FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________
Commission File Number 1-13116
FRANCHISE FINANCE CORPORATION OF AMERICA
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(Exact name of registrant as specified in its charter)
Delaware 86-0736091
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(State of incorporation) (I.R.S. Employer
Identification No.)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 585-4500
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $.01 per share New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of February 3, 1997 was $1,023,754,160.
The number of shares of the Registrant's $.01 par value common stock as
of February 3, 1997 was 40,564,076.
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 10, 11, 12 and 13 are incorporated by reference to the
definitive proxy statement for the Registrant's Annual Meeting of Shareholders
to be held on May 6, 1997, to be filed pursuant to Regulation 14A.
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PART I
Item 1. Business.
Background
Franchise Finance Corporation of America ("FFCA") is the largest
independent company in the United States dedicated primarily to providing real
estate financing to the chain restaurant industry. FFCA was incorporated in the
state of Delaware in 1993 and is successor to Franchise Finance Corporation of
America I ("FFCA I"), a Delaware corporation, and eleven public limited
partnerships which were merged into FFCA on June 1, 1994. FFCA, together with
its predecessors, has been engaged in the financing of chain restaurant real
estate since 1981. At December 31, 1996, FFCA had interests in over 1,800
restaurant properties operated by approximately 400 restaurant operators in over
35 restaurant chains located in 46 states. FFCA is a fully integrated and
self-administered real estate investment trust ("REIT"). The common stock of
FFCA began trading on the New York Stock Exchange on June 29, 1994 under the
symbol "FFA."
In 1996, FFCA completed a number of transactions that have, or are
expected to have, an impact on its results of operations and financial
condition. In June 1996, FFCA completed its first securitization transaction.
Certain mortgage loans originated by FFCA and its predecessors totaling $178.8
million were securitized on June 27, 1996 and Secured Franchise Loan
Pass-Through Certificates (the "Certificates") were sold to investors. The
servicing rights on these mortgage loans and any additional payments based upon
a participation in the gross sales of the restaurant or specified contractual
increases ("Participations") were retained by FFCA. FFCA also 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.
In order to facilitate the loan origination and securitization process in the
future, FFCA formed FFCA Mortgage Corporation during 1996. This taxable
affiliate was created primarily to originate mortgage loans which will comprise
future securitization pools. In response to customer needs, FFCA expanded its
array of financial products in 1996 with the introduction of its variable rate
loan product and held $20 million in aggregate principal amount of variable rate
loans at December 31, 1996.
The statements contained in this report, if not historical, are
forward-looking statements and involve risks and uncertainties that could cause
actual results to differ materially from the results, financial or otherwise, or
other expectations described in such forward-looking statements. These
statements are identified with the words "anticipated," "expected," or "plans".
Therefore, forward-looking statements should not be relied upon as a prediction
of actual future results or occurrences.
Business Strategy
FFCA's primary strategy is to finance chain restaurant properties which
are operated by experienced multi-unit restaurant operators in established
restaurant chains through mortgage loans
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and sale-leaseback transactions. The sale-leasebacks entered into by FFCA are
retained in its portfolio and generally provide for base rentals plus
Participations. In addition, FFCA will purchase existing chain restaurant
properties which are subject to leases already in place. The mortgage loans to
be originated by FFCA and its affiliates will generally be pooled and sold in
securitized offerings, with FFCA retaining interests in the pool in the form of
subordinated securities, interest-only securities and mortgage servicing rights.
Restaurants financed by FFCA are generally operated by multi-unit operators
which include both chain restaurant franchisors and franchisees. Approximately
90% of the restaurant properties financed by FFCA are fast food restaurants in
chains such as Arby's, Burger King, Hardee's, Jack in the Box, Kentucky Fried
Chicken, Pizza Hut, Taco Bell and Wendy's. Most of the remaining properties
financed by FFCA are part of midscale and casual dining chains, such as
Applebee's and Denny's.
Since 1980, members of FFCA's management group have gained extensive
experience in the development and refinement of systems of operation, management
and research which have enhanced FFCA's ability to identify, evaluate and
structure new investments. FFCA's experience in the chain restaurant real estate
industry results in efficient in-house performance of virtually every aspect of
real estate acquisition and management and is reflected in FFCA's eight
departments, which include Accounting, Asset Management, Corporate Finance,
Information Systems, Investor Relations, Legal Services, Property Management and
Research and Underwriting.
FFCA's principal business objective is to increase cash flow per share
(i) through continued investment activity, (ii) by controlling expenses through
greater economies of scale, (iii) through the receipt of contractual lease
escalations and (iv) by increasing its use of internally-generated cash flow for
investments. Management seeks to achieve growth in cash flow, while maintaining
low portfolio investment risk through diligent adherence to its tested
underwriting criteria, investment diversification and a conservative capital
structure.
FFCA intends to provide real estate capital to large, multi-unit chain
restaurant operating companies principally through sale-leaseback transactions
and mortgage loans. FFCA also occasionally provides financing for equipment
located at the restaurant properties for which it provides real estate
financing. Consistent with its experience between June 1994 and December 1996,
chain restaurant properties financed by FFCA are anticipated to be primarily
existing locations which are either being refinanced or financed in connection
with acquisitions by restaurant operating companies. FFCA also provides capital
for new restaurant development which is typically in, or adjacent to,
established markets where the restaurant chain brand is recognized.
