UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
----------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to________________
Commission file number
1-13116
FRANCHISE FINANCE CORPORATION OF AMERICA
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0736091
- -------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrants' telephone number including area code (602) 585-4500
----------------------
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
------ ------
Number of shares outstanding of each of the issuer's classes of common stock as
of May 1, 1996:
Common Stock, $0.01 par value 40,406,652
----------------------------- ----------------
Class Number of Shares
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item l. Financial Statements.
------- ---------------------
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1996 DECEMBER 31, 1995
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Investments:
Investments in Real Estate, at cost:
Land $ 317,913 $ 304,641
Buildings and Improvements 461,299 448,427
Equipment 36,380 41,512
--------- ---------
815,592 794,580
Less-Accumulated Depreciation 175,467 176,232
--------- ---------
Net Real Estate Investments 640,125 618,348
Mortgage Loans Receivable 58,721 199,486
Investment Securities (Note 1) 30,763 -
--------- ---------
Total Investments 729,609 817,834
Cash and Cash Equivalents 69,078 2,067
Notes and Accounts Receivable, net of allowances
of $2,200 in 1996 and $2,000 in 1995 9,775 6,820
Other Assets 17,142 16,783
--------- ---------
Total Assets $ 825,604 $ 843,504
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts Payable and Accrued Expenses $ 7,225 $ 5,608
Dividends Payable 18,183 18,133
Senior Unsecured Notes due 2000 - 2005 198,829 198,702
Other Unsecured Notes Payable (Note 2) 59,674 -
Unsecured Notes Payable to Bank 29,500 110,000
Mortgage Payable to Affiliate 8,500 8,500
Rent Deposits 5,571 5,630
Other Liabilities 2,670 3,114
--------- ---------
Total Liabilities 330,152 349,687
--------- ---------
Shareholders' Equity:
Common Stock, par value $.01 per share, authorized 200 million shares,
issued and outstanding 40,406,652 shares in 1996 and
40,294,822 shares in 1995 404 403
Capital in excess of par value 549,782 547,478
Cumulative Net Income 96,341 60,670
Cumulative Dividends (151,075) (114,734)
--------- ---------
Total Shareholders' Equity 495,452 493,817
--------- ---------
Total Liabilities and Shareholders' Equity $ 825,604 $ 843,504
========= =========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/96 6/30/95 6/30/96 6/30/95
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Rental $23,488 $21,410 $46,608 $42,140
Mortgage Loan Interest 7,049 2,897 13,033 4,861
Investment Income and Other 671 547 1,234 1,084
------- ------- ------- -------
31,208 24,854 60,875 48,085
------- ------- ------- -------
EXPENSES:
Depreciation and Amortization 5,103 5,221 10,231 10,496
Operating, General and
Administrative 3,413 2,704 6,877 5,600
Property Costs 669 501 1,219 800
Interest 6,975 3,316 13,484 5,329
Related Party Interest 243 240 486 480
------- ------- ------- -------
16,403 11,982 32,297 22,705
------- ------- ------- -------
Income Before Gain on Sale of Property 14,805 12,872 28,578 25,380
Gain on Sale of Property (Note 1) 7,089 15 7,093 1,214
------- ------- ------- -------
Net Income $21,894 $12,887 $35,671 $26,594
======= ======= ======= =======
Net Income Per Share $.54 $.32 $.88 $.66
==== ==== ==== ====
Weighted Average Common and
Common Equivalent Shares
Outstanding 40,486,014 40,250,719 40,455,444 40,250,719
========== ========== ========== ==========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Capital in
Common Excess of Cumulative Cumulative
Stock Par Value Net Income Dividends Total
----- --------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $403 $547,478 $60,670 $(114,734) $493,817
Capital contributions -
dividend reinvestment plan 1 2,304 - - 2,305
Net income - - 35,671 - 35,671
Dividends declared -
$.90 per share - - - (36,341) (36,341)
---- -------- ------- --------- --------
BALANCE, June 30, 1996 $404 $549,782 $96,341 $(151,075) $495,452
==== ======== ======= ========= ========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,671 $ 26,594
Adjustments to net income:
Depreciation and amortization 10,231 10,496
Gain on sale of property (7,093) (1,214)
Provision for uncollectible mortgages and notes 1,424 -
Other 1,311 1,764
---------- ----------
Net cash provided by operating activities 41,544 37,640
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (44,561) (67,022)
Investment in mortgage loans (38,565) (74,367)
Investment in notes receivable (4,280) (1,200)
Improvement of property (382) (40)
Proceeds from securitization transaction (Note 1) 151,720 -
Proceeds from sale of property 11,057 5,258
Receipt of mortgage payoffs 3,289 413
Collection of mortgage principal 3,692 1,305
---------- ----------
Net cash provided by (used in) investing activities 81,970 (135,653)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (36,291) (36,226)
Capital contributions - dividend reinvestment plan 2,305 -
Proceeds from bank borrowings 70,500 125,000
Repayment of bank borrowings and loan fees (152,672) -
Proceeds from issuance of other unsecured notes 59,655 -
---------- ----------
Net cash provided by (used in) financing activities (56,503) 88,774
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 67,011 (9,239)
CASH AND CASH EQUIVALENTS, beginning of period 2,067 12,095
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 69,078 $ 2,856
========== ==========
Supplemental Disclosure of Noncash Activities:
Investment in securities resulting from securitization (Note 1) $30,763 $ -
======= =====
Mortgage loan obtained as part of property sale proceeds,
net of deferred gain $991 $ -
==== =====
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(1) MORTGAGE LOAN SECURITIZATION:
-----------------------------
Certain mortgage loans originated by FFCA and its predecessors totaling
$178.8 million were securitized and Secured Franchise Loan Pass-Through
Certificates (the "Certificates") were sold to investors on June 27, 1996. The
servicing rights on these mortgage loans have been retained by FFCA. Upon sale,
the mortgage loans receivable were removed from the balance sheet and a gain on
the sale was recognized for the difference between the carrying amount of the
mortgage loans and the adjusted sales price. FFCA retained certain interests in
approximately 12.5% of the aggregate mortgage loan principal balance through the
purchase of subordinated investment securities of the securitization trust, and,
in addition, purchased the interest-only certificate ("IO Strip"). These
investment securities, totaling $30.8 million at June 30, 1996, were recorded by
allocating the previous carrying amount of the mortgages between the assets sold
and the retained interests, based on their relative fair values, as adjusted.
The adjustment is based on the present value estimate of future cash flows to be
received over the terms of the mortgage loans based on estimates of prepayments,
defaults, normal servicing fees, servicing expenses and other factors. The gain
on the sale of the mortgage loans was reduced by establishing a reserve for
estimated probable losses under the subordination provisions of the
securitization.
(2) OTHER UNSECURED NOTES:
----------------------
In February 1996, FFCA issued unsecured notes consisting of $30 million
of 6.78% notes due February 20, 2002 and $30 million of 7.02% notes due February
20, 2003. Interest on the notes is payable semi-annually in arrears on each May
30 and November 30 with principal due at maturity. The proceeds of the unsecured
notes were used to pay down FFCA's revolving acquisition line of credit. The
notes may not be redeemed prior to their respective maturities.
