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, 1997
----------------------------------------
[ ] 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 August 5, 1997:
Common Stock, $0.01 par value 40,690,527
----------------------------- ----------------
Class Number of Shares
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item l. Financial Statements.
------------------------------
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND DECEMBER 31, 1996
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
------
Investments:
Investments in Real Estate, at cost:
Land $ 349,829 $ 346,626
Buildings and Improvements 498,088 490,506
Equipment 25,638 31,083
--------- ---------
873,555 868,215
Less-Accumulated Depreciation 171,174 172,941
--------- ---------
Net Real Estate Investments 702,381 695,274
Mortgage Loans Receivable 54,441 57,808
Mortgage Loans Held for Sale (Note 2) 21,892 --
Related Party Notes Receivable 27,406 147,616
Other Investments 66,086 37,836
--------- ---------
Total Investments 872,206 938,534
Cash and Cash Equivalents 3,330 11,350
Notes and Accounts Receivable, net of allowances
of $1,700 in 1997 and $2,200 in 1996 23,202 22,020
Other Assets 18,659 16,872
--------- ---------
Total Assets $ 917,397 $ 988,776
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts Payable and Accrued Expenses $ 7,161 $ 6,827
Dividends Payable 18,311 18,254
Notes Payable (Note 4) 349,083 298,956
Borrowings Under Line of Credit (Note 5) 24,500 150,500
Mortgage Payable to Affiliate 8,500 8,500
Rent Deposits and Other 8,208 10,369
--------- ---------
Total Liabilities 415,763 493,406
--------- ---------
Shareholders' Equity:
Preferred Stock, par value $.01 per share, 10 million shares
authorized, none issued or outstanding -- --
Common Stock, par value $.01 per share, authorized 200 million
shares, issued and outstanding 40,634,652 shares in 1997 and
40,564,076 shares in 1996 407 406
Capital in excess of par value 556,410 553,335
Cumulative Net Income 168,994 129,209
Cumulative Dividends (224,177) (187,580)
--------- ---------
Total Shareholders' Equity 501,634 495,370
--------- ---------
Total Liabilities and Shareholders' Equity $ 917,397 $ 988,776
========= =========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/97 6/30/96 6/30/97 6/30/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental $ 24,838 $ 23,488 $ 49,221 $ 46,608
Mortgage Loan Interest 3,588 7,049 5,118 13,033
Investment Income and Other 3,315 671 5,893 1,234
Interest (Related Party) 2,907 -- 7,190 --
----------- ----------- ----------- -----------
34,648 31,208 67,422 60,875
----------- ----------- ----------- -----------
EXPENSES:
Depreciation and Amortization 5,088 5,103 10,248 10,231
Operating, General and
Administrative 2,986 3,413 5,535 6,877
Property Costs 534 669 1,055 1,219
Interest 9,802 6,975 18,166 13,484
Interest (Related Party) 247 243 493 486
----------- ----------- ----------- -----------
18,657 16,403 35,497 32,297
----------- ----------- ----------- -----------
Income Before Gain on Sale of Property
and Other Costs 15,991 14,805 31,925 28,578
Gain on Sale of Property 3,631 7,089 6,940 7,093
Equity in Net Income of Affiliate 1,948 -- 920 --
----------- ----------- ----------- -----------
Net Income $ 21,570 $ 21,894 $ 39,785 $ 35,671
=========== =========== =========== ===========
Net Income Per Share (Note 1) $ .53 $ .54 $ .97 $ .88
=========== =========== =========== ===========
Weighted Average Common and
Common Equivalent Shares
Outstanding (Note 1) 40,972,949 40,486,014 40,975,314 40,455,444
=========== =========== =========== ===========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(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, 1996 $ 406 $ 553,335 $ 129,209 $(187,580) $ 495,370
Capital contributions -
Dividend reinvestment plan 1 3,041 -- -- 3,042
Exercise of stock options -- 34 -- -- 34
Net income -- -- 39,785 -- 39,785
Dividends declared -
$.90 per share -- -- -- (36,597) (36,597)
--------- --------- --------- --------- ---------
BALANCE, June 30, 1997 $ 407 $ 556,410 $ 168,994 $(224,177) $ 501,634
========= ========= ========= ========= =========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39,785 $ 35,671
Adjustments to net income:
Depreciation and amortization 10,248 10,231
Equity in net income of affiliate (920) --
Gain on sale of property (6,940) (7,093)
Provision for uncollectible mortgages and notes 75 1,424
Other 2,683 1,311
--------- ---------
Net cash provided by operating activities 44,931 41,544
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (29,549) (44,943)
Investment in mortgage loans (138,101) (38,565)
Investment in notes receivable (5,540) (4,280)
Collection of related party notes receivable 120,210 --
Purchase of investment securities (15,946) --
Proceeds from securitization transaction (Note 2) 103,975 151,720
Proceeds from sale of property 16,632 11,057
Receipt of mortgage loan payoffs 2,271 3,289
Collection of mortgage loan principal 2,135 3,692
Collection of investment security principal 726 --
--------- ---------
Net cash provided by investing activities 56,813 81,970
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (36,540) (36,291)
Capital contributions 3,076 2,305
Proceeds from bank borrowings 167,000 70,500
Proceeds from issuance of notes 50,000 59,655
Payment of bank borrowings and loan fees (293,300) (152,672)
--------- ---------
Net cash used in financing activities (109,764) (56,503)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (8,020) 67,011
CASH AND CASH EQUIVALENTS, beginning of period 11,350 2,067
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 3,330 $ 69,078
========= =========
Supplemental Disclosure of Noncash Activities:
Investment in securities resulting from securitization $ 11,303 $ 30,763
========= =========
Mortgage loan obtained as part of property sale proceeds,
net of deferred gain $ 767 $ 991
========= =========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1997
-------------
(1) ACCOUNTING CHANGES:
-------------------
Effective January 1, 1997, Franchise Finance Corporation of America
(FFCA) adopted Statement of Financial Accounting Standards (SFAS) No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities". SFAS No. 125 provides, among other things, guidance on when a
securitization of a pool of financial assets (such as mortgage loans) is
accounted for as a sale of assets (see Note 2).
