.5 to 1. As of December 31, 1995, FFCA was in compliance
with its Senior Note covenants.
(6) NOTES PAYABLE TO BANK:
---------------------
At December 31, 1995, FFCA had outstanding $110 million on a $200
million acquisition loan facility used to provide funds for the acquisition or
financing of chain restaurant properties. This unsecured revolving credit
facility is due in monthly installments of interest only at LIBOR (London
Interbank Offered Rate) plus 1.5% or at the bank's base rate, as defined. The
loan facility provides for an origination fee of $1,750,000, an annual
administration fee of $75,000 and a fee on the unused commitment amount of .25%
per annum, payable quarterly in arrears. The acquisition loan facility expires
in December 1997, with the possibility of three annual extensions. The interest
rate in effect at December 31, 1995 was
F-10
<PAGE>
7.35%. Based on the borrowing rates currently available to FFCA for loans with
similar terms and maturities, the carrying value of these notes payable
approximates fair value.
The credit agreement contains covenants which, among other
restrictions, require FFCA to maintain a fixed charge coverage of 2 to 1 and a
minimum net worth of $425 million, as adjusted. As of December 31, 1995, FFCA
was in compliance with its debt covenants.
Bank debt outstanding at December 31, 1994 totaled $59 million on a
credit facility scheduled to expire in July 1996. This secured debt, including
additional borrowings of $251 million in 1995, was repaid in 1995 in conjunction
with the unsecured Senior Note offering (see Note 5) and the acquisition loan
facility referred to above. The early termination of this credit facility
enabled FFCA to reduce its cost of borrowings while also removing the bank's
security interest in the stock of FFCA's wholly-owned subsidiary, FFCA
Acquisition Corporation. As a result of the early extinguishment of this debt,
FFCA expensed approximately $2.5 million in unamortized loan costs in 1995 which
is reported as an extraordinary item on the consolidated statement of income.
Amortization of loan fees related to this facility for the year ended December
31, 1995 amounted to $2.1 million, which is included in interest expense in the
accompanying consolidated financial statements.
(7) DIVIDENDS:
---------
FFCA declared a fourth quarter dividend of $.45 per share, payable on
February 20, 1996, to shareholders of record on February 9, 1996. For tax
reporting purposes this dividend is not included in the shareholders' 1995
taxable income. The remaining dividend payments made by FFCA to its shareholders
for 1995 are characterized as ordinary income of $1.35 per share. FFCA's
dividend payments for the period from June 1, 1994 to December 31, 1994,
including the fourth quarter 1994 dividend, were characterized as ordinary
income of $0.87 per share and return of capital of $0.18 per share.
(8) STOCK OPTIONS:
-------------
On May 10, 1995, FFCA shareholders approved a stock option and
incentive plan which permits the issuance of options, restricted stock and other
stock-based awards to key employees, the Board of Directors and certain
independent contractors of FFCA. The plan reserves 3,018,804 shares of common
stock for grant and provides that the term of each award be determined by the
compensation committee of the Board of Directors.
Under the terms of the plan, options granted may be either nonqualified
or incentive stock options and the exercise price, determined by the committee,
may not be less than the fair market value of a share of common stock on the
grant date. In May 1995, FFCA granted 1,227,989 stock options at prices ranging
from $19.50 to $19.75 per share, none of which have been exercised. Other than
the restrictions which limit the sale and transfer of these shares, participants
are entitled to all the rights of a shareholder. Options become exercisable as
determined at the date of grant by the committee. At December 31, 1995, the
options granted to FFCA's non-employee Directors, totaling 20,489 shares, were
exercisable. The remaining options vest over a three-year period from the date
of grant. Options expire ten years after the date of grant unless an earlier
expiration date is set at the time of grant.
(9) RELATED PARTY TRANSACTIONS:
--------------------------
In 1988, a partnership managed by an affiliate of FFCA provided
financing for land purchased by FFCA from the partnership and for the
construction of the corporate headquarters of FFCA (together, the FFCA
Premises). The term of the mortgage loan on the FFCA Premises is ten years and
provides for
F-11
<PAGE>
payments of interest only, at the rate of 10% per year, until May 2000, at which
time the entire principal amount must be repaid to the partnership. The loan
also provides for the payment of additional interest upon maturity based upon
the increase, if any, in the value of the FFCA Premises, as defined in the loan
agreement. FFCA is accruing this additional interest over the term of the loan
based on an estimated payment of $1,130,000. Under certain circumstances, FFCA
may be required to prepay the loan; however, management does not believe that
such circumstances are probable. The loan is secured by land and land
improvements, the FFCA Premises and the guaranty of an affiliate. The FFCA
Premises, including equipment, amounted to $8,992,000 in 1995 and $9,130,000 in
1994, respectively (net of accumulated depreciation of $2,375,000 and
$1,905,000, respectively) and is included in Other Assets in the accompanying
financial statements.
FFCA provides certain accounting, computer, investor and other
administrative services to its affiliates under a service agreement which
provides for a monthly fee based upon the amount of services used by each
affiliate. Fees for such services aggregated approximately $760,000 in 1995,
$599,000 in 1994 and $469,000 in 1993.
(10) EMPLOYEE SAVINGS PLAN:
---------------------
The FFCA 401K Plan (the Plan) was established as a savings plan for
FFCA's employees who have been employed by FFCA (or its predecessor) for a
minimum of six months. The Plan allows employees to make their own contributions
through payroll deductions. FFCA matches participating employees' contributions
up to six percent of the participating employees' salaries and are subject to
years-of-service vesting requirements. Employer matching contributions are made
in FFCA stock, which is purchased by the Plan on the open market. Employer
contributions totaled $169,000 in 1995 and $70,000 in 1994.
(11) COMMITMENTS:
-----------
In the normal course of business, FFCA makes commitments to extend
credit to meet the financing needs of its clients in the chain restaurant
industry. FFCA evaluates each client's credit and, based on management's
evaluation of the client and the proposed restaurant site, determines the amount
of credit to be extended and collateral obtained. The commitments generally have
fixed expiration dates or other termination clauses and require payment of a fee
by the client. At December 31, 1995, outstanding commitments to extend credit
aggregated approximately $130 million.
F-12
<PAGE>
(12) QUARTERLY FINANCIAL INFORMATION (Unaudited):
-------------------------------------------
Quarter Ended
March 31 June 30 September 30 December 31
-------- -------- -------- --------
(amounts in thousands, except per share data)
1995
- ----
Revenues $ 23,231 $ 24,854 $ 26,524 $ 27,974
Income before extraordinary item 13,707 12,887 13,695 13,504
Net income 13,707 12,887 13,695 11,040
Income before extraordinary
item per share 0.34 0.32 0.34 0.33
Net income per share 0.34 0.32 0.34 0.27
Dividends per share $ 0.45 $ 0.45 $ 0.45 $ 0.45
Weighted average shares 40,251 40,251 40,251 40,394
1994(a)
- -------
Revenues $ 22,933 $ 22,734 $ 22,458 $ 22,937
REIT transaction related costs 348 27,197 591 62
Net income (loss) 13,249 (12,428) 12,134 12,950
Net income (loss) per share 0.33 (0.31) 0.30 0.32
Dividends/distributions per share $ 0.47 $ 0.45 $ 0.45 $ 0.45
(a) The merger of FFCA with its predecessor companies (see Note 13) was
consummated on June 1, 1994. The quarterly information for the first two
quarters of 1994 is, in effect, a restatement of the historical operating
results of the predecessor companies as if they had been consolidated as of
January 1, 1994; however, it does not necessarily present the results of
operations as they would have been had FFCA operated as a REIT for those
periods. The per share amounts for the same periods were computed as if
40,250,719 shares were outstanding in each quarter. The net loss for the quarter
ended June 30, 1994 is attributable to the REIT transaction related costs
recognized upon consummation of the merger.
(13) REIT FORMATION:
--------------
FFCA was organized as a Delaware corporation in June 1993 to facilitate
the consolidation by merger (the Consolidation) of Franchise Finance Corporation
of America I (FFCA I) and eleven public real estate limited partnerships (the
Partnerships) with and into FFCA. The Consolidation was effected on June 1, 1994
and was accounted for as a reorganization of affiliated companies under common
control in a manner similar to a pooling of interests. Under this method, the
assets and liabilities of the Partnerships and FFCA I were carried over at their
historical book values and their operations have been recorded on a combined
historical basis. The Consolidation did not require any material adjustments to
conform the accounting policies of the predecessor companies to that of FFCA;
however, certain reclassifications have been made to prior years' financial
statements to conform with current year presentation.
Certain costs incurred to effect the Consolidation and integrate the
continuing operations of the separate companies were expensed in 1994 and are
included in REIT Transaction Related Costs in the accompanying consolidated
statements of income. These expenses included, among other things, the costs of
registration, costs of furnishing information to shareholders, fees of
underwriters and consultants and the legal fees related to the settlement of the
class action litigation in 1994. No monetary consideration was paid to the
plaintiffs in connection with the settlement; however, FFCA agreed to pay the
attorneys' fees and expenses of plaintiffs' counsel amounting to $800,000.