FFCA structures its investments to enhance the stability of its cash
flows. FFCA's sale-leaseback transactions are triple-net leases which provide
that the lessees are responsible for the payment of all property operating
expenses, including property taxes, maintenance and insurance costs. Therefore,
FFCA is generally not required to make significant capital expenditures in the
properties which it owns and leases to chain restaurant operators. Both FFCA's
sale-leaseback
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and mortgage financings are generally for twenty-year terms and mortgage
products are generally fully amortizing over the term of the loans.
FFCA continually monitors and administers its investments to enhance
the stability of its cash flows. FFCA's eight departments include Asset
Management, Legal Services and Property Management which together serve to
monitor all aspects of portfolio performance. FFCA's properties are regularly
inspected by an in-house appraisal staff to monitor asset condition. Financial
data is regularly collected on the restaurant locations financed by FFCA to
determine their profitability. Asset Management staff monitor payment receipts,
as well as property tax and insurance compliance. Lease and mortgage payments
are generally collected by electronic account debits on the first day of each
month. Underperforming and non-performing leases and loans are administered by
Property Management and Legal Services personnel who also supervise the in-house
administration of property dispositions and tenant substitutions. FFCA has an
established record of identifying and resolving underperforming and
non-performing leased assets, with an average time of approximately six months
to relet or sell such properties.
FFCA's investments are diversified by geographic region, restaurant
operator and restaurant chain. FFCA's future investments are anticipated to be
funded through a combination of debt and equity issuances, internally-generated
cash and the securitization of mortgage loans.
Information Systems
To enhance its investment evaluation and origination, FFCA has invested
extensively in information systems which are specific to the chain restaurant
industry. FFCA's databases include specific chain restaurant location data for
over 100,000 locations in the United States, including demographic information,
traffic volumes and information regarding surrounding retail and other
commercial development that generate customer traffic for restaurants. FFCA also
maintains a database of approximately 7,000 chain restaurant industry
participants, as well as databases of restaurant-level financial performance for
existing and prospective clients. FFCA has the ability to integrate the
information in its locations, participants and restaurant-level financial
databases in a mapping system which contains demographic, retail space, traffic
count and street information for every significant market in the United States.
FFCA has also collected extensive data regarding management practices within the
chain restaurant industry, franchisor practices and industry trends.
FFCA has internally developed portfolio management systems suited to
its specialized focus on the chain restaurant industry. As a result of the
development by FFCA of its automated systems technology, FFCA can monitor large
diversified portfolios by exception, including lease and mortgage payments made
through automated bank account debits, property taxes, property insurance
coverage and property financial performance.
The information collected by FFCA is actively used to assess investment
opportunities, measure prospective investment risk, evaluate portfolio
performance and manage underperforming
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and non-performing assets. FFCA publishes research on the chain restaurant
industry which includes observations of industry issues and trends, areas of
growth, and the economics of chain restaurant operation. FFCA has also employed
its client and collections data from over fifteen years to develop statistical
models which aid in the evaluation of potential investments. FFCA intends to
continually develop, improve and use its restaurant industry knowledge through
research and broader application of information technology to lower portfolio
risk, improve performance and improve its competitive advantage.
Investment Criteria
Real estate investment opportunities undergo an underwriting process
designed to maintain a conservative investment profile. The process includes a
review of the following factors:
o Restaurant Profitability. FFCA seeks to invest in restaurant real estate
where the underlying operations provide adequate cash flow to support lease
or mortgage payments.
o Restaurant Investment Amount. FFCA seeks to invest in properties for
amounts which are not in excess of their fair market value.
o Site Considerations. FFCA seeks to invest in high profile, high traffic
real estate which it believes exhibits strong retail property fundamentals.
o Market Considerations. FFCA seeks to emphasize investments in properties
used by restaurant systems having significant area market penetration.
o Operating Experience. FFCA seeks to invest in properties of multi-unit
restaurant operators with strong restaurant industry backgrounds.
o Credit Considerations. FFCA's investments have full tenant or borrower
recourse. Many of FFCA's leases and mortgages also have recourse to
guarantors who are owners or affiliates of the tenant or borrower. FFCA
reviews tenant, borrower and guarantor financial strength to assess the
availability of alternate sources of payment in the event that cash flow
from restaurant operations might be insufficient to provide lease or
mortgage payments.
o Physical Condition. FFCA seeks to invest in well-maintained existing
properties or in newly constructed properties. FFCA has a staff of
appraisal professionals who conduct physical site inspections of each
property financed by FFCA.
o Restaurant Chain Suitability. FFCA seeks to primarily invest in real
estate used by large national and regional chain restaurant systems having
annual system-wide sales of more than $250 million.
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o Environmental Considerations. FFCA engages outside professionals to
independently conduct Phase I environmental assessments for all new
financings. Phase II environmental assessment reports are also prepared if
recommended by the Phase I assessments. FFCA will not finance a property if
a Phase II report indicates evidence of significant environmental concerns.