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128 "Earnings per Share", which is effective for financial
statements issued for periods ending after December 15, 1997. SFAS No. 128
specifies the computation, presentation, and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock. FFCA will adopt SFAS No. 128 for the year ending December 31,
1997. The weighted average shares as reported below include the dilutive effect
of common stock options outstanding; therefore, the earnings per share
calculation as reported results in the same per share amounts as Diluted
Earnings Per Share presented below. Under SFAS No. 128, FFCA's earnings per
share would have resulted in the following pro forma amounts (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
For the Six Months Ended June 30,
Amounts as Reported $39,785 40,975 $ .97 $35,671 40,455 $ .88
Pro Forma Amounts:
Basic Earnings Per Share - Net income
available to common stockholders $39,785 40,628 $ .98 $35,671 40,348 $ .88
Effect of Dilutive Securities-
Common stock options -- 347 -- 107
------- ------ ------- ------
Diluted Earnings Per Share $39,785 40,975 $ .97 $35,671 40,455 $ .88
======= ====== ======= ======= ====== =======
For the Quarter Ended June 30,
Amounts as Reported $21,570 40,973 $ .53 $21,894 40,486 $ .54
Pro Forma Amounts:
Basic Earnings Per Share - Net income
available to common stockholders $21,570 40,661 $ .53 $21,894 40,377 $ .54
Effect of Dilutive Securities-
Common stock options -- 312 -- 109
------- ------ ------- ------
Diluted Earnings Per Share $21,570 40,973 $ .53 $21,894 40,486 $ .54
======= ====== ======= ======= ====== =======
</TABLE>
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income", which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
FFCA will adopt SFAS No. 130 for the year ending December 31, 1998. The adoption
of this new accounting standard would not have had a material effect on FFCA's
financial statements for the quarters or six months ended June 30, 1997 or 1996.
<PAGE>
(2) MORTGAGE LOANS HELD FOR SALE:
-----------------------------
At June 30, 1997, FFCA's portfolio included mortgage loans originated
in 1997 which are held for sale. Mortgage loans held for sale are stated at the
lower of cost or fair market value, determined in the aggregate. These loans
represent first mortgage loans on the land and/or buildings and/or equipment of
27 restaurants comprising $20 million in fixed-rate loans and $1.9 million in
variable-rate loans. The fixed-rate loans carry an interest rate of 9.8 percent
per annum and mature in 7 to 20 years from the date of origination. The
variable-rate loans carry interest rates which adjust monthly based on 30-day
LIBOR plus a margin (interest rate was 8.2% at June 30, 1997). Total principal
and interest payments aggregate approximately $220,000 per month.
Certain mortgage loans originated for sale by FFCA and its affiliate,
FFCA Mortgage Corporation, totaling $261 million were securitized on June 9,
1997 and Secured Franchise Loan Trust Certificates (the "Certificates") were
sold to investors. 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.
The servicing rights on these mortgage loans have been retained by FFCA and are
not significant. FFCA also retained certain interests in approximately 11% of
the aggregate mortgage loan principal balance through the purchase of
subordinated investment securities of the securitization trust. These investment
securities, totaling $27.2 million, were accounted for as the sale of mortgage
loans and the purchase of mortgage-backed securities classified as trading
securities at fair value and are included in Other Investments in the
accompanying consolidated balance sheets. Also included in Other Investments is
approximately $29.2 million in retained interests related to the sale in June
1996 of mortgage loans from FFCA's original portfolio. These investment
securities are classified as available for sale as these mortgage loans were not
originated for sale. At June 30, 1997, the fair market values of FFCA's
investment securities approximate cost.