F-13
<PAGE>
FFCA I and investors in the Partnerships who elected to invest in FFCA
received shares of common stock of FFCA totaling 40,250,719 shares (fractional
shares totaling $918,820 were paid in cash). Certain investors elected to
receive variable rate senior notes (the Variable Rate Notes) totaling
$10,825,911. Rather than issuing the Variable Rate Notes, FFCA paid to those
investors an amount equal to the Variable Rate Notes plus interest at an
annualized rate of 5.0625% for the period June 1, 1994 through June 30, 1994.
Certain non-real estate assets and liabilities of FFCA I were not included in
the Consolidation and, accordingly, were not transferred to FFCA. These amounts
are treated as a net distribution upon Consolidation in the accompanying
financial statements.
The consolidated statement of income for the year ended December 31,
1994 includes the operations of the Predecessor Companies combined from the
beginning of the year through May 31, 1994 and those of FFCA from June 1, 1994
to December 31, 1994. The financial statements for 1993 have also been restated
on a combined basis to provide comparative information. The results of
operations of the Predecessor Companies during these periods follow (amounts in
thousands):
January 1, 1994 Year Ended
through May 31, 1994 December 31, 1993
------------------ ------------------
Net Net
Entity Revenues Income Revenues Income
------ -------- ------- -------- ------
Partnerships $37,112 $21,559 $89,659 $53,263
FFCA I 5,335 (4,815) 14,048 1,156
Intercompany eliminations (4,006) (180) (9,918) (708)
-------- ------- -------- -------
Combined results $38,441 $16,564 $93,789 $53,711
======== ======= ======== =======
The results of operations of FFCA I for the period January 1, 1994
through May 31, 1994 include expenses approximating $6 million in connection
with the payoff of deferred compensation arrangements and stock compensation
paid prior to, and in connection with, the Consolidation. The Partnerships
involved in the Consolidation are Hardee's Lease Partners 1980, Insured Income
Properties 1981, Insured Income Properties 1982, Insured Income Properties 1983,
Insured Income Properties 1984, Insured Income Properties 1985, Insured Income
Properties 1986, Insured Income Properties 1988, Insured Pension Investors 1983,
Insured Pension Investors 1984 and Insured Pension Investors 1985.
F-14
<PAGE>
<TABLE>
SCHEDULE III
Page 1 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<CAPTION>
Initial Cost to Company and
Gross Amount at December 31, 1995 Accumulated Depreciation
---------------------------------------------------------- --------------------------------------
No. of
U.S. Region Properties Land Buildings Equipment Total Buildings Equipment Total
- ------------ ---------- ------------ ------------ ------------ ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mideast 124 $ 33,721,148 $ 48,442,402 $ 2,037,570 $ 84,201,120 $ 12,709,931 $ 1,801,494 $ 14,511,425
Northeast 74 19,420,778 31,754,103 1,799,507 52,974,388 5,918,115 1,774,307 7,692,422
E.N. Central 194 36,259,953 78,860,545 8,493,283 123,613,781 25,997,131 7,616,780 33,613,911
W.N. Central 114 20,227,559 41,373,341 4,570,945 66,171,845 14,206,473 4,505,191 18,711,664
Southeast 354 83,896,422 125,281,921 10,930,745 220,109,088 37,035,893 10,603,967 47,639,860
Southwest 182 45,299,468 59,181,361 9,032,157 113,512,986 21,030,193 8,624,877 29,655,070
Mountain 95 25,821,588 37,925,608 3,800,772 67,547,968 10,261,734 3,618,526 13,880,260
Pacific 121 39,994,631 25,607,427 846,914 66,448,972 9,680,945 846,914 10,527,859
----- ------------ ------------ ----------- ------------ ------------ -------------------------
TOTAL 1,258 $304,641,547 $448,426,708 $41,511,893 $794,580,148 $136,840,415 $39,392,056 $176,232,471
===== ============ ============ =========== ============ ============ =========== ============
</TABLE>
F-15
<PAGE>
SCHEDULE III
Page 2 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1995
-----------------------
NOTES:
(1) All property is restaurant property.
(2) There are no encumbrances on properties.
(3) The aggregate cost for Federal income tax purposes is approximately
$824 million.
(4) Depreciation is computed over the estimated useful life of 24 to 30
years for the restaurant buildings and improvements and 7 to 8 years
for the restaurant equipment.
(5) Transactions in real estate and equipment and accumulated depreciation
during 1995, 1994, and 1993 are summarized as follows:
Accumulated
Cost Depreciation
------------- -------------
Balance, December 31, 1992 $ 685,337,795 $ 153,048,265
Acquisitions 6,980,118 --
Cost of real estate sold (18,166,362) (3,446,266)
Cost of equipment sold (12,304,998) (10,738,037)
Impairment loss (270,000) --
Depreciation expense -- 20,489,917
------------- -------------
Balance, December 31, 1993 661,576,553 159,353,879
Acquisitions 48,233,127 --
Repossessed equipment 119,681 --
Cost of real estate sold (19,907,230) (4,098,224)
Cost of equipment sold (7,296,677) (6,472,931)
Impairment loss (1,600,000) --
Depreciation expense -- 20,786,738
------------- -------------
Balance, December 31, 1994 681,125,454 169,569,462
Acquisitions 143,261,856 --
Cost of real estate sold (17,992,221) (4,952,630)
Cost of equipment sold (8,399,941) (7,850,715)
Impairment loss (3,415,000) --
Depreciation expense -- 19,466,354
------------- -------------
Balance, December 31, 1995 $ 794,580,148 $ 176,232,471
============= =============
F-16
<PAGE>
<TABLE>
FRANCHISE FINANCE CORPORATION OF AMERICA SCHEDULE IV
---------------------------------------- Page 1 of 2
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
-----------------------------------------
AS OF DECEMBER 31, 1995
-----------------------
<CAPTION>
No. of Face Amount Carrying Amount Interest Maturity Date
U.S. Region Original Loan Amount Financed Properties of Mortgages of Mortgages Rate Range Range
- ----------- -------------------- ------------------- ------------ ------------ -------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Southeast $31,244,960 62 $ 31,244,960 $ 30,422,988 10.5% Oct. 2014
1,755,040 4 1,755,040 1,722,939 10.5% Oct. 2014
under $500,000 53 10,450,858 8,407,311 10.75% - 13.5% Jul. 1999 - Dec. 2015
$501,000-$1,000,000 20 14,195,853 13,679,918 10.0% - 11.5% Jan. 2000 - Jan. 2016
over $1,000,000 13 15,455,935 15,283,445 10.5% - 11.5% Jun. 2015 - Jan. 2016
------------ ------------
73,102,646 69,516,601
------------ ------------
Mideast under $500,000 9 2,602,491 2,472,703 11.0% - 12.5% Nov. 1997 - Jun. 2015
$501,000-$1,000,000 17 12,932,652 11,744,552 10.5% - 13.5% Jul. 2001 - Jan. 2016
over $1,000,000 2 3,089,660 1,577,965 10.0% - 14.5% Oct. 1999 - Oct. 2000
------------ ------------
18,624,803 15,795,220
------------ ------------
Northeast under $500,000 24 4,170,000 4,000,245 11.0% - 11.5% Apr. 2003 - Jul. 2003
$501,000-$1,000,000 1 645,230 462,271 13.5% Oct. 2001
over $1,000,000 3 4,126,175 4,107,185 11.5% Sep. 2015 - Nov. 2015
------------ ------------
8,941,405 8,569,701
------------ ------------
E.N. Central under $500,000 19 5,740,333 5,341,551 8.0% - 12.5% Nov. 1997 - Jun. 2015
$501,000-$1,000,000 28 18,609,839 17,787,885 8.0% - 15.0% Oct. 1999 - Jan. 2016
over $1,000,000 5 6,670,028 5,505,862 10.5% - 11.5% Nov. 2001 - Nov. 2015
------------ ------------
31,020,200 28,635,298
------------ ------------
W.N. Central under $500,000 24 3,366,221 2,723,256 10.0% - 12.5% Nov. 1999 - Jan. 2016
$501,000-$1,000,000 34 25,409,586 20,825,467 10.0% - 13.5% Jun. 2001 - Jan. 2016
over $1,000,000 4 4,771,136 2,841,561 10.75% - 11.0% Dec. 2001 - Jan. 2007
------------ ------------
33,546,943 26,390,284
------------ ------------
Southwest under $500,000 22 5,321,355 4,097,479 11.0% - 12.5% Nov. 1997 - Apr. 2015
$501,000-$1,000,000 18 13,960,668 13,711,765 11.0% - 13.5% May 2002 - Jul. 2017
over $1,000,000 9 10,086,632 9,824,626 11.0% Jul. 2017
------------ ------------
29,368,655 27,633,870
------------ ------------
Mountain under $500,000 9 3,253,254 2,950,207 11.0% - 11.5% Feb. 2000 - Apr. 2015
$501,000-$1,000,000 10 7,479,662 6,302,046 8.0% - 14.5% Mar. 2001 - Jan. 2016
over $1,000,000 6 6,599,344 5,277,451 11.0% - 11.5% Jan. 2005 - Jan. 2016
------------ ------------
17,332,260 14,529,704
------------ ------------
Pacific under $500,000 28 6,958,160 5,260,243 11.5% May 2005
$501,000-$1,000,000 2 1,143,553 990,131 11.0% - 11.5% May 2005 - Oct. 2005
over $1,000,000 2 2,478,400 2,165,626 10.6% - 11.0% Jun. 2008 - Apr. 2015
---- ------------ ------------
10,580,113 8,416,000
------------ ------------
TOTAL 428 $222,517,025 $199,486,678
=== ============ ============
F-17
</TABLE>
<PAGE>
SCHEDULE IV
Page 2 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
-----------------------------------------
AS OF DECEMBER 31, 1995
-----------------------
NOTES:
(1) Generally, loans are first mortgages for restaurant land, buildings
and/or equipment.