Chain Restaurants
Although an individual restaurant's sales may vary by season, FFCA does
not believe that any aspect of its business is significantly seasonal in nature.
FFCA's portfolio is generally diversified by restaurant concept; however, FFCA
may be dependent to a certain extent upon one or more of the franchisors or
restaurant concepts since a failure of any of the franchisors or restaurant
systems to support their franchisees or restaurants could result in financial
difficulty for such franchisees and affect the ability of the franchisees to
make payments to FFCA. FFCA is not affiliated with any of the franchisors or
franchisees.
The following table sets forth the interests held by FFCA in restaurant
concepts as of December 31, 1996. The restaurant chain distribution shown below
does not represent concentration of specific tenants under lease or mortgage
loan agreements. These agreements are with the restaurant operators, not the
restaurant chains, and there are over 400 restaurant operators represented
within FFCA's investment portfolio.
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Restaurant Chain Distribution by Number of Restaurants as of December 31, 1996
<TABLE>
<CAPTION>
Number of Restaurants
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FFCA Percentage
Mortgage Securitized of
Chain FFCA Corporation Interests (2) Total Total
(1)
- ----------------------------------------------- ---------- ------------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Arby's 189 40 79 308 16%
Burger King 170 88 35 293 16%
Hardee's 163 1 19 183 10%
Jack in the Box 170 1 171 9%
Wendy's 146 8 154 8%
Kentucky Fried Chicken 70 2 28 100 5%
Taco Bell 69 5 3 77 4%
Mrs. Winner's 9 66 75 4%
Applebee's 22 11 5 38 2%
Black Eyed Pea 38 38 2%
Lee's Chicken 38 38 2%
Fuddruckers 24 24 1%
Perkins 23 23 1%
Whataburger 21 21 1%
Denny's 11 7 18 1%
Pizza Hut 13 13 1%
Bojangles 11 11 1%
Non-restaurant properties 7 7 1%
All other restaurant concepts 238 31 8 277 15%
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Totals 1,432 194 243 1,869 100%
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</TABLE>
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(1) FFCA Mortgage Corporation is an affiliate of FFCA which originates mortgage
loans held for sale.
(2) Represents securitized mortgage loans in which FFCA holds residual
interests.
One restaurant operator, Foodmaker, Inc. ("Foodmaker"), contributed
10.9% of FFCA's total rental and mortgage loan interest revenues in 1996.
Foodmaker accounted for 12.5% and 14% of FFCA's total rental and mortgage loan
interest revenues in 1995 and 1994, respectively. Foodmaker operates and
franchises Jack in the Box restaurants. The relative decrease in revenue from
Foodmaker between 1994 and 1996 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. For information on
Foodmaker, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Tenant Concentration" in Item 7 below.
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Competitive Conditions
The financing of chain restaurant real estate for multi-unit chain
restaurant operating companies is both competitive and fragmented, and
competition exists in every geographic market in which FFCA seeks to invest.
Other competing participants include banks, insurance companies, finance
companies and leasing companies. FFCA is the largest independent company in the
United States dedicated primarily to providing real estate financing to the
chain restaurant industry, even though it has less than a two percent share of
the chain restaurant real estate market.
FFCA believes that it has several competitive advantages which enable
it to be selective with respect to its real estate investments. The
capitalization of FFCA permits it to make both large and small real estate
investments and to obtain capital from numerous sources at competitive rates.
FFCA's real estate investments comprise properties which are diversified by
restaurant operator, restaurant chain and geographic location. Diversification
reduces risk and has a favorable impact upon FFCA's access to, and cost of,
capital. FFCA's "Preferred Client Program" is designed to offer forward
financing commitments and a streamlined financing process for leading chain
restaurant operators in order to build on long-term business relationships
instead of the historic industry practice of financing real estate on an
inefficient, transaction-by-transaction basis. FFCA believes it offers superior
client service resulting from continuity of its management and industry
specialization and knowledge. FFCA also believes that its ability to provide
both sale-leaseback financing and mortgage loans (including a variable-rate loan
product introduced in 1996) improves the restaurant operators' financing
flexibility and provides a competitive advantage to FFCA in providing financing
opportunities.
The Food Service Industry
The food service industry, as defined by the U.S. Department of
Commerce, is one of the largest sectors of the nation's economy. During 1996,
the industry generated an estimated $308 billion of revenue, representing
approximately 4.1% of the Gross Domestic Product ("GDP") of the United States.
The food service industry grew at an estimated inflation-adjusted rate of 1.7%
during 1996, as compared to a 2.5% increase in the GDP for the same year. This
was the second consecutive year of declining real growth rates for the industry,
after three consecutive years of real growth increases.
FFCA management anticipates that slow new restaurant development will
have a minimal impact on its ability to generate new investments. In recent
years, investments in newly-constructed restaurants have been a small percentage
of new business for FFCA. In 1996 and 1995, the percentage of FFCA new business
related to existing restaurants (as compared to new restaurant construction) was
85% and 90% respectively. Although the number of total restaurants in the U.S.
may not expand significantly, the dynamics at each chain are different. While
one chain may close many restaurants, other chains may expand significantly. For
new acquisitions, FFCA plans to target chains which are expanding, and plans to
do very little new restaurant development for chains which are decreasing in
size or experiencing low growth rates.