<PAGE>
Part I -- Financial Information
- -------------------------------
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
General
- -------
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 June 30,
1996, FFCA's portfolio included 1,326 restaurant properties represented by
investments in real estate and mortgage loans receivable, and 244 restaurant
properties represented by securitized mortgage loans in which FFCA holds a
residual interest. These restaurants are operated by approximately 400
restaurant operators in over 35 chains in 46 states.
Liquidity and Capital Resources
- -------------------------------
Rental and mortgage loan 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 for the six months
ended June 30, 1996 was $41.5 million as compared to $37.6 million in 1995, with
the increase resulting from the growth of the real estate portfolio. 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 to fund investments in portfolio properties.
The majority of cash generated from investing activities is the result of FFCA's
first securitization transaction which was completed on June 27, 1996.
Approximately 87.5% of the $178.8 million securitized mortgage loan pool was
sold to outside parties. Upon sale, the mortgage loans receivable were removed
from the balance sheet and a gain on the sale was recognized for the difference
between the carrying amount of the mortgage loans and the adjusted sales price.
FFCA holds certificates representing the remaining 12.5% of the mortgage loan
pool balance, and also holds the interest-only certificate. These investment
securities totaled $30.8 million at June 30, 1996. FFCA also retained the
servicing rights on the mortgage loans receivable and the right to receive any
participations based on the gross sales of the restaurant properties. Of the
$156 million received in cash proceeds on the sale of the mortgage loans,
approximately $4.75 million was used or accrued for transaction costs, $82
million was used to pay down the acquisition line of credit in June, $20.5
million was used to pay down the acquisition line of credit in July, and the
remainder was used to fund acquisitions. The difference between the fair market
value and the carrying amount of the mortgages totaled $16 million, of which
$3.8 million is recognized as gain (after deducting $4.75 million of transaction
costs, $4.5 million in reserves and $3.2 million in unrecognized gain
attributable to the certificates retained by FFCA). The sale of certain of the
securitized mortgage loans allowed the recognition of deferred gains from
previous transactions related to these mortgage loans. These gains aggregated
$3.3 million in the second quarter for a total gain related to the
securitization of $7.1 million.
During the quarter ended June 30, 1996, FFCA acquired or financed 40 restaurant
properties totaling approximately $32.5 million. These portfolio properties were
initially funded by cash generated from operations and proceeds from bank
borrowings. Also during the quarter, FFCA sold 20 properties and related
equipment, two of which represented the lessees' exercise of their purchase
option on the properties. An additional purchase option exercised by the lessee
was financed by FFCA as a mortgage loan. Cash proceeds from these sales, the
collection of mortgage loan principal payments and the receipt of mortgage loan
payoffs, approximating $11 million in total, were used to partially fund new
portfolio investments in during the quarter.
<PAGE>
FFCA's primary source of funding for new investments is a $250 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 interest rate in
effect at June 30, 1996 was 7.0%. This variable rate acquisition loan facility
is periodically paid down through the issuance of fixed rate debt, such as the
$60 million unsecured notes issued by FFCA in February 1996.
At June 30, 1996, FFCA had cash and cash equivalents totaling $69.1 million and
$220.5 million available on its revolving credit facility. On July 3, 1996, FFCA
used $50 million of the cash on hand to fund thirty-seven Black Eyed Pea
restaurant properties under a $35.75 million sale and leaseback arrangement and
a $14.25 million note receivable. In addition to this July transaction, FFCA's
anticipated investments include commitments 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 225 restaurant properties over the next twelve months. These
commitments totaled approximately $220 million as of June 30, 1996. FFCA
anticipates funding these specific commitments, and other investments in
restaurant properties, through amounts available on its revolving credit
facility, issuance of additional unsecured debt or issuance of additional equity
securities of FFCA.
FFCA declared a second quarter dividend of $.45 per share, or $1.80 per share on
an annualized basis, payable on August 20, 1996 to shareholders of record on
August 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
- ---------------------
Total revenues for the quarter ended June 30, 1996 rose to $31.2 million from
$24.9 million for the comparable quarter of 1995. Portfolio investments were the
primary source of revenue increases, despite the sale of 48 properties in the
past 12 months. Portfolio investments in the second quarter of 1996, totaling
$32.5 million, are represented by $19.7 million in mortgage loans and $12.8
million in property subject to operating leases. Since these investments
occurred throughout the quarter, their weighted average balance in the second
quarter is equivalent to approximately $9.3 million of investments and the
impact of these 1996 investments on rental revenue and mortgage interest income
will not be fully reflected until the third quarter of 1996. Lease and loan base
rates on new investments during the quarter ranged from approximately 9.5% to
11.5%, with a weighted average rate of 10.4%. Both the leases and participating
mortgage loans generally provide for contingent revenues based on a percentage
of the gross sales of the related restaurants.
The mortgages sold in the securitization transaction generated approximately
$4.9 million in mortgage loan interest income during the quarter ended June 30,
1996. In addition, FFCA recognized $1.1 million in loan origination fees
previously deferred related to these securitized mortgage loans. As a result,
FFCA's investment in mortgage loans and the related mortgage interest income for
the third quarter of 1996 is expected to be lower than the current quarter. This
decrease in mortgage interest income will be partly offset by mortgage servicing
income, interest income on the residual interests held in these mortgages and a
decrease in interest expense due to the paydown of debt with proceeds from the
securitization. In addition, the decrease in mortgage interest income is
expected to be offset in future quarters by continued investment in new mortgage
loans.
Rental revenues include both rental payments received from lessees and rent
guaranty insurance payments. Rental revenue collected under the rent guaranty
insurance policies for the second quarter of 1996 decreased to $394,000 from $1
million in the second quarter of 1995 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 for the remainder of 1996
is expected to be lower than in 1995.
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
<PAGE>
approximated $1.4 million for the second quarter of 1996 as compared to $1
million for the second quarter of 1995. A portion of the increase reflected in
1996 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.
Gains on the sale of twenty restaurant properties during the quarter totaling
$1.94 million were offset by impairment losses of $1.92 million recognized
during the quarter on thirteen properties. Of the twenty properties sold during
the quarter, nine were properties that had been underperforming or vacant and
the sale of these properties will result in a savings of approximately $100,000
in property tax and other property-related expenses in 1996. At June 30, 1996,
vacant properties held for sale represent less than .5% of FFCA's real estate
investments.
The remaining revenues in 1996 and 1995 are primarily attributable to interest
earned on temporary investments, fees charged to affiliates for administrative
services performed and interest earned on third party notes receivable. Interest
income on temporary investments was approximately $40,000 higher this quarter
than in the second quarter of 1995 primarily due to the increased cash balance
at the end of the quarter resulting from the securitization transaction on June
27, 1996. Interest income on notes receivable increased approximately $60,000
this quarter as compared to the same quarter in 1995 due to the addition of $4.3
million in new notes in 1996 funded in conjunction with investments in
restaurant properties. Since the securitization occurred at the end of the
quarter, income related to servicing the securitized mortgages and holding the
residual interests in these mortgages was not significant.