(2) Principal and interest are payable at level amounts to maturity.
(3) For mortgages where the land is under a ground lease, there are
generally no provisions for prepayment of the mortgage loans in whole
or in part, except upon sale of the related property.
(4) There are no prior liens.
(5) The aggregate cost for Federal income tax purposes is approximately
$207 million.
(6) Transactions in mortgage loans on real estate during 1995, 1994 and
1993 are summarized as follows:
Balance, December 31, 1992 $ 42,037,782
Additions during period:
New mortgage loans 9,980,896
Deferred gain, net of gain recognized (3,094,823)
Deductions during period:
Collections of principal (1,997,753)
Mortgage payoffs (5,414,745)
Foreclosures (3,378,523)
Increase in provision for uncollectible accounts (41,436)
-------------
Balance, December 31, 1993 38,091,398
Additions during period:
New mortgage loans 36,641,734
Deferred gain, net of gain recognized (513,306)
Unamortized loan fees, net of amortization (261,321)
Deductions during period:
Collections of principal (2,149,648)
Mortgage payoffs (5,344,918)
Foreclosures (119,681)
Conversion of mortgage loans to notes (364,124)
-------------
Balance, December 31, 1994 65,980,134
Additions during period:
New mortgage loans 141,788,744
Deferred gain, net of gain recognized (2,714,965)
Unamortized loan fees, net of amortization (1,228,717)
Deductions during period:
Collections of principal (3,381,980)
Mortgage payoffs (489,405)
Conversion of mortgage loans to notes (467,133)
-------------
Balance, December 31, 1995 $ 199,486,678
=============
F-18
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
Exhibit Index
----------------------------------------
The following is a complete list of exhibits filed as part of this Form 10-K.
For electronic filing purposes only, this report contains Exhibit 27, Financial
Data Schedule. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit No. Description
- ---------- -----------
3.02 Amended and Restated Bylaws of the Company(1)
3.03 Restated Certificate of Incorporation of the Company(2)
4.01 Indenture dated as of November 21, 1995 relating to the 7%
Senior Notes due 2000 and the 7 7/8% Senior Notes due
2005(3)
4.02 Specimen of Common Stock Certificate(1)
10.01 Acquisition, Construction and Term Loan Agreement, dated as
of December 29, 1988, by and between Franchise Finance
Corporation of America and Scottsdale Land Trust Limited
Partnership(1)
10.02 Promissory Note dated December 29, 1988, executed by
Franchise Finance Corporation of America in favor of
Scottsdale Land Trust Limited Partnership in the principal
amount of $8,500,000(1)
10.09 Revolving Acquisition Loan Agreement, dated as of July 22,
1994, between Franchise Finance Corporation of America and
Nomura Asset Capital Corporation(2)
10.10 Termination Agreement dated December 28, 1995, between
Franchise Finance Corporation of America, Nomura Asset
Capital Corporation and the other signatories thereto,
terminating the Revolving Acquisition Loan Agreement, dated
as of July 22, 1994*
10.11 1995 Stock Option and Incentive Plan of Franchise Finance
Corporation of America*
21.01 Subsidiaries of the Registrant*
<PAGE>
23.01 Consent of Arthur Andersen LLP*
99.01 Credit Agreement dated as of December 27, 1995 among
Franchise Finance Corporation of America, Certain Lenders
and NationsBank of Texas, N.A., providing a credit facility
in the principal amount of $200,000,000 (the "Credit
Agreement")(4)
99.02 Guaranty Agreement executed in connection with the Credit
Agreement(4)
99.03 Promissory Note executed in connection with the Credit
Agreement(4)
99.04 Subordination Agreement executed in connection with the
Credit Agreement(4)
99.05 Subordination Agreement executed in connection with the
Credit Agreement(4)
- ---------------
*Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-4 and amendments thereto, registration number 33-65302, as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, as filed with the Securities and
Exchange Commission.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated November 24, 1995, as filed with the Securities and Exchange Commission.
(4) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated January 25, 1996, as filed with the Securities and Exchange Commission.
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (this "Agreement") is executed as
of December 28, 1995, by FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware
corporation ("FFCA"), its wholly-owned subsidiary FFCA ACQUISITION CORPORATION,
a Delaware corporation ("SPC") and NOMURA ASSET CAPITAL CORPORATION, a Delaware
corporation ("NACC"; and together with FFCA and SPC, the "Parties").
Reference is made to that certain Revolving Acquisition Loan
Agreement dated as of July 22, 1994 (as amended, supplemented or otherwise
modified to date, the "Existing Loan Agreement"), by and between FFCA, as
Borrower, and NACC, as Lender. Capitalized terms used but not defined herein are
used as defined in the Existing Loan Agreement.
FFCA, SPC and NACC now desire to terminate the Existing Loan
Agreement and, pursuant to this Agreement, the Parties covenant and agree as
follows:
1. Promptly following the repayment in full of its
outstanding obligations under the Existing Loan
Agreement by FFCA to NACC, in the amount separately
agreed upon in writing ("Full Payoff"), NACC will
deliver, and FFCA and SPC will acknowledge receipt
of, the closing documents listed on Schedule A
hereto.
2. Upon Full Payoff, the Existing Loan Agreement and
each of the Loan Documents shall be terminated and
the Parties shall have no further obligations
thereunder; provided, however, that the obligations
referenced in Section 11.7 of the Existing Loan
Agreement shall survive as provided therein.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Termination Agreement as of the day and year first written above.
FRANCHISE FINANCE CORPORATION OF
AMERICA, a Delaware Corporation
By /s/ Morton H. Fleischer
--------------------------
Name: Morton H. Fleischer
---------------------
Title: President
---------------------
FFCA ACQUISITION CORPORATION, a
Delaware Corporation
By /s/ Morton H. Fleischer
--------------------------
Name: Morton H. Fleischer
----------------------
Title: President
---------------------
NOMURA ASSET CAPITAL CORPORATION,
a Delaware Corporation
By /s/ Joseph Penner
--------------------------
Name: Joseph Penner
----------------------
Title: Vice President
---------------------
EXHIBIT 10.11
- --------------------------------------------------------------------------------
1995 STOCK OPTION AND INCENTIVE PLAN
OF
FRANCHISE FINANCE CORPORATION OF AMERICA
- --------------------------------------------------------------------------------
<PAGE>
-----------------------------------------------------
TABLE OF CONTENTS
-----------------------------------------------------
Page
----
ARTICLE I
DEFINITIONS
Section 1.01. General..................................................... 1
Section 1.02. Gender and Number........................................... 3
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.01. Shares Subject to Plan...................................... 3
Section 2.02. Unexercised Options and Other Rights........................ 4
Section 2.03. Effect of Certain Exercises................................. 4
Section 2.04. Individual Limitation....................................... 4
ARTICLE III
GRANTING OF OPTIONS
Section 3.01. Eligibility................................................. 4
Section 3.02. Disqualification for Stock Ownership........................ 4
Section 3.03. Qualification of Incentive Stock Options.................... 4
Section 3.04. Granting of Options......................................... 4
Section 3.05. Non-Employee Directors...................................... 5
ARTICLE IV
TERMS OF OPTIONS
Section 4.01. Option Agreement............................................ 6
Section 4.02. Option Price................................................ 6
Section 4.03. Option Term................................................. 6
Section 4.04. Option Vesting.............................................. 6
Section 4.05. Exercise of Option After Termination of Employment.......... 7
Section 4.06. Consideration............................................... 7
ARTICLE V
EXERCISE OF OPTIONS
Section 5.01. Partial Exercise............................................ 8
Section 5.02. Manner of Exercise.......................................... 8
Section 5.03. Transfer of Shares to an Employee........................... 8
Section 5.04. Certain Timing Requirements................................. 8
Section 5.05. Conditions to Issuance of Stock Certificates................ 9
Section 5.06. Rights as Stockholders...................................... 9
Section 5.07. Transfer Restrictions....................................... 9
Section 5.08. Restrictions on Exercise of Option.......................... 9
i
<PAGE>
ARTICLE VI
AWARD OF RESTRICTED STOCK
Section 6.01. Eligibility................................................. 10
Section 6.02. Award of Restricted Stock................................... 10
ARTICLE VII
TERMS OF RESTRICTED STOCK
Section 7.01. Restricted Stock Agreement.................................. 10
Section 7.02. Consideration to the Company................................ 10
Section 7.03. Rights as Stockholders...................................... 10
Section 7.04. Restrictions................................................ 11
Section 7.05. Repurchase of Restricted Stock.............................. 11
Section 7.06. Escrow...................................................... 11
Section 7.07. Legend...................................................... 11
ARTICLE VIII
PERFORMANCE AWARDS
Section 8.01. Eligibility................................................. 11
Section 8.02. Performance Awards.......................................... 11
Section 8.03. Performance Award Agreement................................. 12
Section 8.04. Term........................................................ 12
Section 8.05. Exercise Upon Termination of Employment..................... 12
Section 8.06. Payment on Exercise......................................... 12
Section 8.07. Consideration............................................... 12
ARTICLE IX
ADMINISTRATION
Section 9.01. Compensation Committee...................................... 12
Section 9.02. Duties and Powers of Committee.............................. 12
Section 9.03. Majority Rule............................................... 13
Section 9.04. Compensation; Professional Assistance; Good Faith Actions... 13
Section 9.05. No Liability................................................ 13
Section 9.06. Indemnification............................................. 13
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Not Transferable............................................ 13
Section 10.02. Amendment, Suspension or Termination of this Plan........... 13
ii
<PAGE>
Section 10.03. Changes in Common Stock or Assets of the Company............ 14
Section 10.04. Merger of the Company....................................... 14
Section 10.05. Approval of Plan by Stockholders............................ 15
Section 10.06. Tax Withholding............................................. 15
Section 10.07. Loans....................................................... 15
Section 10.08. Limitations Applicable to Section 16 Persons................ 15
Section 10.09. Plan Designation and Status................................. 16
Section 10.10. Release of Restrictions..................................... 16
Section 10.11. Effect of Plan Upon Options and Compensation Plans.......... 16
Section 10.12. Effect of Change of Subsidiary Status....................... 16
Section 10.13. Compliance with Laws........................................ 17
Section 10.14. Titles...................................................... 17
Section 10.15. Governing Law............................................... 17
Section 10.16. Severability................................................ 17
iii
<PAGE>
1995 STOCK OPTION AND INCENTIVE PLAN OF
FRANCHISE FINANCE CORPORATION OF AMERICA
Franchise Finance Corporation of America, a Delaware corporation (the
"Company"), has adopted this 1995 Stock Option and Incentive Plan of Franchise
Finance Corporation of America (the "Plan"), effective March 15, 1995, for the
benefit of its eligible Employees.