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The food service industry is composed of three major food segments:
commercial, institutional and military. The commercial food service sector of
the food service industry includes a category identified as "Total Eating
Places," which represents fast food, midscale and upscale restaurants in
addition to commercial cafeterias, social caterers and ice cream, frozen-custard
and yogurt retail outlets. Within the restaurant industry, the fast food group
is typically defined as those restaurants perceived by consumers as fast food or
take-out establishments without table service, specializing in pizza, chicken,
hamburgers and similar food items. The upscale group typically represents casual
and fine dining restaurants that accept major credit cards, offer an improved
level of table service and provide full liquor service. The midscale group
comprises those restaurants that do not meet the criteria for fast food or
upscale. Although these segments can be further differentiated by price, it is
consumer perception, as well as average meal ticket, that influence how
individual restaurant chains are categorized. Research indicates that an average
fast food meal ticket approximates $3, a midscale meal ticket averages between
$5 and $18, and an upscale meal ticket is usually in excess of $18.
Restaurant industry growth has exceeded total food service industry
growth during the past ten years, as the percentage of food consumed away from
home, as compared to total food consumption, has increased significantly. Sales
in the restaurant industry have increased by $59 billion during the past ten
years, while total expenditures on food and beverages everywhere have increased
only $55 billion. This means that full service and fast food restaurants have
actually taken business away from grocery and other retail outlets, which have
had declining revenues from food in the past ten years. The full service and
fast food groups now comprise 65% of the food service industry.
The restaurant industry will continue to experience consolidation, as
the largest chains become increasingly dominant in an industry where cost
control and economies of scale are critical. During the past decade, restaurant
chains have increased market position in comparison to independent restaurant
companies by achieving economies of scale and by developing strong brand equity.
In fact, in comparison to the restaurant industry as a whole, the top 100 chains
have shown an increase in their percentage of restaurants since 1980, from 25%
to 32% of total U.S. restaurants, and their revenues have increased from 40% to
48% of total U.S. revenues during the same period. Much of the chains' market
share gains in the past, came at the expense of small, independent operators,
who tended to be less sophisticated and less focused on new restaurant
development. The top chains may face greater chain-versus-chain competition,
however, rather than chain-versus-independent competition.
The fast food group generated an estimated 32% of total food service
industry revenues, and 47% of total restaurant industry revenues, during 1996.
Nominal sales growth for the fast food group averaged 7.4% per year during 1985
to 1995. Growth in the fast food group, driven by value and convenience factors,
should continue to outpace growth in most other parts of the food service
industry during 1997.
Successful fast food operators have developed a low-cost structure,
through a focus on efficient meal preparation processes and a strong retail
distribution network, that provides
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convenient, quality meals at affordable prices. Successful fast food operators
have relatively simple operations which contribute to their success as low-cost
providers. Computerization has resulted in more efficient scheduling of labor;
slightly more than 25% of table service operators used computers when scheduling
employees in 1990, compared with almost 50% in 1996.
Over 90% of FFCA's portfolio is represented by fast food restaurants
which include, but are not limited to, Arby's, Burger King, Hardee's, Jack in
the Box, Kentucky Fried Chicken, Pizza Hut, Taco Bell, Whataburger and Wendy's.
Midscale restaurant chains represented in FFCA's portfolio include Applebee's,
Black Eyed Pea, Denny's, T.G.I. Friday's and Fuddruckers. FFCA anticipates that
its investment emphasis will continue to emphasize fast food properties,
although the proportion of midscale and upscale establishments may increase.
Restaurant Chains
In addition to the concentration on real estate for fast food
restaurants, FFCA's investment focus has been on real estate which is used by
the national and regional restaurant chains. According to Restaurant Consulting
Group, a national consulting group which specializes in the restaurant industry,
restaurant chains having three or more properties accounted for approximately
45% of all restaurants in the United States in 1995. The majority of these
properties are fast food restaurants, with others generally in the midscale
segment. Of the slightly more than 180,000 restaurants having an identified
restaurant concept as of December 31, 1995, approximately 91,500 were within the
40 largest restaurant chains. Each of these restaurant chains had 1995 projected
total system-wide sales exceeding $500 million.
FFCA believes that the largest national restaurant chains, along with
prominent regional chains, are best positioned to compete effectively and retain
or increase market share in the food service industry. These chains have strong
regional or national presence which provide them with a "brand equity" which
translates into resilience within a mature and competitive industry.
Accordingly, FFCA believes that a diversified portfolio of real estate
investments primarily centered in major restaurant chains will lower investment
risk. Restaurant chains with numerous corporate locations and extensive
franchisee networks have effectively become significant food distribution
systems with distinct competitive advantages over smaller chains and many
independent restaurant operators. The establishment of such food distribution
networks requires significant time and effort which results in certain
restaurant chains having longer-term track records and more predictable
performance patterns. This has resulted in the larger restaurant chains gaining
greater dominance in the industry and growth in market share. However, the chain
restaurant industry is a regional-market type of business and nationally
prominent restaurant chains often have definitive regional areas of strength and
weakness. Therefore, FFCA's investment policy emphasizes strong restaurant
operators who can successfully manage known restaurant chains in their markets
and also takes into account the strength of specific restaurant chains.