(3) DERIVATIVE FINANCIAL INSTRUMENTS:
---------------------------------
FFCA may periodically use derivative financial instruments to manage
interest rate exposures which exist as a part of its ongoing business
operations. The portfolio of fixed-rate mortgage loans held for sale through
securitization is funded on an interim basis by FFCA's variable rate bank credit
facility. In such circumstances, FFCA may hedge against fluctuations in interest
rates that could adversely affect the value of the mortgage loans to be sold. On
March 27, 1997, FFCA entered into an interest rate agreement (known as a
Treasury lock) on a notional amount of $58.5 million. FFCA terminated this
interest rate agreement upon securitization of the fixed-rate mortgage loans on
June 9, 1997, at which time both the gain on the securitization of the
fixed-rate mortgage loans and the loss on the termination of the interest rate
agreement were recognized in the statement of operations in the caption Gain on
Sale of Property. At June 30, 1997, there were no hedge instruments outstanding.
(4) NOTES PAYABLE:
--------------
In January 1997, FFCA issued $50 million in variable-rate unsecured
notes due 1998 bearing interest at a weighted average rate of 3-month LIBOR plus
.33% (interest reset quarterly). The notes were redeemed by FFCA on July 14,
1997 at a redemption price of 100% of the principal amount of the notes.
(5) BORROWINGS UNDER LINE OF CREDIT:
--------------------------------
At June 30, 1997, FFCA's primary source of interim funding for new
investments is an unsecured acquisition loan facility. On April 15, 1997, the
acquisition loan facility was amended to, among other things, increase the
facility from $200 million to $350 million.
<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 self-administered real
estate investment trust ("REIT") which is dedicated primarily to providing real
estate financing to the chain restaurant industry through various financial
products, including sale-leaseback transactions, mortgage loans, restaurant
equipment loans and construction financing. At June 30, 1997, FFCA had interests
in 2,111 restaurant properties through various investments. FFCA's portfolio
included 1,445 restaurant properties represented by investments in real estate
and mortgage loans receivable, 627 properties represented by securitized
mortgage loans in which FFCA holds a residual interest and 39 properties
represented by mortgage loans originated and held by FFCA's affiliate, FFCA
Mortgage Corporation (Mortgage Corp.). These restaurants are operated by
approximately 400 experienced restaurant operators in over 35 established chains
throughout the United States.
Results of Operations
- ---------------------
FFCA had income of $16.0 million before gain on the sale of property and other
costs for the quarter ended June 30, 1997 (the period) as compared to $14.8
million for the comparable period of 1996, representing an increase of 8%. Net
income of $21.6 million ($.53 per share) for the period included gains on the
sale of property and other costs aggregating $5.6 million, as compared to net
income of $21.9 million ($.54 per share) for the quarter ended June 30, 1996
which included gains of $7 million. Portions of the gains in both quarters were
generated by mortgage loan securitization transactions, as discussed below.
Revenues rose 11% to $34.6 million during the period from $31.2 million in the
comparable period in 1996 primarily due to the growth of FFCA's affiliate,
Mortgage Corp., reflected as the increase in Related Party Interest Income.
Mortgage Corp. was designed primarily to originate, through borrowings from
FFCA, mortgage loans held for sale. Revenues for the six-months ended June 30,
1997 show a similar rate of growth over the six-month period ended June 30,
1996.
FFCA's primary source of revenues continues to be rental revenues generated by
its portfolio of restaurant properties leased to restaurant operators on a
triple-net basis. Rental revenues increased 5.8% for the quarter primarily due
to the impact of new investments in property subject to operating leases made
during 1996 and the first quarter of 1997. Base lease rates on these new
investments were at a weighted average rate of 9.7% during 1997.
Rental revenues include rent received from lessees (including contingent
rentals) and revenue received from rent guaranty insurance. In addition to base
rentals, generally the leases in FFCA's portfolio provide for contingent rentals
based on a percentage of the gross sales of the related restaurants. Such
contingent rentals totaled $1.6 million during the period as compared to $1.4
million for the same period in 1996. During the period there was a decrease in
rent revenue from rent guaranty insurance, which dropped from approximately
$400,000 in 1996 to approximately $300,000 in 1997. Rent guaranty insurance
coverage on certain properties has been provided by United Guaranty Insurance
Company (UG). During the first quarter of 1997, FFCA and UG reached an agreement
to settle all outstanding and future claims. Deferred income approximating
$270,000 related to settled future claims will be recognized in income over the
original terms of the remaining policies which expire at various dates through
1998.