The purposes of this Plan are as follows:
(a) To provide an additional incentive for key Employees and
other persons associated with the Company to further the growth,
development and financial success of the Company by personally
benefiting through the ownership of Company stock and/or rights which
recognize such growth, development and financial success.
(b) To enable the Company to obtain and retain the services of
key Employees and other persons associated with the Company considered
essential to the long-range success of the Company by offering them an
opportunity to own stock in the Company and/or rights which will
reflect the growth, development and financial success of the Company.
ARTICLE I
DEFINITIONS
Section 1.01. General. Wherever the following terms are used in this
Plan they shall have the meaning specified below, unless the context clearly
indicates otherwise.
"Beneficiary" shall mean the person or persons properly designated by
the Optionee or Grantee, including his spouse or heirs at law, to exercise such
Optionee's or Grantee's rights under this Plan in the event of the Optionee's or
Grantee's death, or if the optionee or Grantee has not designated such person or
persons, or such person or persons shall all have pre-deceased the Optionee or
Grantee, the executor or administrator of the Optionee's or Grantee's estate.
Designation, revocation and redesignation of Beneficiaries must be made in
writing in accordance with rules established by the Committee and shall be
effective upon delivery to the Committee.
"Board" shall mean the Board of Directors of the Company.
"Bylaws" shall mean the Amended and Restated Bylaws of the Company, as
amended from time to time.
"Certificate of Incorporation" shall mean the Company's Certificate of
Incorporation on file with the Delaware Secretary of State.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Compensation Committee of the Board,
appointed as provided in Section 9.01 and the Bylaws of the Company.
"Common Stock" shall mean the common stock of the Company, par value
$.01 per share, as presently constituted and any equity security of the Company
issued or authorized to be issued in the future, but excluding any warrants,
options or other rights to purchase Common Stock, and provided that debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
"Company" shall mean Franchise Finance Corporation of America, a
Delaware corporation.
<PAGE>
"Company Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50 percent
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. "Company Subsidiary" shall also mean any
partnership in which the Company and/or any Company Subsidiary owns more than 50
percent of the capital or profits interests.
"Director" shall mean a member of the Board.
"Employee" shall mean any officer, director or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any Company Subsidiary and, to the extent permitted by applicable law, any
persons associated with the Company.
"Expiration Date" shall mean the last day of the term of the Option as
established in Section 4.03.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" of a share of Common Stock as of a given date shall
be the average of the daily market price for the ten (10) consecutive trading
days immediately preceding the valuation date. The market price for each such
trading day shall be: (i) if the shares of Common Stock are listed or admitted
to trading on any securities exchange or the NASDAQ-National Market System, the
closing price, regular way, on such day, or if no such sale takes place on such
day, the average of the closing bid and asked prices on such day, (ii) if the
shares of Common Stock are not listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System, the last reported sale price on
such day or, if no sale takes place on such day, the average of the closing bid
and asked prices on such day, as reported by a reliable quotation source
designated by the Company, or (iii) if the shares of Common Stock are not listed
or admitted to trading on any securities exchange or the NASDAQ-National Market
System and no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on such
day, as reported by a reliable quotation source designated by the Company, or if
there shall be no bid and asked prices on such day, the average of the high bid
and low asked prices, as so reported, on the most recent day (not more than 10
days prior to the date in question) for which prices have been so reported;
provided that if there are no bid and asked prices reported during the 10 days
prior to the date in question, the Fair Market Value of the shares of Common
Stock shall be determined by the Company acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate.
"Grantee" shall mean an Employee or other person associated with the
Company granted a Performance Award under this Plan.
"Incentive Stock Option" shall mean an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Committee.
"Non-Employee Director" shall mean each person who is then a member of
the Board and who is not then an Employee of the Company or any of its
subsidiaries.
"Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option and which is designated as a Non-Qualified Stock Option
by the Committee.
"Option" shall mean a stock option granted pursuant to this Plan. An
option granted under this Plan shall, as determined by the Committee, be either
a Non-Qualified Stock Option or an Incentive Stock Option.
"Optionee" shall mean an Employee or person associated with the Company
and who is granted an Option under this Plan.
2
<PAGE>
"Ownership Limit" shall mean not more than 9.8% (in value or in number
of shares, whichever is more restrictive) of the outstanding Common Stock.
"Participant" shall mean a person who has received any type of award
under this Plan.
"Performance Award" shall mean a cash bonus, stock bonus or other
performance or incentive award that is paid in cash, stock or a combination of
both.
"Plan" shall mean this 1995 Stock Option and Incentive Plan of
Franchise Finance Corporation of America.
"Restricted Stock" shall mean Common Stock awarded pursuant to Article
VII of this Plan.
"Restricted Stockholder" shall mean an Employee to whom Restricted
Stock has been awarded under this Plan.
"Retainer Fee" shall mean a director's annual fee for serving as a
director of the Company and does not include compensation for attending
committee meetings or travel or other reimbursable expenses.
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act,
as such Rule may be amended in the future.
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee, Grantee or Restricted
Stockholder and the Company or a Company Subsidiary is terminated for any
reason, including, but not by way of limitation, a termination by resignation,
discharge, death, permanent and total disability or retirement; but excluding
(i) terminations where there is a simultaneous reemployment or continuing
employment of an Optionee, Grantee or Restricted Stockholder by the Company or a
Company Subsidiary and (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship that
do not exceed one year. The Committee, in its absolute discretion, shall
determine the effect of all other matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that, with respect to Incentive Stock Options, a
leave of absence shall constitute a Termination of Employment if, and to the
extent that, such leave of absence interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section. Notwithstanding any other provision of this Plan,
the Company or any Company Subsidiary has an absolute and unrestricted right to
terminate an Employee's employment at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.
Section 1.02. Gender and Number. Wherever the masculine gender is used
it shall include the feminine and neuter, and wherever a singular pronoun is
used it shall include the plural, unless the context clearly indicates
otherwise.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.01. Shares Subject to Plan. The shares subject to Options,
Restricted Stock Awards or Performance Awards shall initially be shares of the
Company's Common Stock, par value $.01 per share, as presently constituted, and
the aggregate number of such shares which may be issued upon exercise of such
options or rights or upon any such awards shall not exceed 3,018,804 shares,
which equals 7 1/2% of the Common Stock outstanding on March 15, 1995. The
shares of Common Stock issuable upon exercise or grant of an Option or
Performance Award, or as Restricted Stock, may be either previously authorized
but unissued shares or issued
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shares which have been repurchased by the Company. If any equity securities of
the Company, other than Common Stock, are issued or authorized to be issued, the
Committee shall determine, on a fair and equitable basis, the appropriate number
of shares of the Company's present common stock to be deemed issued or issuable
with respect to such other equity securities for purposes of this Section 2.01.