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Regulation
FFCA, through its ownership and financing of real estate, is subject to
a variety of environmental, health, land-use, fire and safety, and other
regulation by federal, state and local governments that affects the development
and regulation of chain restaurant properties. FFCA's leases and mortgage loans
impose the primary obligation for regulatory compliance on the operators of the
restaurant properties. Subject to the environmental discussion below, in most
instances, FFCA does not have primary responsibility for regulatory compliance
and any obligation of FFCA would be based upon the failure of restaurant
operators to comply with applicable laws and regulations.
Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removal or remediation of certain hazardous substances released on or
within its property. Such liability may be imposed without regard to whether the
owner or operator knew of, or caused the release of the hazardous substances. In
addition to liability for cleanup costs, the presence of hazardous substances on
a property could result in the owner or operator incurring liability as a result
of a claim by an employee or another person for personal injury or a claim by an
adjacent property owner for property damage.
Environmental assessments have been performed on each property financed
by FFCA since 1994, as is the current practice in the real estate industry.
Properties acquired from FFCA's predecessors did not have environmental audits
performed either at the time FFCA acquired the properties from its predecessors
or when such properties were acquired by such predecessor entities. FFCA is not
currently a party to any litigation or administrative proceeding with respect to
any property's compliance with environmental standards. Furthermore, FFCA is not
aware of nor does it anticipate any such action, or the need to expend any of
its funds in the foreseeable future in connection with its operations or
ownership of existing properties which would have a material adverse effect upon
FFCA.
No portion of FFCA's business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the United States
Government. FFCA does not manufacture any products and therefore does not
require any raw materials in order to conduct its business.
Recent Legislation
FFCA, as the owner or lender with respect to chain restaurant real
estate, was not materially or directly affected by recent legislation in 1996.
However, restaurant operators under lease and loan agreements with FFCA may be
affected by recent legislation. This legislation includes the Minimum Wage
Increase Act of 1996, which increased the federal minimum wage to $4.25 per hour
through September 1996, to $4.75 per hour from October 1996 through August 1997,
and not less than $5.15 per hour beginning September 1997. To the extent that
restaurant operators are unable to increase prices to reflect higher labor costs
or to more efficiently use existing labor, the profitability and cash flow of a
restaurant may decrease. The effect of the
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increase in minimum wages may be minimal for those restaurant operators who are
required to pay higher wages because of market conditions.
Item 2. Properties.
FFCA and its affiliates have provided financing to the chain restaurant
industry primarily through sale-leaseback and mortgage loan financing
transactions. At December 31, 1996, FFCA had interests in 1,869 restaurant
properties through various investments. FFCA's portfolio included 1,432
restaurant properties represented by investments in real estate and mortgage
loans receivable, 243 properties represented by securitized mortgage loans in
which FFCA holds a residual interest and 194 properties represented by mortgage
loans originated and held by FFCA's affiliate, FFCA Mortgage Corporation. Of the
1,432 restaurant properties included in FFCA's investment portfolio at December
31, 1996, FFCA has an ownership interest in 1,351 restaurant properties on a
fee-simple basis in which FFCA holds title to the restaurant property (the
"owned" properties). FFCA also holds title to the restaurant equipment on
approximately one-fourth of these properties. The real estate owned by FFCA
consists of the land and buildings comprising each chain restaurant property,
except for approximately 26 properties at December 31, 1996 on which FFCA holds
title to the land only and made mortgage loans for the related restaurant
buildings (the "hybrid mortgages"). In addition to the base interest, the
mortgage loan agreements generally provide for additional interest payments
based on a percentage of the mortgagor's gross restaurant sales. The remaining
restaurant properties represent mortgage loan financing transactions in which
FFCA holds a first mortgage on the land and buildings comprising the restaurant
properties (the "financed properties"). The properties owned by FFCA and the
land related to the hybrid mortgages are leased to the restaurant operators
under long-term net leases.
FFCA also owns its corporate headquarters located at The Perimeter
Center in Scottsdale, Arizona, consisting of approximately 60,000 square feet of
building on approximately five acres of land. The land and building comprising
FFCA's corporate headquarters serve as collateral on the related mortgage note
payable.
FFCA's chain restaurant properties are typically located on commercial
corridors with significant automobile traffic and are characterized by high
visibility and easy access required for retail property. Locations generally
fall into five categories, including shopping center and mall pad or outparcel
sites, interstate highway locations, central business district locations,
residential neighborhood locations and retail and commercial corridor locations.
A restaurant is located on each of the properties except seven, which were
converted to other uses, such as a bank and an optical retail outlet.