The increase in interest expense from $3.3 million in 1995 to $7.0 million in
1996 is due to the use of borrowings in the last twelve months for the
investment in restaurant properties. FFCA's cost of borrowings is expected to
continue to be lower in 1996 than in 1995. Although proceeds from the
securitization paid down debt balances and will decrease interest expense for
the third quarter, debt and related interest expense for the year is expected to
be higher than 1995 amounts as a result of increased borrowings for continued
portfolio investment.
Operating, general and administrative expenses for the quarter reflected a net
increase of $709,000 over 1995. During the quarter, FFCA provided reserves of
approximately $700,000 on certain mortgage loans related primarily to one
restaurant operator whose performance indicated that the carrying amount of
these assets may not be fully recoverable. Underperforming leases and loans are
administered by FFCA's property management and legal services personnel who
maximize recovery through a combination of payment restructurings, property
dispositions and tenant substitutions.
Income before gain on the sale of property rose to $14.8 million in 1996 from
$12.9 million in 1995 primarily due to the growth of FFCA's portfolio in the
preceding twelve months. FFCA reported net income of $21.9 million, or $.54 per
share for the quarter ended June 30, 1996 as compared to $12.9 million, or $.32
per share for the quarter ended June 30, 1995.
Tenant Concentration
- --------------------
During the six months ended June 30, 1996 and 1995, one lessee, Foodmaker, Inc.
("Foodmaker"), accounted for approximately 11% and 13%, respectively, 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 1995 and 1996 is due to the fact that
FFCA's portfolio has grown and Foodmaker has become a relatively smaller portion
of the entire portfolio. This decrease is expected to continue, however, the
rate of decrease is dependent upon FFCA's overall acquisition rate and revenue
growth. The following table represents selected financial data of Foodmaker,
Inc. and Subsidiaries as reported by Foodmaker in its April 14, 1996 Form 10-Q.
<PAGE>
Foodmaker, Inc. and Subsidiaries
Selected Financial Data (unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Unaudited Consolidated Balance Sheet Data:
April 14, 1996 October 1, 1995
-------------- ---------------
Current Assets $117,175 $ 97,889
Noncurrent Assets 558,380 564,785
Current Liabilities 136,865 132,017
Noncurrent Liabilities 498,702 499,404
Unaudited Consolidated Statements of Operations Data:
Twenty-Eight Weeks Ended
----------------------------------------
April 14, 1996 April 16, 1995
-------------- --------------
<S> <C> <C>
Gross Revenues $580,605 $523,341
Costs and Expenses (including taxes) 571,902 598,778
--------- ---------
Net Earnings (Loss) $ 8,703 $ (75,437)
========== =========
Net earnings (loss ) per share - primary and fully diluted $.22 $(1.95)
==== ======
</TABLE>
Foodmaker revenues increased $57.3 million, or 10.9%, to $580.6 million in 1996
from $523.3 million in 1995 principally due to an increase in restaurant sales,
offset in part by a decline in distribution sales.
Sales by Foodmaker-operated Jack In The Box restaurants increased $59.7 million.
The sales improvement is primarily due to an increase in the average number of
Foodmaker-operated restaurants to 868 in 1996 from 823 in 1995, and in part by
an increase in per store average sales for comparable restaurants of
approximately 9.6%. Distribution sales of food and supplies declined
approximately $4.3 million primarily due to a decline in sales to Family
Restaurants, Inc. (FRI) and others of $8.0 million, offset by an increases in
sales to franchisees. Jack In The Box franchisees have formed a purchasing
cooperative and contracted with another supplier for distribution services.
Foodmaker indicates that the loss of these low profit margin sales is not
expected to have a material effect on its profits.
Foodmaker recorded a loss in 1995 relating to its equity in FRI of $57.2
million, resulting from the complete write-down of its investment in FRI due to
the write-off by FRI of the goodwill attributable to its Chi-Chi's Mexican
restaurant chain. Restaurant costs of sales increased $16.6 million to $131.3
principally due to the costs related to increased restaurant sales. Restaurant
operating costs for Jack In The Box increased $20.1 million primarily due to the
increase in average number of Foodmaker-operated restaurants and variable costs
associated with increased sales. These costs declined as a percentage of sales
in 1996 in comparison to the similar period in 1995 due to lower percentages of
restaurant labor, operations administrative costs and fixed expenses. Selling,
general and administrative expenses for Jack In The Box decreased $2.6 million
principally due to the inclusion of an $8 million settlement with its
stockholders in the first quarter of 1995. Advertising and promotion costs
increased $8.9 million in comparison to the similar period in 1995 due to costs
of aggressive promotions and increased advertising related to higher sales in
1996.
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.
* * * * *
In the opinion of management, the FFCA financial information included in this
report reflects all adjustments necessary for fair presentation. All adjustments
are of a normal recurring nature.
Part II -- Other Information
- ----------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
An annual meeting of the stockholders of FFCA (the Meeting) was held on May 10,
1995. The following table sets forth each of the proposals that the stockholders
were asked to vote upon and the results of the Meeting:
Proposal Results
-------- -------
1. A proposal to elect nine directors
<PAGE>
to the Board of Directors:
Morton Fleischer For 32,342,968
Withheld 446,227
Willie R. Barnes, Esq. For 32,339,371
Withheld 449,248
William C. Foxley For 32,339,943
Withheld 447,986
Robert Halliday For 32,310,480
Withheld 479,372
Donald C. Hannah For 32,344,045
Withheld 550,792
Dennis E. Mitchem For 32,329,967
Withheld 458,632
Louis P. Neeb For 32,347,195
Withheld 441,493
Kenneth B. Roath For 32,350,869
Withheld 437,120
Wendell J. Smith For 32,346,390
Withheld 439,401
Casey J. Sylla For 32,347,306
Withheld 440,501
2. A proposal to amend and restate the For 15,961,992
Restated Certificate of Incorporation of Against 4,044,949
FFCA to authorize the issuance of Abstain 1,617,614
50 million shares of preferred stock
3. A proposal to ratify the selection of For 32,064,021
Arthur Andersen LLP as FFCA's Against 151,968
independent auditors for the fiscal year Abstain 569,245
ending December 31, 1996
Proposal number two, to amend and restate the Restated Certificate of
Incorporation, did not pass because it did not receive the required number of
votes.
Item 5. Other Information.
------------------
Certain mortgage loans originated by FFCA and its predecessors totaling $178.8
million were securitized and Secured Franchise Loan Pass-Through Certificates
(the "Certificates") were sold to investors on June 27, 1996. The transaction
included 297 conventional, fixed-rate chain restaurant mortgage loans and 70
conventional, fixed-rate equipment loans, for a total of 367 fixed-rate loans.