Section 2.02. Unexercised Options and Other Rights. If any Option, or
other right to acquire shares of Common Stock under any Performance Award,
expires or is cancelled without having been fully exercised, the number of
shares subject to such Option or other right but as to which such Option or
other right was not exercised prior to its expiration or cancellation shall be
counted against the maximum number of shares that may be awarded to an
individual Participant under the Plan under Section 2.04 hereof. Any shares of
Restricted Stock repurchased by the Company pursuant to Section 7.05 may again
be utilized hereunder.
Section 2.03. Effect of Certain Exercises. If a Performance Award based
on the increased market value of a specified number of shares of Common Stock is
paid, the number of shares of Common Stock to which such exercise or payment
relates under such Performance Award shall be charged against the maximum number
of shares of Common Stock that may be issued under this Plan. If any shares of
Common Stock issuable pursuant to any Option or other right to acquire shares of
Common Stock provided for under this Plan are surrendered to the Company as
payment for the exercise price of said Option or other right to acquire shares
of Common Stock, the number of shares of Common Stock issuable but so
surrendered shall be charged against the maximum number of shares of Common
Stock that may be issued under this Plan. In the event the Company withholds
shares of Common Stock for tax withholding purposes pursuant to Section 10.06
hereof, the number of shares that would have been issuable but that are withheld
pursuant to the provisions of Section 10.06 shall be charged against the maximum
number of shares of Common Stock that may be issued under this Plan.
Section 2.04. Individual Limitation. Notwithstanding any provision
herein to the contrary, the maximum number of shares of Common Stock which may
be issued through a combination of any Option, Performance Award or Restricted
Stock to any individual Participant for any plan year may not exceed 200,000
shares.
ARTICLE III
GRANTING OF OPTIONS
Section 3.01. Eligibility. Subject to the Ownership Limit, any Employee
or person associated with the Company and selected by the Committee pursuant to
Section 3.04(a)(i) shall be eligible to be granted an Option.
Section 3.02. Disqualification for Stock Ownership. No person may be
granted an Incentive Stock Option under this Plan if such person, at the time
the Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any then existing Company Subsidiary unless such Incentive Stock
Option conforms to the applicable provisions of Section 422 of the Code.
Section 3.03. Qualification of Incentive Stock Options. No Incentive
Stock Option shall be granted unless such Option, when granted, qualifies as an
"incentive stock option" under Section 422 of the Code.
Section 3.04. Granting of Options.
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Determine which Employees or persons associated
with the Company are key Employees and select from among the
key Employees or such persons (including Employees or persons
to whom Options or Performance Awards have previously been
granted and/or shares of
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Restricted Stock have previously been issued) such of them as
in its opinion should be granted Options;
(ii) Determine the number of shares to be subject to
such Options granted to the selected key Employees or such
persons;
(iii) Determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options; and
(iv) Determine the terms and conditions of such
Options, consistent with this Plan.
(b) Upon the selection of a key Employee or persons associated
with the Company to be granted an Option, the Committee shall instruct
the Secretary of the Company to issue the Option and may impose such
conditions on the grant of the Option as it deems appropriate. Without
limiting the generality of the preceding sentence, the Committee may,
in its discretion and on such terms as it deems appropriate, require as
a condition on the grant of an Option to an Employee that the Employee
surrender for cancellation some or all of the unexercised Options or
Performance Awards or other rights which have been previously granted
to him under this Plan. An Option, the grant of which is conditioned
upon such surrender, may have an option price lower (or higher) than
the exercise price of such surrendered Option or Performance Award, may
cover the same (or a lesser or greater) number of shares as such
surrendered right, may contain such other terms as the Committee deems
appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of shares, price, exercise period or any
other term or condition of such surrendered right. Such cancellation
and regrant options shall be counted against the maximum number of
shares that may be awarded to an individual Participant under the Plan
pursuant to Section 2.04 hereof.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as
an "incentive stock option" under Section 422 of the Code.
Section 3.05. Non-Employee Directors. Notwithstanding anything in this
Plan to the contrary, Non-Employee Directors may be granted Options only
pursuant to the provisions contained in this Section 3.05.
(a) On the third business day following the Company's Annual
Meeting of Shareholders (the "Grant Date"), a Non-Employee Director
shall automatically, without further action by the Board or the
Committee, be granted certain Non-Qualified Stock Options in an amount
equal to 20% of the dollar amount of the Retainer Fee (the "Option
Percentage").
(i) If on the Grant Date the Company is in
possession of material, undisclosed information that would
prevent it from issuing securities, then the grant of the
Options will be suspended until the third day after the public
dissemination of the information (or the first trading day
thereafter). Only the legal counsel to the Company may suspend
the Grant Date; the amount, pricing and other terms of the
grant will remain as set forth in this Section 3.05, with the
exercise price of the Option determined in accordance with the
formula on the date the Option is finally granted.
(b) The number of shares underlying the Non-Qualified Stock
Options granted to any eligible Non-Employee Director shall be equal to
the whole number (with any fractional interest rounded up to the next
highest whole number) determined by dividing the Option Percentage by
the number resulting from the application of the Black-Scholes option
pricing model to an Option for one share of Common Stock as determined
on the Grant Date, whichever is applicable.
In applying the Black-Scholes option pricing model the
following variables shall apply:
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(i) the risk free rate of return shall be the
long-term Treasury bill rate in effect on the Grant Date;
(ii) the assumed dividend rate shall be that in
effect on the Grant Date;
(iii) the volatility shall be determined on the
basis of the Common Stock's volatility over the four calendar
quarters preceding the Grant Date; and
(iv) any other variables as may be established by
the Committee.
(c) Only Non-Qualified Stock Options may be granted under the
Plan. The price per share of the Common Stock subject to each Option
granted under the Plan shall not be less than 100% of the Fair Market
Value of the Common stock on the Grant Date.
(d) In addition to the provisions contained in Section 10.02
of this Plan, neither the Board nor the Committee may amend, more than
once every six months, the provisions of the Plan regarding (i) the
selection of the Non-Employee Directors to whom Options are to be
granted, (ii) the timing of such grants, (iii) the number of shares
subject to any Option, (iv) the exercise price of any Option, (v) the
periods during which any Option may be exercised, and (vi) the term of
any Option, other than to comport with changes in the Code, as amended,
the Employee Retirement Income Security Act, as amended, or the rules
and regulations thereunder. In addition, neither the Board nor the
Committee may amend the Option Percentage without the advice of legal
counsel to the Company.
ARTICLE IV
TERMS OF OPTIONS
Section 4.01. Option Agreement. Each Option shall be evidenced by a
written stock option agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan. Stock
option agreements evidencing Incentive Stock Options shall contain such terms
and conditions as may be necessary to meet the applicable provisions of Section
422 of the Code.
Section 4.02. Option Price. The price per share of the shares subject
to each Option shall be set by the Committee; provided, however, that such price
shall be no less than the par value of a share of Common Stock and in the case
of Incentive Stock Options such price shall not be less than 100% of the Fair
Market Value of a share of Common Stock as of the date the Option is granted;
provided further, that in the case of Incentive Stock Options such price shall
be no less than 110% of the Fair Market Value of a share of Common Stock as of
the date the Option is granted if such Option is granted to a person who owns
ten percent (10%) or more of the issued and outstanding Common Stock of the
Company as of such date.
Section 4.03. Option Term. The term of an Option shall be set by the
Committee in its discretion; provided, however, that no such term shall exceed a
reasonable time period, and provided further that, in the case of Incentive
Stock Options, the term shall not be more than ten (10) years from the date the
Incentive Stock Option is granted. The last day of the term of the Option shall
be the Option's Expiration Date.
Section 4.04. Option Vesting.
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee,
and the Committee may determine that an Option may not be exercised in
whole or in part for a specified period after it is granted; provided,
however, that no Option shall be exercisable by any Optionee who is
then subject to Section 16 of the Exchange Act within the
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period ending six months after the date the Option is granted. At any
time after grant of an Option, the Committee may, in its sole
discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option vests.
(b) No portion of an Option which is unexercisable at
Termination of Employment shall thereafter become exercisable;
provided, however, that provision may be made that such Option shall
become exercisable, with the consent of the Committee, in the event of
a Termination of Employment because of the Optionee's normal retirement
or permanent and total disability (each as determined by the Committee
in accordance with Company policies), death or early retirement.
(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the
meaning of Section 422 of the Code, but without regard to Section
422(d) of the Code) are exercisable for the first time by an Optionee
during any calendar year (under the Plan and all other incentive stock
option plans of the Company or any Company Subsidiary) exceeds
$100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking Options into account in
the order in which they were granted. For purposes of this Section
4.04(c), the Fair Market Value of stock shall be determined as of the
time the Option, with respect to such stock, is granted.