Generally, all restaurants owned or financed by FFCA are free-standing
and surrounded by paved parking areas. The land size for a typical chain
restaurant generally ranges from 15,000 to 50,000 square feet, with original
acquisition costs generally ranging from $75,000 to $700,000. The restaurant
buildings are principally of the current design of the restaurant concept and
are rectangular buildings constructed from various combinations of stucco,
steel, wood, brick and tile. Buildings generally range from 1,500 to 4,000
square feet in size, with the larger restaurants having a greater
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seating capacity and equipment area. Site preparation varies depending upon the
area in which the restaurant is located and on the size of the building and
site. Building and site preparation costs generally range from $150,000 to
$750,000 for each restaurant.
Management believes that its chain restaurant properties are covered by
adequate comprehensive liability, fire, flood and extended loss insurance
provided by reputable companies, with commercially reasonable and customary
deductibles and limits. Certain types and amounts of insurance are required to
be carried by each restaurant operator under the financing agreements with FFCA.
There are, however, certain types of losses (such as from wars or earthquakes)
that may be either uninsurable or not economically insurable in some or all
locations. In certain circumstances FFCA may permit a restaurant operator to
self-insure for certain types of losses. An uninsured loss could result in a
loss to FFCA of both its capital investment and anticipated revenue from the
affected property.
FFCA's lease and mortgage loan financing documents require each
restaurant operator to make any expenditure necessary to comply with applicable
laws and as may be required under any applicable franchise agreement; therefore,
FFCA is generally not required to make significant capital expenditures in
connection with any property it financed. Capital expenditures in 1996 amounted
to approximately $16,000 and amounted to approximately $40,000 each year in 1995
and 1994.
As of February 3, 1997, FFCA and its affiliates owned or had financed
1,870 properties in 46 states and all but 28 of the properties were being leased
or were performing under a mortgage loan agreement. Of these nonperforming
properties, ten are being actively remarketed and 18 are currently held for sale
after extensive efforts to remarket these properties did not produce suitable
lessees. Vacant properties held for sale represent less than one percent of
FFCA's total real estate investment portfolio.
FFCA invests in chain restaurant real estate throughout the United
States. No one property is a principal property of FFCA, because each property
represents less than one percent of FFCA's total assets. Reference is made to
the Schedule of Real Estate and Accumulated Depreciation (Schedule III) filed
with this Report for a summary of the geographic diversity of the properties
owned by FFCA as of December 31, 1996. In addition, FFCA has financed, through
mortgage loans, certain chain restaurant properties located throughout the
United States. Reference is made to the Schedule of Mortgage Loans on Real
Estate (Schedule IV) filed with this Report for a summary of properties financed
through mortgages.
During 1996, approximately 80% of FFCA's revenues were derived from net
lease equity real estate investments. The leases have been originated by FFCA
and its predecessors since 1981. The leases are generally 20 years in length
with two or four five-year renewal options. The expiration schedule of the
initial term of FFCA's leases extends through 2017, with a weighted term of such
investments of 11.5 years as of December 31, 1996. Approximately 20% of FFCA's
lease revenues are derived from leases which expire in 2005, with 12% and 11% of
FFCA's lease revenues being derived from leases which expire in 2015 and 2016,
respectively. In all other years,
13
<PAGE>
the lease expirations are less than 10% of total lease revenues. With expected
continued investment activity, FFCA anticipates that its exposure to annual
lease expirations will become more diversified.
Item 3. Legal Proceedings.
FFCA is not presently involved in any material litigation nor, to its
knowledge, is any material litigation threatened against FFCA or its properties,
other than routine litigation arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of FFCA's security holders during
the fourth quarter ended December 31, 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
FFCA's common stock is currently traded on the New York Stock Exchange
("NYSE") under the symbol FFA. FFCA began trading on the NYSE on June 29, 1994.
The following table sets forth the high and low sales prices per share as quoted
by the NYSE for the following quarters of the fiscal years indicated:
Sales Prices Distributions
------------ -------------
Fiscal 1996 High Low
----------- ---- ---
Fourth Quarter $27.812 $22.500 $ .45
Third Quarter 24.500 22.250 .45
Second Quarter 23.125 18.750 .45
First Quarter 23.500 19.250 .45
-----
$1.80
=====
Fiscal 1995
-----------
Fourth Quarter 23.375 19.750 $ .45
Third Quarter 22.500 20.375 .45
Second Quarter 21.750 17.750 .45
First Quarter $20.000 $17.250 .45
-----
$1.80
=====
- ---------------
Future distributions will be dependent upon cash flow from operations,
financial position and cash requirements of FFCA. Management of FFCA anticipates
that cash generated from operations will be sufficient to meet operating
requirements and provide the level of shareholder distributions required to
maintain its status as a REIT.
14
<PAGE>
Holders
There were 20,300 holders of record of FFCA's shares of common stock as
of February 3, 1997; however, FFCA believes the total number of shareholders of
FFCA to be in excess of 75,000 since certain shares are held by nominees.
Dividend Reinvestment Plan
FFCA has a dividend reinvestment plan (the "Plan") which allows
shareholders to acquire additional shares of FFCA common stock by automatically
reinvesting dividends. Shares are acquired pursuant to the Plan at a price equal
to 98% of the market price of such shares on the dividend payment date, without
payment of any brokerage commission or service charge. Shareholders who do not
participate in the Plan continue to receive dividends, as declared. As of
February 3, 1997, shareholders owning approximately 7.2% of the outstanding
shares participate in the Plan.