The servicing rights on these mortgage loans have been retained by FFCA. FFCA
retained certain interests in approximately 12.5% of the aggregate mortgage loan
principal balance through the purchase of subordinated
<PAGE>
investment securities of the securitization trust and, in addition, purchased
the interest-only certificate ("IO Strip"). In the ordinary course of its
business, FFCA may in the future securitize and sell mortgage loans.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following is a complete list of exhibits filed as part of this Form
10-Q. 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.
99.06 Purchase agreement dated June 27, 1996 between FFCA Secured
Assets Corporation, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as the initial purchaser of $156,490,000
aggregate principal amount of Secured Franchise Loan
Pass-Through Certificates, Class A, Class B, Class C and Class
D.
99.2 Second amendment to credit agreement among Franchise Finance
Corporation of America, Certain Lenders and NationsBank of
Texas, N.A. as Administrative Lender, dated June 24, 1996
(b) During the quarter covered by this report, FFCA did not file any reports on
Form 8-K.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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: August 12, 1996 By /s/ John R. Barravecchia
---------------------------------------------
John R. Barravecchia, Chief Financial Officer
and Treasurer
Date: August 12, 1996 By /s/ Catherine F. Long
---------------------------------------------
Catherine F. Long, Vice President Finance
and Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
The following is a complete list of exhibits filed as part of this Form 10-Q.
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.
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C>
99.06 Purchase agreement dated June 27, 1996 between FFCA Secured
Assets Corporation, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as the initial purchaser of $156,490,000
aggregate principal amount of Secured Franchise Loan
Pass-Through Certificates, Class A, Class B, Class C and Class
D.
99.2 Second amendment to credit agreement among Franchise Finance
Corporation of America, Certain Lenders and NationsBank of
Texas, N.A. as Administrative Lender, dated June 24, 1996
</TABLE>
$156,490,000
FFCA SECURED ASSETS CORPORATION
SECURED FRANCHISE LOAN PASS-THROUGH CERTIFICATES,
CLASS A, CLASS B, CLASS C AND CLASS D
PURCHASE AGREEMENT
------------------
June 27, 1996
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center, North Tower
New York, New York 10281
Ladies and Gentlemen:
Section 1. Introduction. FFCA Secured Assets Corporation, a
Delaware corporation (the "Depositor"), has duly authorized the sale of
$156,490,000 aggregate principal amount of FFCA Secured Assets Corporation
Secured Franchise Loan Pass-through Certificates, Class A, Class B, Class C and
Class D (the "Purchased Certificates") to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as initial purchaser (the "Initial Purchaser"). The Purchased
Certificates, together with the Class IO, Class E, Class F, Class G, Class R-I
and Class R-II Certificates (collectively, the "Certificates"), will evidence
the entire beneficial interest in a trust (the "Trust Fund") to be formed
pursuant to a Pooling and Servicing Agreement (the "Pooling Agreement") to be
dated as of June 1, 1996, among LaSalle National Bank, as trustee (the
"Trustee"), ABN AMRO Bank N.V., as fiscal agent, Franchise Finance Corporation
of America, a Delaware corporation ("FFCA"), as master servicer and special
servicer (in such capacities, the "Servicer") and the Depositor. The Depositor
is a wholly-owned subsidiary of FFCA. The Trust Fund will consist primarily of a
segre-
<PAGE>
gated pool (the "Mortgage Pool") of 296 conventional, fixed rate, monthly pay,
first lien commercial loans secured by real estate and other property used in
the operation of regionally- or nationally-recognized chain restaurants (the
"Mortgage Loans") and a segregated pool (the "Equipment Pool" and, together with
the Mortgage Pool, the "Loan Pool") of 70 conventional, fixed rate, monthly pay,
first lien commercial loans secured by equipment used in the operation of such
restaurants (the "Equipment Loans" and, together with the Mortgage Loans, the
"Secured Loans"). As of June 1, 1996 (the "Cut-off Date"), the Mortgage Loans
had an aggregate principal balance (after taking into account all payments of
principal due on or before such date) of approximately $168,391,307 and the
Equipment Loans had an aggregate principal balance (after taking into account
all payments of principal due on or before such date) of $9,768,764. Each of the
Secured Loans was originated or acquired by FFCA or one of its predecessors or
affiliates (collectively, the "Originators"). On the Closing Date (as defined
herein), FFCA and FFCA Acquisition Corporation, a Delaware corporation (the
"Sellers"), will transfer all of the Secured Loans to the Depositor pursuant to
a Loan Sale Agreement, dated June 27, 1996 (the "Loan Sale Agreement"), which
will in turn assign the Secured Loans, together with certain representations and
warranties of FFCA with respect thereto, to the Trustee.
The Purchased Certificates are to be offered and sold by means
of a private offering memorandum (including any amendments or supplements
thereto, the "Memorandum") prepared by the Depositor and pursuant to a Private
Placement Agency Agreement, dated June 13, 1996 (the "Placement Agreement"),
among the Depositor, FFCA and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as placement agent (in such capacity, the "Placement Agent") in a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act").
Capitalized terms not otherwise defined herein shall have the
meanings assigned thereto in the Placement Agreement. All references to the
Offered Certificates in the Placement Agreement (other than in Section 1(e)
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thereof) shall be deemed to be references to the Purchased Certificates as
defined herein.
The Depositor and FFCA hereby agree with the Initial Purchaser
as follows:
Section 2. Purchase of Purchased Certificates. Subject to the
terms and conditions and in reliance upon the representations and warranties and
agreements set forth herein, the Depositor agrees to sell Purchased Certificates
of Class A, Class B, Class C and Class D in the respective principal amounts set
forth on Schedule A hereto to the Initial Purchaser as hereinafter provided, and
the Initial Purchaser agrees to purchase Purchased Certificates of Class A,
Class B, Class C and Class D in the respective principal amounts set forth on
Schedule A on the Initial Closing Date at a purchase price equal to, in the case
of Class A Certificates, 100%, in the case of Class B Certificates, 99 63/64%,
in the case of Class C Certificates, 99 31/32%, and in the case of Class D
Certificates, 99 63/64%, of their respective principal amounts plus accrued
interest thereon, if any, from June 27, 1996 to the Closing Date. At the time of
the delivery of the Purchased Certificates to the Initial Purchaser, the Initial
Purchaser shall make such payment to the Depositor of such purchase prices by
wire transfer in immediately available funds to such account or accounts as the
Depositor shall designate.
Section 3. Delivery. Delivery of the Class A Certificates
shall be made in the form of one or more global certificates delivered to The
Depository Trust Company or a custodian therefor, except that any Class A
Certificate to be purchased by an Institutional Accredited Investor that is not
a Qualified Institutional Buyer shall be delivered in fully registered,
certificated form at the offices of Thacher Proffitt & Wood, Two World Trade
Center, New York, New York at 10:00 a.m. New York City time, on the date hereof,
or such other place, time or date as may be mutually agreed upon by the Initial
Purchaser and the Depositor (the "Closing Date"). The Purchased Certificates
other than the Class A Certificates shall be delivered in fully registered,
certificated form at the offices and at the time specified above on the Closing
Date. Subject to the foregoing, the Pu-
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rchased Certificates will be registered in such names and such denominations
(subject to the minimum denominations set forth in the Memorandum) as the
Initial Purchaser shall specify in writing to the Depositor and the Trustee no
later than two business days prior to the Closing Date.