Section 4.05. Exercise of Option After Termination of Employment. For
those Participants who are Employees, an Option is exercisable by an Optionee
only while he is an Employee. The preceding notwithstanding, the Committee may
determine that an Option may be exercised subsequent to an Optionee's
Termination of Employment, subject to the following limitations:
(a) If the Optionee dies while an Option is exercisable under
the terms of this Plan, the Optionee's Beneficiary may exercise such
rights, to the extent the Optionee could have done so immediately
preceding his death. Any such Option must be exercised within twelve
(12) months after the Optionee's death, and the Committee may in its
discretion extend the Expiration Date of such Option to accommodate
such exercise; provided, however, that the term of an Incentive Stock
Option may not be extended beyond ten (10) years from the date of
grant.
(b) If the Optionee's employment is terminated due to his
permanent and total disability, as defined in Section 22(e)(3) of the
Code, the Optionee may exercise his Option, to the extent exercisable
as of his Termination of Employment, within twelve (12) months after
termination, but no later than the Option's Expiration Date.
(c) If the Optionee's employment is terminated for any reason
other than those set forth in subsection (a) or (b) above, the Optionee
may exercise his Option, to the extent exercisable as of his
Termination of Employment, within three (3) months after Termination of
Employment, but not later than the Option's Expiration Date.
Section 4.06. Consideration. In consideration of the granting of a
Non-Qualified Stock Option, the Optionee shall agree, in a written stock option
agreement, to remain in the employ of, or associated with, the Company or a
Company Subsidiary for a period of time to be determined by the Committee after
the Non-Qualified Stock Option is granted or upon such other terms and
conditions as deemed appropriate by the Committee. In consideration of the
granting of an Incentive Stock Option, the Optionee shall agree, in a written
stock option agreement, to remain in the employ of the Company or a Company
Subsidiary for a period of time to be determined by the Committee after the
Incentive Stock Option is granted, upon those terms and conditions as deemed
appropriate by the Committee. If no period of time for employment by the Company
is set in such written stock option agreement, no time of employment shall be
required. Nothing in this Plan or in any stock option agreement hereunder shall
confer upon any Optionee any right to continue in the employ of the Company or
any Company Subsidiary.
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ARTICLE V
EXERCISE OF OPTIONS
Section 5.01. Partial Exercise. An exercisable Option may be exercised
in whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
Section 5.02. Manner of Exercise. All or a portion of an exercisable
Option shall be deemed exercised upon:
(a) Delivery of all of the following to the Secretary of the
Company or his office:
(i) A written notice complying with the applicable
rules established by the Committee or the Company stating that
the Option, or a portion thereof, is exercised. The notice
shall be signed by the Optionee or other person then entitled
to exercise the Option or such portion;
(ii) Such representations and documents as the
Committee, in its absolute discretion, deems necessary or
advisable to effect compliance with all applicable provisions
of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee
may, in its absolute discretion, also take whatever additional
actions it deems appropriate to effect such compliance,
including, without limitation, placing legends on share
certificates and issuing stop-transfer notices to agents and
registrars; and
(iii) In the event that the Option shall be exercised
pursuant to Section 4.05(a) by any person or persons other
than the Optionee, appropriate proof of the right of such
person or persons to exercise the Option; and
(b) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is
exercised. However, at the discretion of the Committee, the terms of
the Option may (i) allow a delay in payment up to thirty (30) days from
the date the Option, or portion thereof, is exercised; (ii) allow
payment, in whole or in part, through the delivery of shares of Common
Stock owned by the Optionees; (iii) allow payment, in whole or in part,
through the surrender of shares of Common Stock then issuable upon
exercise of the Option; or (iv) allow payment, in whole or in part,
through the delivery of property of any kind which constitutes good and
valuable consideration.
Section 5.03. Transfer of Shares to an Employee. As soon as practicable
after receipt by the Company, pursuant to Section 5.02(b), of full cash payment
for the shares with respect to which an Option, or portion thereof, is exercised
by an Optionee, with respect to each such exercise, the Company shall transfer
to the Optionee the number of shares equal to the quotient of:
(a) The amount of the payment made by the Optionee to the
Company pursuant to Section 5.02(b), and
(b) The price per share of the shares subject to the Option as
determined pursuant to Section 4.02.
Section 5.04. Certain Timing Requirements. At the discretion of the
Committee, shares of Common Stock issuable to the Optionee upon exercise of the
Option may be used to satisfy the Option exercise price or the tax withholding
consequences of such exercise only (i) during such periods in which trading of
the Company Common Stock is permitted for Employees of the Company under Company
policy as in effect from time to time or (ii)
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pursuant to an irrevocable written election by the Optionee to use shares of
Common Stock issuable to the Optionee upon exercise of the Option to pay all or
part of the Option price or the withholding taxes made at least six months prior
to the payment of such Option price or withholding taxes.
Section 5.05. Conditions to Issuance of Stock Certificates. The Company
shall not be required to issue or to deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Committee shall, in its absolute
discretion, deem necessary or advisable;
(c) Obtaining any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time
for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
Section 5.06. Rights as Stockholders. The holders of Options shall not
be, nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.
Section 5.07. Transfer Restrictions. Shares acquired through the
exercise of an Option shall be subject to the restrictions on transfer set forth
in the Certificate of Incorporation. The Committee, in its absolute discretion,
may impose such additional restrictions on the transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Stock Option Agreement and may
be referred to on the certificates evidencing such shares. The Committee will
require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting such Option to such Employee or (ii) one
year after the transfer of such shares to such Employee. The Committee may
direct that the certificates evidencing shares acquired by exercise of an Option
refer to such requirement to give prompt notice of disposition.
Section 5.08. Restrictions on Exercise of Option. An Option is not
exercisable if the exercise of such Option would likely result in any of the
following:
(a) The Optionee's ownership of Common Stock being in
violation of the Company's Certificate of Incorporation or Ownership
Limit; or
(b) Income to the Company that could impair the Company's
status as a real estate investment trust, within the meaning of
Sections 856 through 860 of the Code.
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ARTICLE VI
AWARD OF RESTRICTED STOCK
Section 6.01. Eligibility. Subject to the Ownership Limit, Restricted
Stock may be awarded to any Employee or person associated with the Company whom
the Committee, pursuant to Section 3.04(a)(i), determines is a key Employee or
person associated with the Company.
Section 6.02. Award of Restricted Stock.
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Select from among the key Employees (including
Employees to whom Options or Performance Awards have
previously been granted and/or shares of Restricted Stock have
previously been issued) or persons associated with the Company
such of them as in its opinion should be awarded Restricted
Stock; and
(ii) Determine the purchase price and other terms
and conditions applicable to such Restricted Stock, consistent
with this Plan.
(b) The Committee shall establish the purchase price and form
of payment for Restricted Stock; provided, however, that such purchase
price shall be no less than the par value of the Common Stock to be
purchased. In all cases, legal consideration shall be required for each
issuance of Restricted Stock.
(c) Upon the selection of a key Employee or persons associated
with the Company to be awarded Restricted Stock, the Committee shall
instruct the Secretary of the Company to issue such Restricted Stock
and may impose such conditions on the issuance of such Restricted Stock
as it deems appropriate.
ARTICLE VII
TERMS OF RESTRICTED STOCK
Section 7.01. Restricted Stock Agreement. Restricted Stock shall be
issued only pursuant to a written Restricted Stock agreement, which shall be
executed by the selected key Employee or persons associated with the Company and
an authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
Section 7.02. Consideration to the Company. As consideration for the
issuance of Restricted Stock, in addition to payment of the purchase price, the
selected key Employee or persons associated with the Company shall agree, in the
written Restricted Stock agreement, to remain in the employ of, or associated
with, the Company or a Company Subsidiary for a period of time after the
Restricted Stock is issued to be determined by the Committee. Nothing in this
Plan or in any Restricted Stock agreement hereunder shall confer on any
Restricted Stockholder any right to continue in the employ of the Company or any
Company Subsidiary.
Section 7.03. Rights as Stockholders. Upon delivery of the shares of
Restricted Stock to the escrow holder pursuant to Section 7.06, the Restricted
Stockholder shall have all the rights of a stockholder with respect to said
shares, subject to the restrictions in his Restricted Stock agreement, including
the right to vote the shares and to receive all dividends and other
distributions paid or made with respect to the shares; provided, however, that
in the discretion of the Committee, any extraordinary distributions with respect
to the Common Stock shall be subject to the restrictions set forth in Section
7.04.
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Section 7.04. Restrictions. All shares of Restricted Stock issued under
this Plan (including any shares received by holders thereof with respect to
shares of Restricted Stock as a result of stock dividends, stock splits or any
other form of recapitalization) shall, in the terms of each individual
Restricted Stock agreement, be subject to such restrictions as the Committee
shall provide, which restrictions may include, without limitation, restrictions
based on duration of employment with the Company, Company performance and
individual performance; provided, however, that by a resolution adopted after
the Restricted Stock is issued, the Committee may, on such terms and conditions
as it may determine to be appropriate, remove any or all of the restrictions
imposed by the terms of the Restricted Stock agreement. Restricted Stock may not
be sold or encumbered until all restrictions are terminated or expire.