Item 6. Selected Financial Data.
The selected financial data presented in the table below summarizes
certain consolidated financial information of FFCA and its wholly-owned
subsidiaries, as well as that of its predecessor companies, for the five years
in the period ended December 31, 1996. The merger of FFCA with its predecessors
occurred on June 1, 1994 and was accounted for as a reorganization of affiliated
companies under common control in a manner similar to a pooling of interests.
Under this method, the assets and liabilities of the public limited partnerships
and FFCA I were carried over at their historical book values and their
operations have been recorded on a combined historical basis.
15
<PAGE>
SELECTED FINANCIAL DATA
Operations data presented below for periods prior to June 1, 1994
represent the operations of the predecessor companies. This data has been
restated on a combined basis to provide comparative information; however, it
does not necessarily represent results of operations as they would have been had
FFCA operated as a REIT for all periods presented. The predecessor companies
were primarily public real estate limited partnerships with a declining number
of properties in their investment portfolios and no opportunity for growth
through acquisitions; therefore, the investment objectives of FFCA are different
than the objectives of its predecessor companies.
<TABLE>
<CAPTION>
In thousands, except per share data 1996 1995 1994 1993 1992
(as restated on a combined basis)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations Data(a)
Total revenues $121,166 $102,583 $91,062 $93,789 $95,572
Income before gain (loss) on sale of property and
other costs 60,036 52,816 51,319 53,867 53,044
Gain on Sale of Property (c) 9,899 977 2,784 (156) (2,858)
Income before extraordinary item(d) 68,539 53,793 25,905(b) 53,711 50,186
Net income (b) 68,539 51,329 25,905(b) 53,711 50,186
Funds from operations(e) 79,492 73,539 73,720 76,571 78,080
Dividends/Distributions declared 72,846 72,471 75,913 75,200 77,901
Per share:
Income before gain (loss) on sale of property
and other costs $1.48 $1.31 $1.27 $1.34 $1.32
Income before extraordinary item(d) $1.69 $1.33 $0.64 $1.33 $1.25
Net income $1.69 $1.27 $0.64 $1.33 $1.25
Dividends/Distributions declared $1.80 $1.80 $1.82 $1.86 $1.94
Weighted average common and common
equivalent shares outstanding 40,603 40,294 40,251 40,251 40,251
----------------------------------------------------------------------------------------------------------------------
Balance Sheet Data(a)
Real estate owned, at cost $868,215 $794,580 $681,126 $661,576 $685,338
Mortgage loans receivable 57,808 199,486 65,980 38,091 42,038
Note receivable from affiliate 147,616 -- -- -- --
Other investments 37,836 -- -- -- --
Total assets 988,776 843,504 612,228 619,443 643,113
Notes payable 298,956 198,702 -- -- --
Borrowings under line of credit 150,500 110,000 59,000 -- --
Other debt 8,500 8,500 8,500 10,942 12,540
Shareholders' equity $495,370 $493,817 $514,107 $576,775 $598,264
</TABLE>
---------------
(a) The information for periods prior to June 1, 1994 is, in effect, a
restatement of the historical operating results of FFCA I and the public
limited partnerships as if they had been consolidated since January 1, 1992.
The per share amounts for the same periods were computed as if 40.251 million
shares of FFCA stock were outstanding each year.
(b) Net income for the year ended December 31, 1994 was impacted by REIT
transaction costs recognized upon consummation of the merger of FFCA and its
predecessor entities.
(c) Results of operations may be largely impacted by gains or losses on the
sale of properties or as a result of securitization transactions. Of the 1996
gain on the sale of property, $7.1 million relates to the securitization
transaction completed in 1996.
(d) Income before extraordinary item excludes debt extinguishment charges of
$2.5 million in 1995.
(e) Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") to mean net income (loss) determined in
accordance with generally accepted accounting principles, excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustment for unconsolidated partnerships and joint
ventures. Effective January 1, 1996, NAREIT modified the definition of FFO to,
among other things, eliminate amortization of deferred financing costs and
depreciation of non-real estate assets as items added back to net income when
computing FFO. The modified definition of FFO became effective as of January 1,
1996, at which time FFCA adopted the modified definition. FFO for years prior to
1996 have been restated to conform with the modified definition.
16
<PAGE>
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition.
General
Franchise Finance Corporation of America ("FFCA") is a
self-administered real estate investment trust ("REIT") which exclusively
addresses the financing needs of the chain restaurant industry. FFCA and its
affiliates provide a one-stop finance source to the nation's chain restaurant
systems through various financial products, including sale-leaseback
transactions, mortgage loans, restaurant equipment loans and construction
financing. At December 31, 1996, FFCA had interests in 1,869 restaurant
properties through various investments. FFCA's portfolio included 1,432
restaurant properties represented by investments in real estate and mortgage
loans receivable, 243 properties represented by securitized mortgage loans in
which FFCA holds a residual interest and 194 properties represented by mortgage
loans originated and held by FFCA's affiliate, FFCA Mortgage Corporation. These
restaurants are operated by approximately 400 experienced restaurant operators
in over 35 established chains throughout the United States.