Mortgage interest income for the quarter decreased from $7.0 million in 1996 to
$3.6 million in 1997 due primarily to the sale of mortgage loans. In June 1996,
FFCA sold approximately $179 million of the mortgage loans held in its portfolio
at that time. Since then, FFCA originated approximately $146 million in mortgage
loans and financed the origination of approximately $164 million in mortgage
loans held by an affiliate. All but approximately $49 million of these mortgage
loans were sold on June 9, 1997 through FFCA's second securitization
transaction. This second transaction consisted of a diversified pool of 551
<PAGE>
loans comprising 384 chain restaurant mortgage loans and 167 chain restaurant
equipment loans with an outstanding principal balance aggregating $261 million.
Approximately 89% of the $261 million securitized loan pool was sold to outside
parties. FFCA holds investments representing the remaining 11% of the mortgage
loan pool balance. These investment securities totaled $27.2 million at June 30,
1997. The subordinated investment securities are the last of the securities to
be repaid from the pool, so that if any of the underlying mortgage loans
default, these securities take the first loss. Any future credit losses in the
securitized loan pool would be concentrated in the subordinated investment
securities retained by FFCA; however, FFCA originates and services mortgage
loans and has the infrastructure in place to deal with potential defaults on the
securitized portfolio (as it does with the mortgage loans it holds for
investment). These investment securities, together with the investment
securities retained from the 1996 securitization transaction, aggregate $56.4
million, which is net of reserves of $6.5 million. 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.
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. Interest rate agreements,
which were used to hedge against fluctuations in interest rates on the mortgage
loans held for sale, were terminated upon sale of the related mortgage loans and
the resulting loss of $500,000 was included in the calculation of the gain on
the securitization transaction. As a result of the securitization, net gains
totaling $4 million were recognized (after deducting transaction costs, reserves
and unrecognized gain attributable to the certificates retained by FFCA). It is
anticipated that increases and decreases in mortgage interest income between
quarters in the future will continue to be impacted by the amount of loans held
for sale and the timing of future securitization transactions.
Expenses increased to $18.7 million during the quarter ended June 30, 1997 from
$16.4 million in 1996, due to an increase in interest expense. Interest expense
rose by $2.8 million during the period due to the use of borrowings for
investment in restaurant properties during the year. FFCA's average unsecured
debt balance increased from $358 million during the second quarter of 1996 to
$530 million during the second quarter of 1997. Although FFCA's average debt
balance increased in 1997 from 1996, its overall borrowing rate decreased with
the average debt rate dropping from 7.10% in the second quarter of 1996 to 6.86%
in the second quarter of 1997.
Operating, general and administrative expenses in the second quarter of 1997
decreased by approximately $428,000 or 12.5% as compared to 1996 primarily
related to reserves on mortgage loans provided for in June 1996. Depreciation
and amortization expense for the period remained relatively constant at $5.1
million as compared to the same quarter of the prior year, despite the increased
investment in restaurant property during the previous twelve months, primarily
due to the sale of restaurant properties and the sale of restaurant equipment at
the expiration of the related lease terms.
FFCA recorded net gains of $3.6 million on the sale of property during the
period as compared to net gains of $7.1 million recorded in the second quarter
of 1996. The majority of the gains in both periods relates to gains on the
securitization transactions occurring in the second quarter of 1996 and 1997. In
addition, these net gains represent the effect of gains and losses from sales of
property which occurred primarily through the lessee's exercise of purchase
options and through the disposition of underperforming properties.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1997, FFCA had cash and cash equivalents of $3.3 million. Rental and
mortgage interest revenue generated by FFCA's investments in restaurant
properties has, and will continue to, comprise the majority of the cash
generated from operations. Operations during the six-month period provided net
cash of $44.9 million as compared to $41.5 million in 1996. Cash generated from
operations provides distributions to the shareholders in the form of quarterly
dividends. This cash also may be used on an interim basis to fund new
investments in properties.
<PAGE>
The majority of cash generated from investing activities is the result of FFCA's
securitization transaction which closed on June 9, 1997. Approximately 89% of
the $261 million mortgage loan pool was sold to outside parties, generating $239
million in cash proceeds. Approximately $4.6 million of the cash proceeds was
used or accrued for transaction costs, $211 million was used to pay down FFCA's
acquisition loan facility and the remainder was used to fund acquisitions.
Portfolio investments (including investments through FFCA's affiliate, Mortgage
Corp.) totaled $64.9 million during the period, an increase from $32.5 million
in the comparable quarter in 1996, reflecting FFCA's continued focus on the
growth of its portfolio through restaurant property investments. At June 30,
1997, FFCA had $21.9 in mortgage loans held for sale. In addition, Mortgage
Corp. had $24.4 million in mortgage loans held for sale and $12.9 million in
construction loans representing a total of 39 restaurant properties. Mortgage
Corp. obtained its acquisition financing through a secured revolving line of
credit with FFCA, bearing interest at a rate 1.5% and 2.0% above FFCA's debt
rate for amounts secured by mortgage loans and equipment notes, respectively.