Section 4. Confirmation of Representations, Warranties and
Other Agreements Contained in Placement Agreement. (a) The Depositor and FFCA
represent and warrant to the Initial Purchaser, as of the Closing Date, to the
effect set forth in Section 3 of the Placement Agreement. In addition, the
Depositor and FFCA hereby confirm and ratify as of the Closing Date each of
their respective covenants and agreements contained in the Placement Agreement
(other than, with respect to the Purchased Certificates only, the agreements
contained in Section 1(e) thereof), including, without limitation, their
agreements with respect to the payment of costs and expenses contained in
Section 6 thereof and with respect to indemnification and contribution contained
in Section 8 thereof.
(b) The Initial Purchaser represents and warrants to the
Depositor and FFCA, as of the Closing Date, to the effect set forth in Section
1(d) of the Placement Agreement. In addition, the Initial Purchaser hereby
confirms and ratifies as of the Closing Date each of its covenants and
agreements contained in the Placement Agreement (other than, with respect to the
Purchased Certificates only, the agreements contained in Section 1(e) thereof),
including, without limitation, its agreement with respect to indemnification and
contribution contained in Section 8 thereof.
Section 5. Sale of Purchased Certificates to the Initial
Purchaser. The sale of Purchased Certificates to the Initial Purchaser will be
made without registration of such Purchased Certificates under the Securities
Act of 1933, as amended (the "Securities Act"), in reliance upon the exemption
therefrom provided by Section 4(2) of the Securities Act. The Initial Purchaser
hereby represents to the Depositor and FFCA that it is a Qualified Institutional
Buyer within the meaning of Rule 144A under the Securities Act.
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Section 6. Certain Agreements of the Depositor and FFCA. The
Depositor and FFCA covenant and agree with the Initial Purchaser as follows:
(a) If, at any time prior to the earlier of (a) 180th
day following the Closing Date or (b) the resale of all of the
Purchased Certificates by the Initial Purchaser, any event involving
the Depositor, the Servicer, the Sellers or the Secured Loans shall
occur as a result of which the Memorandum (as then amended or
supplemented) would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, the Depositor and FFCA promptly will notify the Initial
Purchaser and prepare and furnish to the Initial Purchaser an amendment
or supplement to the Memorandum that will correct such statement or
omission.
(b) During the period referred to in Section 6(a),
the Depositor will furnish to the Initial Purchaser without charge
copies of the Memorandum (including all exhibits and documents
incorporated by reference therein), the Loan Documents and the Pooling
Agreement, and all amendments or supplements to such documents, in each
case as soon as available and in such quantities as the Initial
Purchaser may reasonably request.
Section 7. Conditions of the Initial Purchaser's Obligations.
The obligations of the Initial Purchaser to purchase the Purchased Certificates
on the Closing Date will be subject to the accuracy of the representations and
warranties of the Depositor herein and in the Placement Agreement, to the
performance by the Depositor and FFCA of their respective obligations hereunder
and under the Placement Agreement, including, without limitation, the delivery
of each of the items required to be delivered pursuant to Section 5(a) and 5(b)
of the Placement Agreement, and to the following additional conditions
precedent:
(a) The Purchased Certificates shall have been duly
authorized, executed, authenticated,
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<PAGE>
delivered and issued, and each of the Loan Sale Agreement and the
Pooling Agreement shall have been duly authorized, executed and
delivered by the respective parties thereto and shall be in full force
and effect and the Secured Loans shall have been delivered to the
Trustee pursuant to the Pooling Agreement.
(b) The Initial Purchaser shall receive certificates,
dated the Closing Date, of the President or any Vice President of the
Depositor and of the President or any Vice President of FFCA to the
effect that such officer has carefully examined this Agreement, the
Placement Agreement and the Memorandum and that, to the best of such
officer's knowledge (i) the representations and warranties of the
Depositor and FFCA set forth herein and in the Placement Agreement are
true and correct in all material respects as of the Closing Date, (ii)
the Depositor and FFCA have complied with all material agreements and
satisfied all material conditions on their parts to be performed or
satisfied hereunder or under the Placement Agreement at or prior to the
Closing Date and (iii) nothing has come to the attention of such
officer that would lead such officer to believe that the Memorandum
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(c) The Initial Purchaser shall have received on and as of the
Closing Date an opinion of Skadden, Arps, Slate, Meagher & Flom,
special counsel to the Initial Purchaser, with respect to the validity
of the Pooling Agreement and the Purchased Certificates, and other
related matters as the Initial Purchaser may reasonably request.
(d) On or prior to the Closing Date the Depositor shall have
furnished to the Initial Purchasers such further certificates and
documents as the Initial Purchasers shall reasonably request.
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<PAGE>
If any of the conditions specified in this Section 7 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates referred to above or in Section 5 of
the Placement Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Initial Purchaser, this Agreement and
all of the Initial Purchaser's obligations hereunder may be canceled by the
Initial Purchaser at or prior to delivery of and payment for the Purchased
Certificates. Notice of such cancellation shall be given to the Depositor and
FFCA.
Section 8. Severability Clause. Any part, provision,
representation, or warranty of this Agreement which is prohibited or is held to
be void or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.
Section 9. Notices. All communications hereunder shall be in
writing and if sent to (a) Merrill Lynch, Pierce, Fenner & Smith Incorporated,
shall be mailed, delivered by hand or overnight courier or transmitted by
facsimile and confirmed to Merrill Lynch, Pierce, Fenner & Smith Incorporated at
World Financial Center, North Tower, 250 Vesey Street, New York, New York 10285,
Attention: John Gluszak, Facsimile No. (212) 449-2629, (b) the Depositor, shall
be mailed, delivered by hand or overnight courier or transmitted by facsimile
and confirmed to the FFCA Secured Assets Corporation at 17207 North Perimeter
Drive, Scottsdale, Arizona 85255, Facsimile No. (602) 585-2225, Attention:
Morton H. Fleischer (with a copy to Dennis L. Ruben), or (c) FFCA, shall be
mailed, delivered by hand or overnight courier or transmitted by facsimile and
confirmed to Franchise Finance Corporation of America at 17207 North Perimeter
Drive, Scottsdale, Arizona 85255, Facsimile No. (602) 585-2225, Attention:
Morton H. Fleischer (with a copy to Dennis L. Ruben).
Section 10. Representations and Indemnities to Survive. No
investigation made by or on behalf of the Initial Purchaser, the Depositor or
any of the officers, managers, directors, partners or any of the officers,
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<PAGE>
managers, directors or controlling persons referred to in Section 8 of the
Placement Agreement shall affect the enforceability or validity of the
respective agreements, representations, warranties, indemnities and other
statements of the Depositor and its officers and of the Initial Purchaser set
forth in or made pursuant to this Agreement and the Placement Agreement, and
such agreements, representations, warranties and indemnities and other
statements will survive delivery of and payment for the Purchased Certificates.