Section 7.05. Repurchase of Restricted Stock. The Committee shall
provide in the terms of each individual Restricted Stock agreement that the
Company shall have the right to repurchase from the Restricted Stockholder the
Restricted Stock then subject to restrictions under the Restricted Stock
agreement immediately upon a Termination of Employment or otherwise for any
reason at a cash price per share equal to the price paid by the Restricted
Stockholder for such Restricted Stock; provided, however, that provision may be
made that no such right of repurchase shall exist in the event of a Termination
of Employment because of the Restricted Stockholder's retirement at or after age
fifty-five (55), death or permanent and total disability.
Section 7.06. Escrow. The Secretary of the Company or such other escrow
holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Restricted Stock agreement with respect to the shares evidenced by
such certificate expire or shall have been removed.
Section 7.07. Legend. In order to enforce the restrictions imposed upon
shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Restricted Stock agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.
ARTICLE VIII
PERFORMANCE AWARDS
Section 8.01. Eligibility. Subject to the Ownership Limit, one or more
Performance Awards may be granted to any key Employee or person associated with
the Company.
Section 8.02. Performance Awards.
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Select from among key Employees or persons
associated with the Company (including Employees to whom
Options or Performance Awards have previously been granted
and/or shares of Restricted Stock have previously been issued)
such of them as in its opinion should be granted a Performance
Award; and
(ii) Determine the purchase price and other terms and
conditions applicable to such Performance Award, consistent
with this Plan.
(b) The value of such Performance Awards may be linked to the
market value, book value or other measure of the value of Common Stock
or other specific performance criteria determined appropriate by the
Committee, in each case on a specified date or dates or over any period
or periods determined by the Committee, or may be based upon the
appreciation in the market value, book value or other measure of the
value of a specified number of shares of Common Stock over a fixed
period or
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periods determined by the Committee. In making such determinations, the
Committee shall consider (among such other factors as it deems relevant
in light of the specific type of award) the contributions,
responsibilities and other compensation of the key Employee or person
associated with the Company whose Performance Award is at issue.
Section 8.03. Performance Award Agreement. Each Performance Award shall
be evidenced by a written agreement, which shall be executed by the Grantee and
an authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
Section 8.04. Term. The term of a Performance Award shall be set by the
Committee in its discretion.
Section 8.05. Exercise Upon Termination of Employment. A Performance
Award is exercisable only while the Grantee is an Employee or associated with
the Company; provided that the Committee may determine that the Performance
Award may be exercised subsequent to Termination of Employment to the extent
permitted under Section 4.05 with respect to Options.
Section 8.06. Payment on Exercise. Payment of the amount determined
under Section 8.02 above shall be in cash, in Common Stock or a combination of
both, as determined by the Committee. To the extent such payment is effected in
Common Stock, it shall be made subject to satisfaction of all provisions of
Section 5.05 with respect to Options and shall be no less than the par value of
a share of Common Stock.
Section 8.07. Consideration. In consideration of the granting of a
Performance Award, the Grantee shall agree, in a written agreement, to remain in
the employ of, or associated with, the Company or a Company Subsidiary after
such Performance Award is granted for a period of time as determined by the
Committee. Nothing in this Plan or in any agreement hereunder shall confer on
any Grantee any right to continue in the employ of, or associate with, the
Company or any Company Subsidiary.
ARTICLE IX
ADMINISTRATION
Section 9.01. Compensation Committee. The Compensation Committee shall
consist of two or more Directors who are "outside directors" as defined under
Section 162(m) of the Code and the regulations promulgated thereunder, appointed
by and holding office at the pleasure of the Board, each of whom is not then an
officer of the Company and each of whom is a "disinterested person" as defined
by Rule 16b-3. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
Section 9.02. Duties and Powers of Committee. It shall be the duty of
the Committee to conduct the general administration of this Plan in accordance
with its provisions. The Committee shall have the power to interpret this Plan,
the Options, the Performance Awards and the Restricted Stock, and the agreements
pursuant to which the Options, Performance Awards and Restricted Stock are
granted or awarded, and to adopt such rules for the administration,
interpretation and application of this Plan as are consistent therewith and to
interpret, amend or revoke any such rules. Any such grant or award under this
Plan need not be the same with respect to each Optionee, Grantee or Restricted
Stockholder. Any such interpretations and rules with respect to Incentive Stock
Options shall be consistent with the provisions of Section 422 of the Code. In
its absolute discretion, the Board may at any time and from time to time
exercise any and all rights and duties of the Committee under this Plan except
with respect to matters which under Rule 16b-3 are required to be determined in
the sole discretion of the Committee. The Committee shall have the power to
amend the Plan, upon advice from counsel to the Company, if required to preserve
the Company's status as a real estate investment trust under the provisions of
the Code.
12
<PAGE>
Section 9.03. Majority Rule. The Committee shall act by a majority of
its members in attendance at a meeting, or to the extent permitted by law and
the Bylaws, by telephonic meeting, at which a quorum is present or by a
memorandum or other written instrument signed by all members of the Committee.
Section 9.04. Compensation; Professional Assistance; Good Faith
Actions. Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Options, Grantees, Restricted Stockholders, the
Company and all other interested persons. No members of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to this Plan, any Option, any Performance Award or any
Restricted Stock, and all members of the Committee shall be fully protected by
the Company in respect of any such action, determination or interpretation.
Section 9.05. No Liability. No member of the Board or the Committee, or
Director, officer or employee of the Company or any Company Subsidiary shall be
liable, responsible or accountable in damages or otherwise for any determination
made or other action taken or any failure to act by such person so long as such
person is not determined to be guilty by a final adjudication of willful
misconduct with respect to such determination, action or failure to act.
Section 9.06. Indemnification. To the fullest extent permitted by law,
each of the members of the Board and the Committee and each of the Directors,
officers and employees of the Company and any Company Subsidiary shall be held
harmless and be indemnified by the Company for any liability, loss (including
amounts paid in settlement), damages or expenses (including reasonable
attorneys' fees) suffered by virtue of any determinations, acts or failures to
act, or alleged acts or failures to act, in connection with the administration
of this Plan so long as such person is not determined by a final adjudication to
be guilty of willful misconduct with respect to such determination, action or
failure to act.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Not Transferable. Options, Performance Awards and
Restricted Stock under this Plan may not be sold, pledged, assigned or
transferred in any manner other than by will or the laws of descent and
distribution; provided, however, that an Optionee or Grantee may designate a
Beneficiary to exercise his Option or other rights under this Plan after his
death. No Option, Performance Award or Restricted Stock or interest or right
therein shall be liable for the debts, contracts or engagements of the Optionee,
Grantee or Restricted Stockholder or his successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
however, that nothing in this Section 10.01 shall prevent transfers by will or
by the applicable laws of descent and distribution. An Option shall be exercised
during the Optionee's lifetime only by the Optionee or his guardian or legal
representative. A Performance Award under this Plan shall be exercised during
the Grantee's lifetime only by the Grantee or his guardian or legal
representative.
Section 10.02. Amendment, Suspension or Termination of this Plan.
Subject to the conditions contained in Section 3.05(d) herein, this Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the
13
<PAGE>
Committee or Board may, except as provided in Section 10.03, increase the limits
imposed in Section 2.01 on the maximum number of shares which may be issued
under this Plan, and no action of the Committee or Board may be taken that would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. No amendment, suspension or termination of this Plan shall, without the
consent of the holder of an Option, Performance Award or Restricted Stock, alter
or impair any rights or obligations under any Option, Performance Award or
Restricted Stock theretofore granted or awarded. No Option, Performance Award or
Restricted Stock may be granted or awarded during any period of suspension nor
after termination of this Plan, and in no event may any Incentive Stock Option
be granted under this Plan after the first to occur of the following events:
(a) The expiration of five years from the date the Plan is
adopted by the Board; or
(b) The expiration of five years from the date the Plan is
approved by the Company's stockholders under Section 10.05.
Section 10.03. Changes in Common Stock or Assets of the Company. In the
event that the outstanding shares of Common Stock are hereafter changed into or
exchanged for cash or a different number or kind of shares or other securities
of the Company, or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock splitup, stock dividend
or combination of shares, appropriate adjustments shall be made by the Committee
in the number and kind of shares for the purchase of which Options or with
respect to which the exercise of Performance Awards may be granted, including
adjustments of the limitation in Section 2.01 on the maximum number and kind of
shares which may be issued.
In the event of such a change or exchange, other than for shares or
securities of another corporation or by reason of reorganization, the Committee
shall also make an appropriate and equitable adjustment in the number and kind
of shares as to which all outstanding Options or Performance Awards, or portions
thereof then unexercised, shall be exercisable. Such adjustment shall be made
with the intent that after the change or exchange of shares, each Optionee's and
each Grantee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in an outstanding Option or
Performance Award may include a necessary or appropriate corresponding
adjustment in the Option or Performance Award exercise price, but shall be made
without change in the total price applicable to the Option or Performance Award,
or the unexercised portion thereof (except for any change in the aggregate price
resulting from rounding off of share quantities or prices).