FFCA's investments in restaurant properties during the period were initially
funded by cash generated from operations, net draws on FFCA's revolving credit
facility ($23.5 million) and proceeds from the sale of property. During the
period, FFCA sold 15 properties (as compared to 20 properties sold in the second
quarter of 1996) of which four were due to lessees exercising their purchase
options. Proceeds from the sale of property during the period totaled $9.8
million, which were used to reduce amounts drawn on the acquisition line of
credit for new investments.
Currently, FFCA's primary source of interim funding for new investments is a
$350 million unsecured acquisition loan facility. This loan facility is used as
a warehousing line until a sufficient pool of restaurant properties or loans is
accumulated to warrant the issuance of additional debt or the sale of loans
through securitization. On July 14, 1997, FFCA redeemed at par $50 million in
variable-rate unsecured notes bearing interest at a weighted average rate of
3-month LIBOR plus .33% (a weighted average rate of 6.15% at June 30, 1997).
At the annual shareholders' meeting in May 1997, FFCA's shareholders approved a
change in the Articles of Incorporation to allow the issuance of up to 10
million shares of preferred stock. Although FFCA has no immediate plans to issue
any preferred stock, this change provides FFCA the flexibility to access
longer-term capital in future quarters.
FFCA's anticipated investments (including investments through its affiliate,
Mortgage Corp.) include commitments totaling approximately $325 million at June
30, 1997. These commitments were made to several large restaurant operators of
Burger King, Pizza Hut, Chili's, Wendy's and other restaurant concepts to
acquire or finance (subject to FFCA's customary underwriting procedures)
approximately 340 restaurant properties over the next year. FFCA anticipates
funding these specific commitments, and other investments in restaurant
properties, through amounts available through its revolving credit facility, the
issuance of additional unsecured debt, the issuance of mortgage-backed
securities through securitization or the issuance of additional equity
securities of FFCA.
FFCA declared a second quarter 1997 dividend of $0.45 per share, or $1.80 per
share on an annualized basis, payable on August 20, 1997 to shareholders of
record on August 8, 1997. Management anticipates that cash generated from
operations will be sufficient to meet operating requirements and provide the
level of shareholder dividends required to maintain FFCA's status as a REIT. As
of June 30, 1997, shareholders owning approximately 7.4% of the outstanding
shares of FFCA common stock participate in the dividend reinvestment plan and
dividends reinvested during the six months ended June 30, 1997 totaled $3.0
million as compared to $2.3 million in the comparable period of 1996.
Tenant Concentration
- --------------------
One restaurant operator, Foodmaker, Inc. ("Foodmaker"), accounted for
approximately 9% of FFCA's total rental and mortgage loan interest revenues
during the six months ended June 30, 1997 as compared to 11%
<PAGE>
for the six months ended June 30, 1996. Foodmaker operates and franchises Jack
in the Box restaurants. The relative decrease in the percentage of FFCA's
revenue from Foodmaker between 1996 and 1997 is due to the fact that FFCA's
portfolio is growing and, as a result, Foodmaker is becoming a relatively
smaller portion of the entire portfolio. This decrease is expected to continue.
In the opinion of management, the financial information included in this report
reflects all adjustments necessary for fair presentation. All adjustments are of
a normal recurring nature.
Part I -- Financial Information
- -------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
FFCA may periodically use derivative financial instruments to manage interest
rate exposures, which exist as a part of its ongoing business operations. Its
portfolio of fixed-rate mortgage loans held for sale through securitization are
funded on an interim basis by FFCA's variable rate bank credit facility. See
Note 3 to the Notes to Consolidated Financial Statements under Item 1 above.
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 6,
1997. 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 ten directors
to the Board of Directors:
Morton H. Fleischer For 34,985,679
Withheld 236,160
Willie R. Barnes, Esq. For 34,992,689
Withheld 238,953
William C. Foxley For 34,994,831
Withheld 228,464
Robert W. Halliday For 34,952,549
Withheld 273,917
Donald C. Hannah For 35,001,311
Withheld 220,806
Dennis E. Mitchem For 34,976,214
Withheld 239,725
Louis P. Neeb For 34,907,124
Withheld 223,188
Kenneth B. Roath For 34,993,374
Withheld 222,430
<PAGE>
Wendell J. Smith For 34,993,235
Withheld 225,218
Casey J. Sylla For 34,989,484
Withheld 222,434
2. A proposal to amend and restate the For 21,160,768
Restated Certificate of Incorporation of Against 2,960,506
FFCA to authorize the issuance of Abstain 1,232,306
10 million shares of preferred stock
3. A proposal to approve FFCA's 1997 For 33,037,492
Employee Stock Purchase Plan Against 1,161,550
Abstain 1,146,683
4. A proposal to ratify the selection of For 34,553,010
Arthur Andersen LLP as FFCA's Against 206,359
independent auditors for the fiscal year Abstain 602,791
ending December 31, 1997
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.