Section 11. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and the officers, managers, directors, partners and controlling
persons referred to in Section 8 of the Placement Agreement and their respective
successors and assigns, and, except as specifically set forth herein, no other
person will have any right or obligation hereunder.
Section 12. Integration; Amendment.
This Agreement, together with the Placement Agreement, sets
forth the entire understanding of the parties relating to the subject matter
hereof, and all prior understandings, written or oral, with respect to the
offering of the Purchased Certificates (other than the Placement Agreement) are
superseded by this Agreement. It is understood and agreed that nothing set forth
herein shall change, waive, discharge or terminate the obligations of the
Initial Purchaser, the Depositor or FFCA set forth in the Placement Agreement
and the letter agreement referred to in Section 6(a) thereof (including, without
limitation, the agreements set forth in Section 1(e) of the Placement Agreement)
as they relate to the Class R-I and Class R-II Certificates. Neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated
orally, but only by an instrument in writing, signed by the parties hereto.
Section 13. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
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YORK WITHOUT REGARD TO ITS CONFLICTS OF LAWS PRINCIPLES OR RULES.
Section 14. Counterparts.
This Agreement may be executed in one or more counterparts
each of which shall be deemed an original.
Section 15. Headings.
The section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
9
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If the foregoing terms correctly set forth our agreement,
please confirm this letter by signing and returning to us the duplicate copy of
this letter.
Very truly yours,
FRANCHISE FINANCE CORPORATION
OF AMERICA
By: /s/ Dennis L. Ruben
--------------------------------------------------
Name:
Title:
FFCA SECURED ASSETS
CORPORATION
By: /s/ Dennis L. Ruben
--------------------------------------------------
Name:
Title:
Confirmed and accepted as of the date first written above.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Bruce L. Ackerman
----------------------
Name:
Title:
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Schedule A
Class Principal
Purchased Certificates Balance
- ---------------------- ---------------
Class A $117,144,000
Class B 17,885,000
Class C 11,625,000
Class D 9,836,000
11
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"),
dated as of June 24, 1996, is entered into among FRANCHISE FINANCE CORPORATION
OF AMERICA, a Delaware corporation ("Company"), the banks listed on the
signature page hereof (the "Lenders"), and NATIONSBANK OF TEXAS, N.A. in its
capacity as administrative agent for the Lenders (the "Administrative Lender").
A. Company, Lenders and Administrative Lender are parties to that
certain Credit Agreement, dated as of December 27, 1995, as amended by that
certain First Amendment to Credit Agreement, dated as of February 23, 1996 (said
Credit Agreement, as amended, the "Credit Agreement"; the terms defined in the
Credit Agreement and not otherwise defined herein shall be used herein as
defined in the Credit Agreement).
B. Company, Lenders and Administrative Lender desire to make certain
amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the parties
hereto covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
-------------------------------
(a) Section 1.1 of the Credit Agreement is hereby amended by adding the
following defined terms thereto in proper alphabetical order:
"Asset Securitization" means the sale, disposition or transfer
by Company or any of its Subsidiaries to FFCA Secured Assets of notes
evidencing obligations to repay mortgage loans or equipment loans owned
by Company or any such Subsidiary, which notes (and certificates or
other evidences of ownership representing interests in pools of such
mortgage loans or equipment loans) are subsequently sold or assigned to
one or more Asset Securitization Affiliates.
"Asset Securitization Affiliate" means any Affiliate of
Company or any of its Subsidiaries which owns no assets (other than
initial capitalization of each Affiliate not to exceed $100,000) and
transacts no business other than as a depositor, conduit or grantor in
an Asset Securitization, including, without limitation, FFCA Secured
Assets or any real estate mortgage investment conduit or grantor trust
whose sole purpose is to effect an Asset Securitization.
"FFCA Mortgage" means FFCA Mortgage Corporation, a Delaware
corporation.
<PAGE>
"FFCA Secured Assets" means FFCA Secured Assets Corporation, a Delaware
corporation.
"FFCA Mortgage Recapitalization" means the acquisition by (a)
Morton H. Fleischer of 100% of the common Capital Stock of FFCA
Mortgage and (b) Company of 100% of the preferred Capital Stock of FFCA
Mortgage.
Retained Securities" means any class of securities or portion
thereof purchased or retained by the Company or any Subsidiary from
FFCA Secured Assets in conjunction with any Asset Securitization.
(b) The definition of "Asset Sale" set forth in Section 1.1 of the
Credit Agreement is hereby amended to read as follows:
"'Asset Sale' means any sale or other disposition, or series
of sales or other dispositions (including, without limitation, by
merger or consolidation, and whether by operation of law or otherwise),
made on or after the Closing Date by Company or any of its Subsidiaries
to any Person (other than Company or any of its Subsidiaries) of (a)
all or substantially all of the outstanding Capital Stock of any of its
Subsidiaries, (b) all or substantially all of its assets or the assets
of any division of Company or any of its Subsidiaries or (c) any other
asset or assets of Company or any of its Subsidiaries, including the
sale of notes in connection with an Asset Securitization (but excluding
any Retained Securities in connection with such Asset Securitization);
provided, however, that the following shall not be considered an Asset
Sale hereunder: (i) the sale or other disposition by Company or any of
its Subsidiaries of worn out or obsolete tools, property or equipment;
(ii) the sale of debt or equity investment securities in the ordinary
course of business; and (iii) sales resulting from the exercise by
Tenants under Leases with respect to Property owned by Company and its
Subsidiaries as of the Closing Date of purchase options granted by
Company and its Subsidiaries to such Tenants."
(c) The definition of "Subsidiary" set forth in Section 1.1 of the
Credit Agreement is hereby amended by (i) deleting the "." at the end of clause
(b) thereof and inserting ";" in lieu thereof and (ii) adding the proviso at the
end thereof to read as follows:
"provided, however, Subsidiary does mean and include FFCA
Mortgage but does not mean or include any Asset Securitization
Affiliate."
(d) Section 6.3 of the Credit Agreement is hereby amended to read as
follows:
"6.3. Contingent Liabilities. Company shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume, become or be
liable in any manner in respect of, or suffer to exist, any Contingent
Liabilities, except (a) Contingent Liabilities under or
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relating to the Loan Papers, (b) Contingent Liabilities in existence on
the Closing Date, as shown on Schedule 4.8 hereto, (c) Contingent
Liabilities resulting from the endorsement of negotiable instruments
for collection in the ordinary course of business, (d) Contingent
Liabilities in respect of Interest Hedge Agreements of Company or any
of its Subsidiaries, and (e) other Contingent Liabilities not to exceed
$5,000,000 in aggregate principal amount."