Where an adjustment of the type described above is made to an Incentive
Stock Option under this Section, the adjustment will be made in a manner which
will not be considered a "modification" under the provisions of subsection
424(h)(3) of the Code.
In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Committee may in its discretion
make an appropriate and equitable adjustment to the Option or Performance Award
exercise price to reflect such diminution.
Section 10.04. Merger of the Company. In the event of the merger or
consolidation of the Company with or into another corporation, the exchange of
all or substantially all of the assets of the Company for the securities of
another corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company:
(a) The terms of an Option or Performance Award shall provide
that all granted or awarded Options or Performance Awards will
immediately vest in the Optionee or Grantee, and for a specified period
of time prior to such event, such Option or Performance Award shall be
exercisable as to all shares covered thereby, notwithstanding anything
to the contrary in (i) Section 4.04 or (ii) the provisions of such
Option or Performance Award.
14
<PAGE>
(b) At the discretion of the Committee, the restrictions
imposed under a Restricted Stock agreement upon some or all shares of
Restricted Stock may be terminated and/or some or all of such shares
may cease to be subject to repurchase under Section 7.05 after such
event.
Section 10.05. Approval of Plan by Stockholders. This Plan will be
submitted for the approval of the Company's stockholders within twelve months
after the date of the Board's initial adoption of this Plan. Options or
Performance Awards may be granted and Restricted Stock may be awarded prior to
such stockholder approval, provided that such Options or Performance Awards
shall not be exercisable and such Restricted Stock shall not vest prior to the
time when this Plan is approved by the stockholders, and provided further that
if such approval has not been obtained at the end of said twelve-month period,
all Options and Performance Awards previously granted and all Restricted Stock
previously awarded under this Plan shall thereupon be cancelled and become null
and void. The Company shall take such actions with respect to the Plan as may be
necessary to satisfy the requirements of Rule 16b-3.
Section 10.06. Tax Withholding. The Company shall be entitled to
require payment or deduction from other compensation payable to each Optionee,
Grantee or Restricted Stockholder of any sums required by federal, state or
local tax law to be withheld with respect to any Option, Performance Award or
Restricted Stock. The Committee may in its discretion allow such Optionee,
Grantee or Restricted Stockholder to elect to have the Company withhold shares
of Common Stock (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld. If the Optionee, Grantee
or Restricted Stockholder elects to advance such sums directly, written notice
of that election shall be delivered on or prior to such exercise and, whether
pursuant to such election or pursuant to a requirement imposed by the Company
payment in cash or by check of such sums for taxes shall be delivered within two
days after the date of exercise. If, as allowed by the Committee, the Optionee,
Grantee or Restricted Stockholder elects to have the Company withhold Shares of
Common Stock (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld, the value of the shares
of Common Stock to be withheld (or returned as the case may be) will be equal to
the Fair Market Value of such shares as of the date that the amount of tax to be
withheld is to be determined (the "Tax Date"). Elections by such persons to have
shares of Common Stock withheld for this purpose will be subject to the
following restrictions: (a) the election must be made on or prior to the Tax
Date, (b) the election must be irrevocable, (c) the election shall be subject to
the disapproval of the Committee, and (d) if the person is an officer of the
Company within the meaning of Section 16 of the Exchange Act, the election shall
be subject to such additional restrictions as the Committee may impose in an
effort to secure the benefits of any regulations thereunder. The Committee shall
not be obligated to issue shares and/or distribute cash to any person upon
exercise of any right until such payment has been received or shares have been
so withheld, unless withholding (or offset against a cash payment) as of or
prior to the date of such exercise is sufficient to cover all such sums due or
which may be due with respect to such exercise.
Section 10.07. Loans. The Committee may, in its discretion, extend one
or more loans to key Employees in connection with the exercise or receipt of
outstanding Options or Performance Awards granted under this Plan, or the
issuance of Restricted Stock awarded under this Plan. The terms and conditions
of any such loan shall be set by the Committee.
Section 10.08. Limitations Applicable to Section 16 Persons.
(a) Notwithstanding any other provision of this Plan, any
Option or Performance Award granted or Restricted Stock awarded to a
key Employee who is then subject to Section 16 of the Exchange Act is
subject to the following additional limitations:
(i) the Option, Performance Award or Restricted
Stock agreement may provide for the issuance of shares of
Common Stock as a stock bonus for no consideration other than
services rendered; and
15
<PAGE>
(ii) in the event of an Option, Performance Award or
Restricted Stock agreement under which shares of Common Stock
are or in the future may be issued for any type of
consideration other than services rendered, the amount of such
consideration shall be equal to the minimum amount (such as
the par value of such shares) required to be received by the
Company to comply with applicable state law.
(b) Notwithstanding any other provision of this Plan, this
Plan, and any Option or Performance Award granted, or Restricted Stock
awarded, to a key Employee who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional limitations set forth
in any applicable exemptive rule under Section 16 of the Exchange Act
(including any amendment to Rule 16b-3 of the Exchange Act) that are
requirements for the application of such exemptive rule. Any such
additional limitation shall be set forth in an annex to this Plan, such
annex to be incorporated herein by this reference and made part of this
Plan.
(c) With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
Moreover, in the event the Plan does not include a provision required
by Rule 16b-3 to be stated therein, such provision (other than one
relating to eligibility requirements, or the price and amount of
awards) shall be deemed automatically to be incorporated by reference
into the Plan insofar as participants subject to Section 16 are
concerned.
Section 10.09. Plan Designation and Status. Notwithstanding the
designation of this document as a Plan for convenience of reference and to
standardize certain provisions applicable to all types of Options, Performance
Awards and Restricted Stock issuances authorized, each of the Option,
Performance Award and Restricted Stock shall be deemed to be a separate "plan"
for purposes of Section 16 of the Exchange Act and any applicable state
securities laws.
Section 10.10. Release of Restrictions. Any or all of the foregoing
limitations in Sections 10.08(a) and 10.09 on Options or Performance Awards
granted to key Employees and Restricted Stock awarded to key Employees shall be
suspended if, to the extent, as to such persons, and for so long as the
Securities and Exchange Commission by regulation or official staff
interpretation or a no-action letter issued to the Company determines that such
limitation is not necessary to secure the benefits otherwise available with
respect to a "plan" or particular award, as the case maybe, under any applicable
exemptive rule under Section 16 of the Exchange Act.
Section 10.11. Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Company Subsidiary. Nothing in this Plan shall
be construed to limit the right of the Company (a) to establish any other forms
of incentives or compensation for employees of the Company or any Company
Subsidiary or (b) to grant or assume options or other rights otherwise than
under this Plan in connection with any proper corporate or partnership purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
firm or association or the performance of services for the benefit of the
Company.
Section 10.12. Effect of Change of Subsidiary Status. For purposes of
this Plan and any Options or Performance Awards granted, or Restricted Stock
awarded hereunder, if an entity ceases to be a Company Subsidiary the employment
of all Optionees, Grantees or Restricted Stockholders who are employed by such
entity shall be deemed to have terminated, except any such Optionees, Grantees
or Restricted Stockholders who continue to be employees of another entity within
the Company.
16
<PAGE>
Section 10.13. Compliance with Laws. This Plan, the granting and
vesting of Options, Performance Awards or Restricted Stock under this Plan and
the issuance and delivery of shares of Common Stock and the payment of money
under this Plan or under Options or Performance Awards granted or Restricted
Stock awarded hereunder are subject to compliance with all applicable federal
and state laws, rules and regulations (including but not limited to state and
federal securities law and federal margin requirements) and to such approvals by
any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith. Any
securities delivered under this Plan shall be subject to such restrictions, and
the person acquiring such securities shall, if requested by the Company, provide
such assurances and representations to the Company as the Company may deem
necessary or desirable to assure compliance with all applicable legal
requirements. To the extent permitted by applicable law, the Plan, Options,
Performance Awards and Restricted Stock granted or awarded hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
Section 10.14. Titles. Titles are provided herein for convenience only
and are not to serve as a basis for interpretation or construction of this Plan.
Section 10.15. Governing Law. This Plan and any agreements hereunder
shall be administered, interpreted and enforced under the internal laws of the
State of Delaware without regard to conflicts of laws thereof.
Section 10.16. Severability. If any portion of this Plan is declared by
a court of competent jurisdiction to be invalid or unenforceable after all
appeals have either been exhausted or the time for any appeals to be taken has
expired, the remainder of the terms, provisions, covenants and restrictions of
this Plan shall remain in full force and effect and in no way be affected,
impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers duly authorized on this 10th day of May, 1995.
FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware
corporation
By /s/ Morton Fleischer
-------------------------------------------
Morton Fleischer, President and Chief
Executive Officer
By /s/ Christopher H. Volk
-------------------------------------------
Christopher H. Volk, Secretary
17
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
FFCA Institutional Advisors, Inc.
FFCA Acquisition Corporation
FFCA Mortgage Corporation
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into Franchise Finance
Corporation of America's previously filed Registration Statements No.
33-627-69, 33-62629 and 333-00123.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona
February 15, 1996
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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0
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<OTHER-SE> 493,414
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<TOTAL-REVENUES> 102,583
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