99.01 Purchase agreement dated June 8, 1997 between FFCA
Secured Lending Corporation, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Smith Barney
Inc., as initial purchasers of $232,071,000 aggregate
principal amount of Secured Franchise Loan
Certificates, Series 1997-1, Class IO, Class A-1a,
Class A-1b, Class A-2a, Class A-2b, Class B-1, Class
B-2, Class C-1, Class C-2, Class D-1, Class D-2,
Class E-1 and Class E-2
(b) During the quarter covered by this report, FFCA filed the following
reports on Form 8-K:
Form 8-K dated June 9, 1997
Item 5. Other Events - Private Placement of $232.1 million of
secured franchise loan trust certificates on June 9, 1997.
<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, 1997 By /s/ John Barravecchia
-------------------------------------
John Barravecchia, Executive Vice
President, Chief Financial Officer
and Treasurer
Date: August 12, 1997 By /s/ Catherine F. Long
-------------------------------------
Catherine F. Long, Senior 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.
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
99.01 Purchase agreement dated June 8, 1997 between FFCA
Secured Lending Corporation, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Smith Barney
Inc., as initial purchasers of $232,071,000 aggregate
principal amount of Secured Franchise Loan
Certificates, Series 1997-1, Class IO, Class A-1a,
Class A-1b, Class A-2a, Class A-2b, Class B-1, Class
B-2, Class C-1, Class C-2, Class D-1, Class D-2,
Class E-1 and Class E-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF
JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,330
<SECURITIES> 0
<RECEIVABLES> 24,902
<ALLOWANCES> 1,700
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 873,555
<DEPRECIATION> 171,174
<TOTAL-ASSETS> 917,397
<CURRENT-LIABILITIES> 0
<BONDS> 382,083
0
0
<COMMON> 407
<OTHER-SE> 501,227
<TOTAL-LIABILITY-AND-EQUITY> 917,397
<SALES> 0
<TOTAL-REVENUES> 67,422
<CGS> 0
<TOTAL-COSTS> 1,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,659
<INCOME-PRETAX> 39,785
<INCOME-TAX> 0
<INCOME-CONTINUING> 39,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,785
<EPS-PRIMARY> .97
<EPS-DILUTED> 0
</TABLE>
$232,071,000
FFCA SECURED LENDING CORPORATION
SECURED FRANCHISE LOAN CERTIFICATES, SERIES 1997-1
PURCHASE AGREEMENT
------------------
June 8, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center, North Tower
New York, New York 10281
Smith Barney Inc.
390 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Section 1. Introduction. FFCA Secured Lending Corporation, a Delaware
corporation (the "Depositor"), has duly authorized the sale of $232,071,000
aggregate principal amount of FFCA Secured Lending Corporation Secured Franchise
Loan Certificates, Series 1997-1, Class IO, Class A-1a, Class A-1b, Class A-2a,
Class A-2b, Class B-1, Class B-2, Class C-1, Class C-2, Class D-1, Class D-2,
Class E-1 and Class E-2 (the "Certificates") to Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Smith Barney Inc., as initial purchasers (the "Initial
Purchasers"). The Certificates will evidence the entire beneficial interest in a
trust (the "Grantor Trust Fund") to be formed pursuant to a Grantor Trust
Agreement (the "Grantor Trust Agreement") to be dated as of May 1, 1997, between
LaSalle National Bank, as grantor trust trustee (in such capacity, the "Grantor
Trust Trustee") and the Depositor. The Grantor Trust Fund will consist primarily
of the FFCA
<PAGE>
Secured Franchise Loan Trust 1997-1 Secured Franchise Loan-Backed Bonds (the
"Bonds") designated as Class A-1a, Class A-1b, Class A-2a, Class A-2b, Class
B-1, Class B-2, Class C-1, Class C-2, Class D-1, Class D-2, Class E-1 and Class
E-2 (the "Underlying Bonds"). The Bonds will be issued by FFCA Secured Franchise
Loan Trust 1997-1 (the "Owner Trust"), a Delaware business trust to be
established by the Depositor pursuant to an Owner Trust Agreement, dated as of
May 1, 1997 (the "Owner Trust Agreement"), between the Depositor and Wilmington
Trust Company, as owner trustee (the "Owner Trustee").