(e) Section 6.5 of the Credit Agreement is hereby amended by amending
the last sentence thereof to read as follows:
"Except with respect to the FFCA Mortgage Recapitalization, Company
will not transfer any of the issued and outstanding Capital Stock of
any Subsidiary which is a qualified REIT Subsidiary within the meaning
of Section 865(i) of the Code and will not permit the issuance of any
additional shares of such Capital Stock if the issuance thereof would
cause such Subsidiary to fail to be characterized as a qualified REIT
Subsidiary."
(f) Section 6.9 of the Credit Agreement is hereby amended to read as
follows:
"6.9. Transactions with Affiliates. Company shall not, and
shall not permit any of its Subsidiaries to, enter into or be party to
a transaction with any Affiliate, including, but not limited to, (a)
dispositions of such assets in an Affiliate, (b) a loan or advance to
an Affiliate, unless such Investment is evidenced by an Intercompany
Note, and (c) mergers into, consolidations with, or purchases or
acquisitions of assets from, any Affiliate; provided, (i) that Company
may enter into such transactions if the value of the consideration for
all such transactions (other than Asset Securitizations) entered into
after the Closing Date does not exceed $10,000,000 in aggregate amount;
(ii) that an Affiliate who is an individual may serve as a director,
officer or employee of Company, and (iii) that Company and its
Subsidiaries may (A) enter into Asset Securitizations with Asset
Securitization Affiliates, subject to the restrictions in Section 6.6
hereof and the requirements of Section 2.5(b) hereof, and (B) purchase
or acquire Retained Securities.
(g) Article VI of the Credit Agreement is hereby amended by adding the
following Section 6.18 thereto to read as follows:
"6.18 Asset Securitization Affiliates. Company will not permit
any Asset Securitization Affiliate to conduct any active trade or
business other than directly in respect of an Asset Securitization.
Without limiting the generality of the foregoing, Company shall not
permit any Asset Securitization Affiliate to directly or indirectly,
other than in conjunction with an Asset Securitization, (a) incur,
assume, guaranty or otherwise create or become liable in respect of any
Indebtedness, (b) make, or permit to remain outstanding, an Investment
in any Person, (c) create or suffer to be created or exist a Lien upon
any part of its property or upon any income, revenues, issues and
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<PAGE>
profits thereof, (d) sell, transfer, exchange or otherwise dispose of
any part of its property, (e) create, organize or establish any Person,
including, without limitation, any Subsidiary, or (f) maintain,
contribute to or assume any liability with respect to any Person."
(h) Section 7.1(n) of the Credit Agreement is hereby amended to read as
follows:
"(n) Company shall fail or cause to qualify, or be unable to
certify to Lenders its continuing status, as a Real Estate Investment
Trust pursuant to Sections 856 through 860 of the Code; or any
Subsidiary (other than FFCA Mortgage) which is a qualified REIT
subsidiary within the meaning of Section 856(i) of the Code shall fail
to qualify as a qualified REIT subsidiary within the meaning of Section
856(i) of the Code."
(i) Schedule 4.1 to the Credit Agreement is hereby amended to be in the
form of Schedule 4.1 to this Second Amendment.
(j) Schedule 4.13 to the Credit Agreement is hereby amended to be in
the form of Schedule 4.13 to this Second Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, Company represents and warrants that, as of the
date hereof and after giving effect to the amendments provided in the foregoing
Section 1:
(a) the representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as if made on and as
of such date;
(b) no event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) Company has full power and authority to execute, deliver and
perform this Second Amendment, and the Credit Agreement, as amended by this
Second Amendment, the execution, delivery and performance of this Second
Amendment and the Credit Agreement, as amended by this Second Amendment, have
been duly authorized by all corporate action of Company, and this Second
Amendment and the Credit Agreement, as amended hereby, constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, except as enforceability may be limited by applicable
debtor relief laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights
to indemnity may be limited by federal or state securities laws;
(d) Neither the execution, delivery and performance of this Second
Amendment or the Credit Agreement, as amended by this Second Amendment, nor the
consummation of any
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transactions herein or therein, will contravene or conflict with any Law to
which Company or any of its Subsidiaries is subject or any indenture, agreement
or other instrument to which Company or any of its Subsidiaries or any of their
respective property is subject; and
(e) no authorization, approval, consent or other action by, notice to,
or filing with, any governmental authority or other Person (not previously
obtained), is required for the (i) execution, delivery or performance by Company
of this Second Amendment and the Credit Agreement, as amended by this Second
Amendment, or (ii) acknowledgement of this Second Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be
effective as of June 24, 1996, subject to the following:
(a) Administrative Lender shall have received counterparts of this
Second Amendment executed by the Majority Lenders;
(b) Administrative Lender shall have received counterparts of this
Second Amendment executed by Company and acknowledged by each Guarantor;
(c) the representations and warranties set forth in Section 2 of this
Second Amendment shall be true and correct;
(d) Administrative Lender shall have received an opinion of counsel of
Company and its Subsidiaries, dated the date of this Second Amendment,
acceptable to Lenders and otherwise in form and substance satisfactory to
Lenders and Special Counsel, with respect to this Second Amendment and
otherwise, including, without limitations opinions (A) to the valid legal and
binding nature of this Second Amendment and the Credit Agreement as amended
hereby, (B) to the power, authorization and corporate matters of Company and its
Subsidiaries taken with respect to this Second Amendment and the Credit
Agreement, as amended hereby, (C) that the execution, delivery and performance
by Company and its Subsidiaries of this Second Amendment and the Credit
Agreement, as amended hereby, does not violate any terms of the certificate of
incorporation, bylaws or agreement of Company or any of its Subsidiaries, and
(D) to such other matters as are reasonably requested by Special Counsel;
(e) Administrative Lender shall have received certified corporate
resolutions of Company and each Guarantor authorizing the execution, delivery
and performance of this Second Amendment;
(f) Administrative Lender shall have received an opinion of Special
Counsel, dated as of the date of this Second Amendment, acceptable to Lenders,
with respect to the enforceability of the Credit Agreement, as amended hereby,
and the other Loan Papers; and
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(g) Administrative Lender and Lenders shall have received in form and
substance satisfactory to Administrative Lender and Lenders, such other
documents, certificates and instruments as Lenders shall require.
4. GUARANTOR'S ACKNOWLEDGEMENT. By signing below, each Guarantor (i)
acknowledges, consents and agrees to the execution, delivery and performance by
Company of this Second Amendment, (ii) acknowledges and agrees that its
obligations in respect of its Guaranty Agreement and Subordination Agreement are
not released, diminished, waived, modified, impaired or affected in any manner
by this Second Amendment or any of the provisions contemplated herein, (iii)
ratifies and confirms its obligations under its Guaranty Agreement and
Subordination Agreement, and (v) acknowledges and agrees that it has no claim or
offsets against, or defenses or counterclaims to, its Guaranty Agreement and
Subordination Agreement.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Second Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", or words of like import
shall mean and be a reference to the Credit Agreement, as amended by this Second
Amendment.
(b) The Credit Agreement, as amended by this Second Amendment, and all
other Loan Papers shall remain in full force and effect and are hereby ratified
and confirmed.