The Bonds will be issued pursuant to an Indenture, dated as of May 1,
1997, between the Owner Trust and LaSalle National Bank, as indenture trustee
(in such capacity, the "Indenture Trustee" and, in either the capacity as
Grantor Trust Trustee or as Indenture Trustee, the "Trustee"). The Bonds will be
secured by a first priority security interest in, and will be payable solely
from, the assets of the Owner Trust (the "Owner Trust Estate"), which will
consist primarily of a pool (the "Loan Pool") of approximately 384 conventional,
fixed and adjustable rate, monthly pay, first lien commercial loans secured by
real estate and other property used in the operation of chain restaurants (the
"Mortgage Loans") and approximately 167 conventional, fixed and adjustable 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, 1997, the Secured Loans had
an aggregate principal amount of $260,756,045. Unless otherwise specified
herein, references herein to the Mortgage Loans, the Equipment Loans and the
Secured Loans will be deemed not to include any Retained Interest (as defined in
the Memorandum).
The Secured Loans were originated by certain affiliates (the
"Originators") of Franchise Finance Corporation of America, a Delaware
corporation ("FFCA"). On the Closing Date (as defined herein), certain
affiliates of FFCA (each, as "Seller") will transfer all of the Secured Loans to
the Depositor pursuant to a Loan Sale Agreement (the "Loan Sale Agreement"), to
be dated as of May 1, 1997, among FFCA, the Sellers and the Depositor. The
Depositor will in turn assign the Secured Loans to the Owner Trust, which will
simultaneously grant a first priority security interest in the Secured Loans to
secure the Bonds. The Secured Loans will be serviced and special serviced on
behalf of the Owner Trust by FFCA, as master servicer and special servicer (in
such capacity, the "Servicer"), pursuant to a Servicing Agreement, dated as of
May 1, 1997 (the "Servicing Agreement"), among the Owner Trust, the Servicer,
the Indenture Trustee and ABN AMRO Bank N.V., as
2
<PAGE>
fiscal agent (the "Fiscal Agent").
The Certificates are to be offered and sold by means of a private
placement memorandum (including any amendments or supplements thereto, the
"Memorandum") prepared by the Depositor and pursuant to a Private Placement
Agency Agreement, dated June 4, 1997 (the "Placement Agreement"), among the
Depositor, FFCA and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Smith
Barney Inc., as placement agents, 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, or incorporated into, the Placement Agreement. All
references to the Offered Certificates in the Placement Agreement (other than in
Section 1(e) thereof) shall be deemed to be references to the Certificates as
defined herein. All references to the Final Memorandum herein and in the
Placement Agreement shall be to the Private Placement Memorandum dated June 8,
1997 and attached hereto as Exhibit A.
The Depositor and FFCA hereby agree with the Initial Purchasers as
follows:
Section 2. Purchase of 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 Certificates of Class
IO, Class A-1a, Class A-1b, Class A-2a, Class A-2b, Class B-1, Class B-2, Class
C-1, Class C-2, Class D-1, Class D-2, Class E-1 and Class E-2 in the respective
notional amounts and principal amounts set forth on Schedule A hereto to the
Initial Purchasers as hereinafter provided, and the Initial Purchasers agree to
purchase Certificates of Class IO, Class A-1a, Class A-1b, Class A-2a, Class
A-2b, Class B-1, Class B-2, Class C-1, Class C-2, Class D-1, Class D-2, Class
E-1 and Class E-2 in the respective notional amounts and principal amounts set
forth on Schedule A on the Initial Closing Date at the purchase prices set forth
on the such Schedule A plus accrued interest thereon (or, in the case of the
Class IO Certificates, accreted original issue discount), if any, from June 8,
1997 to the Closing Date. At the time of the delivery of the Certificates to the
Initial Purchasers, the Initial Purchasers 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.
3
<PAGE>
Section 3. Delivery. Delivery of the Class A-1a, Class A-1b, Class
A-2a and Class A-2b Certificates (collectively, the "Class A Certificates") and
the Class IO 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 or Class IO 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 Purchasers and the Depositor (the
"Closing Date"). The Certificates other than the Class A and Class IO
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 Certificates will be registered in such names and such
denominations (subject to the minimum denominations set forth in the Memorandum)
as the Initial Purchasers 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 Purchasers, 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 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 Purchasers represent and warrant 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 Purchasers hereby confirm and
ratify as of the Closing Date each of their covenants and agreements contained
in the Placement Agreement (other than, with respect to the Certificates only,
the agreements contained in Section 1(e) thereof), including, without
limitation, their agreement with respect to indemnification and contribution
contained in Section 8 thereof.
Section 5. Sale of Certificates to the Initial Purchasers. The sale of
4
<PAGE>
Certificates to the Initial Purchasers will be made without registration of such
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. Each of the Initial Purchasers hereby represents to the
Depositor and FFCA that (i) it is a Qualified Institutional Buyer within the
meaning of Rule 144A under the Securities Act, (ii) it will not engage in any
activity that would constitute a public offering of the Certificates within the
meaning of Section 4(2) of the Securities Act and (iii) it will not offer or
sell the Certificates by any form of general solicitation or general advertising
(as those terms are used in Regulation D), including the methods described in
Rule 502(c) of Regulation D.