6. COSTS, EXPENSES AND TAXES. Company agrees to pay on demand all costs
and expenses of Administrative Lender in connection with the preparation,
reproduction, execution and delivery of the Second Amendment and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of Special Counsel).
7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument.
8. GOVERNING LAW; BINDING EFFECT. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
(without giving effect to conflict of laws) and the United States of America,
and shall be binding upon Company, each Guarantor and each Lender and their
respective successors and assigns.
9. HEADINGS. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purpose.
-6-
<PAGE>
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE
PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.
FRANCHISE FINANCE CORPORATION OF AMERICA
By: /s/ John R. Barravecchia
----------------------------------------
John R. Barravecchia
Executive Vice President and Chief
Financial Officer
NATIONSBANK OF TEXAS, N.A.
By: /s/ Frank M. Johnson
----------------------------------------
Name: Frank M. Johnson
----------------------------------------
Title: SVP
----------------------------------------
AMSOUTH BANK OF ALABAMA
By: /s/ Dean H. Burgess
----------------------------------------
Name: Dean H. Burgess
----------------------------------------
Title: Vice President
----------------------------------------
BANK HAPOALIM, B.M., LOS ANGELES BRANCH
By: /s/ Kalman Schiff
----------------------------------------
Name: Kalman Schiff
----------------------------------------
Title: First Vice President
----------------------------------------
-8-
<PAGE>
By: /s/ Lori Lake
----------------------------------------
Name: Lori Lake
----------------------------------------
Title: Assistant Vice President
----------------------------------------
BANK OF MONTREAL, CHICAGO BRANCH
By: /s/ Jeffrey G. Hoppen
----------------------------------------
Name: Jeffrey G. Hoppen
----------------------------------------
Title: Director
----------------------------------------
COMMERZBANK AKTIENGESELLSCHAFT, LOS ANGELES
BRANCH
By: /s/ Christian Jagenberg
----------------------------------------
Christian Jagenberg
----------------------------------------
Senior Vice President and Manager
----------------------------------------
By: /s/ Wolter Mehring
----------------------------------------
Wolter Mehring
----------------------------------------
Vice President
----------------------------------------
DRESDNER BANK AG, NEW YORK BRANCH
By: /s/ Thomas J. Nadramia
----------------------------------------
Name: Thomas J. Nadramia
----------------------------------------
Title: Vice President
----------------------------------------
-9-
<PAGE>
By: /s/ John W. Sweeney
----------------------------------------
Name: John W. Sweeney
----------------------------------------
Title: Assistant Vice President
----------------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS
ANGELES AGENCY
By: /s/ Toshinari Iyoda
----------------------------------------
Name: Toshinari Iyoda
----------------------------------------
Title: Senior Vice President
----------------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ T. Morgan Edwards II
----------------------------------------
Name: T. Morgan Edwards II
----------------------------------------
Title: Deputy General Manager
----------------------------------------
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION
By: /s/ Dan McKirgan
----------------------------------------
Name: Dan McKirgan
----------------------------------------
Title: Vice President
----------------------------------------
-10-
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH
By: /s/ Dana W. Hemenway
-----------------------------------------------
Name: Dana W. Hemenway
-----------------------------------------------
Title: Vice President
-----------------------------------------------
By: /s/ Ian Reece
-----------------------------------------------
Name: Ian Reece
-----------------------------------------------
Title: Vice President and Manager
-----------------------------------------------
SIGNET BANK
By: /s/ John A. Schissel
-----------------------------------------------
Name: John A. Schissel
-----------------------------------------------
Title: Vice President
-----------------------------------------------
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ Brian M. Kouns
-----------------------------------------------
Name: Brian M. Kouns
-----------------------------------------------
Title: Vice President
-----------------------------------------------
ACKNOWLEDGED AND AGREED:
FFCA ACQUISITION CORPORATION
FFCA INSTITUTIONAL ADVISORS, INC.
FFCA MORTGAGE CORPORATION
-11-
<PAGE>
By: /s/ John R. Barravecchia
----------------------------------
John R. Barravecchia
Executive Vice President and
Chief Financial Officer
-12-
<PAGE>
Schedule 4.1
Franchise Finance Corporation of America
A Delaware Corporation
17207 N. Perimeter Drive
Scottsdale, AZ 85255
The Corporation has authorized 200,000,000 shares of common stock, par value
$.01 per share issued and outstanding 40,406,555 shares*
FFCA Acquisition Corporation
A Delaware Corporation and wholly-owned subsidiary of Franchise Finance
Corporation of America
17207 N. Perimeter Drive
Scottsdale, AZ 85255
The Corporation has authorized 100 shares of common stock, par value $.01 per
share issued and outstanding 100 shares
FFCA Institutional Advisors, Inc.
A Delaware Corporation and wholly-owned subsidiary of Franchise Finance
Corporation of America
17207 N. Perimeter Drive
Scottsdale, AZ 85255
The Corporation has authorized 100 shares of common stock, par value $.01 per
share issued and outstanding 100 shares
FFCA Mortgage Corporation
A Delaware Corporation and wholly-owned subsidiary of Franchise Finance
Corporation of America
17207 N. Perimeter Drive
Scottsdale, AZ 85255
The Corporation has authorized 100 shares of common stock, par value $.01 per
share issued and outstanding 100 shares
*The following shareholders held on May 25, 1996 1% or more of the outstanding
common stock of FFCA:
Morton H. Fleischer 1,208,469
Fidelity Management & Research 825,200
Fidelity Real Estate 572,000
European Investors, Inc. 508,200
Robert W. Halliday 425,505
<PAGE>
Schedule 4.13
FRANCHISE FINANCE CORPORATION OF AMERICA
Investment in FFCA Institutional Advisors, Inc. $ 3,237,655
(100 shares of common stock, par value $.01 per share)
Investment in FFCA Aquisition Corporation $ 1
(100 shares of common stock, par value $.01 per share)
Investment in FFCA Mortgage Corporation $ 100,000
(100 shares of common stock, par value $.01 per share)
FFCA ACQUISITION CORPORATION
None
FFCA MORTGAGE CORPORATION
None
FFCA INSTITUTIONAL ADVISORS, INC.
Investment in FFCA Co-Investment Limited Partnership $ 299,703
(.98% general partnership interest)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF
JUNE 30, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 69,078
<SECURITIES> 30,763
<RECEIVABLES> 11,975
<ALLOWANCES> 2,200
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 815,592
<DEPRECIATION> 175,467
<TOTAL-ASSETS> 825,604
<CURRENT-LIABILITIES> 0
<BONDS> 296,503
0
0
<COMMON> 404
<OTHER-SE> 495,048
<TOTAL-LIABILITY-AND-EQUITY> 825,604
<SALES> 0
<TOTAL-REVENUES> 60,875
<CGS> 0
<TOTAL-COSTS> 1,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,970
<INCOME-PRETAX> 35,671
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,671
<EPS-PRIMARY> .88
<EPS-DILUTED> 0
</TABLE>