Section 6. Certain Agreements of the Depositor and FFCA. The Depositor
and FFCA covenant and agree with the Initial Purchasers 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 Certificates by
the Initial Purchasers, 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 Purchasers and prepare and furnish to the Initial
Purchasers 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 Purchasers without charge copies of the
Memorandum (including all exhibits and documents incorporated by reference
therein), the Grantor Trust Agreement, the Indenture, the Servicing
Agreement, the Owner Trust Agreement, the Management Agreement and the Loan
Sale Agreement, and all amendments or supplements to such documents, in
each case as soon as available and in such quantities as the Initial
Purchasers may reasonably request.
Section 7. Conditions of the Initial Purchasers' Obligations. The
obligations of the Initial Purchasers to purchase the Certificates on the
Closing Date will be subject to the accuracy of the representations and
warranties of the Depositor
5
<PAGE>
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 Certificates and the Underlying Bonds shall have been
duly authorized, executed, authenticated, delivered and issued, and each of
the Indenture, the Servicing Agreement, the Owner Trust Agreement, the
Management Agreement and the Loan Sale 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 Indenture Trustee pursuant to the Indenture.
(b) The Initial Purchasers 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 Purchasers shall have received on and as of the
Closing Date an opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Initial Purchasers, with respect to the validity of
the Grantor Trust Agreement and the Certificates, and other related matters
as the Initial Purchasers may reasonably request.
(d) There shall not have been, in the reasonable opinion of the
Initial Purchasers, any requirement for any material change, amendment or
6
<PAGE>
supplement to the Final Memorandum.
(e) 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.
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 Purchasers, this Agreement and
all of the Initial Purchasers' obligations hereunder may be canceled by the
Initial Purchasers at or prior to delivery of and payment for the Certificates.
Notice of such cancellation shall be given to the Depositor and FFCA.
Section 1. 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 2. 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) Smith Barney Inc.,
shall be mailed, delivered by hand or overnight courier or transmitted by
facsimile and confirmed to Smith Barney Inc. at 390 Greenwich Street, New York,
New York 10013, Attention: Russell J. Burns, Facsimile No. (212) 723-8854, (c)
the Depositor, shall be mailed, delivered by hand or overnight courier or
transmitted by facsimile and confirmed to the FFCA Secured Lending 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
(d) 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).
7
<PAGE>
Section 3. Representations and Indemnities to Survive. No
investigation made by or on behalf of the Initial Purchasers, the Depositor or
any of the officers, managers, directors, partners or any of the officers,
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 Purchasers 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 Certificates.
Section 4. 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 5. 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 Certificates (other than the Placement
Agreement) are superseded by this Agreement. 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 6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ITS CONFLICTS OF LAWS PRINCIPLES OR RULES.
Section 7. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original.
Section 8. 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.
8
<PAGE>
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: Dennis L. Ruben
Title: Senior Vice President
FFCA SECURED LENDING
CORPORATION
By: /s/ Dennis L. Ruben
-----------------------
Name: Dennis L. Ruben
Title: Senior Vice President
Confirmed and accepted as of the
date first written above.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Bruce L. Ackerman
-----------------------------------------------
Name: Bruce L. Ackerman
Title: Managing Director
9
<PAGE>
SMITH BARNEY INC.
By: /s/ Joseph M. Donovan
--------------------------
Name: Joseph M. Donovan
Title: Managing Director
10
<PAGE>
<TABLE>
Schedule A
<CAPTION>
Class Principal Balance or Notional Amount
-------------------------------------------------
Certificates Merrill Lynch, Pierce, Fenner Smith Barney Inc. Purchase Price (As a %
- ------------ ----------------------------- ----------------- ------------------------
& Smith Incorporated of Principal or Notional
----------------------------- ------------------------
Amount)
-------
<S> <C> <C> <C>
Class A-1a $ 36,750,000 $ 12,250,000 100.000000
Class A-1b 34,539,000 11,513,000 99.953125
Class A-2a 28,500,000 9,500,000 100.000000
Class A-2b 27,328,500 9,109,500 100.000000
Class B-1 14,624,000 0 99.984375
Class B-2 11,452,000 0 100.000000
Class C-1 10,236,000 0 99.953125
Class C-2 8,016,000 0 100.000000
Class D-1 7,312,000 0 100.000000
Class D-2 5,726,000 0 100.000000
Class E-1 2,925,000 0 99.828125
Class E-2 2,290,000 0 100.000000
Class IO 127,224,000 0 5.812500
</TABLE>