Results of Operations
Year ended December 31, 1996
compared to year ended December 31, 1995
FFCA had net income of $68.5 million ($1.69 per share) in 1996 as
compared to income of $53.8 million before an extraordinary loss on the
retirement of debt and a net income of $51.3 million ($1.27 per share) in 1995.
Revenues rose 18% to $121 million in 1996 from $103 million in 1995 primarily
due to the growth in FFCA's portfolio.
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. Over half of the $18.6 million increase in
total revenues between 1995 and 1996 related to a net increase in rental
revenues. New investments in property subject to operating leases totaled $128
million in 1996. Base lease rates on these new investments ranged from 10.25% to
12.2%, with a weighted average rate of 10.55%. Since these property purchases
occurred throughout the year, their weighted average balance in 1996 is
equivalent to approximately $60 million of investments and the impact of these
investments was an increase in rental revenues during 1996 approximating $6.5
million. (The annual impact of these investments on revenue is expected to
approximate $13.5 million). The full effect of 1995 investments on revenue in
1996 contributed approximately $7.5 million to the increase in rental revenues.
Partially offsetting these increases were decreases in revenue related to the
sale of property and the expiration of original equipment leases in 1996 and
1995.
Generally, the leases in FFCA's portfolio also provide for contingent
rentals based on a percentage of the gross sales of the related restaurants.
Such contingent rentals totaled $5 million
<PAGE>
in 1996 as compared to $4 million in 1995. The increase primarily relates to one
lessee, whose increased Jack in the Box restaurant sales resulted in 1996
percentage rentals of approximately $425,000 over 1995 amounts. The remaining
increase in 1996 relates to lessees whose sales levels have, for the first time,
exceeded the threshold where contingent rentals are due and to increases in
individual restaurant-level sales volumes related to lessees who have previously
exceeded the percentage rent threshold. FFCA anticipates that, based on
historical restaurant sales growth, the contingent rental provision of the
leases may continue to provide increases in revenues in the near future.
Offsetting the increase in contingent rentals was a decrease in revenues
collected from rent guaranty insurance which dropped from $3.3 million in 1995
to $1.7 million in 1996 due to expiring rent insurance policies. Rent guaranty
insurance policies covering FFCA's properties will continue to expire at various
dates, with the majority of the policies expiring in 1998; therefore, rental
revenue from rent guaranty insurance in 1997 is expected to be lower than in
1996.
Mortgage interest income increased from $14.1 million in 1995 to $15.7
million in 1996. The full effect of mortgage loans originated during 1995
combined with the effect of mortgage loans originated during 1996 represented an
increase in income of $11 million; however, this was offset by a decrease in
income of $9.7 million from the sale of mortgage loans in FFCA's first
securitization transaction in June. During 1996, FFCA added $49 million in
mortgage loans to its real estate investment portfolio, consisting of $29
million in fixed-rate loans and $20 million in FFCA's new variable-rate loan
product, introduced in 1996. These new loans carry a weighted average interest
rate of 10.73% on the fixed-rate loans and 7.63% on the variable-rate loans.
On June 27, 1996, certain mortgage loans that had been originated by
FFCA and its predecessors totaling $178.8 million were securitized and Secured
Franchise Loan Pass-Through Certificates were sold to investors through a trust.
The servicing rights and Participations on these mortgage loans have been
retained by FFCA. Although FFCA no longer receives mortgage interest income from
the mortgages it sold, it retained certain interests in approximately 12.5% of
the aggregate mortgage loan principal balance through the purchase from the
trust of subordinated investment securities and the interest-only certificate.
The subordinated investment securities are the last of the securities to be
repaid from the trust, 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). The cash flow generated by the subordinated investment securities
and interest-only certificate provided an effective yield of approximately 24%
on FFCA's net investment in 1996. These certificates, totaling $29.7 million at
December 31, 1996, generated $2.7 million of revenue in 1996. Interest income
from these certificates is reflected in "Investment Income and Other" in the
accompanying Consolidated Statement of Income for 1996, and represents the
majority of the increase in other investment income over 1995.
In order to facilitate the loan origination and securitization process,
FFCA formed FFCA Mortgage Corporation during 1996. This taxable affiliate is
designed primarily to originate
18
<PAGE>
mortgage loans held for sale. This affiliate originated $163 million in mortgage
loans during 1996; however, its financial statements are not consolidated with
FFCA and, accordingly, the mortgage interest income generated by the loans
originated by FFCA Mortgage Corporation are not reflected in the accompanying
financial statements. FFCA, as owner of all of the issued and outstanding
nonvoting preferred stock of FFCA Mortgage Corporation, is entitled to receive
95% of all dividends paid by FFCA Mortgage Corporation and recorded 95% of FFCA
Mortgage Corporation's net loss for 1996 as "Equity in Net Loss of Affiliate" in
the accompanying financial statements. FFCA also provides FFCA Mortgage
Corporation with a secured revolving line of credit at the rate of 1.5% and 2%
above FFCA's borrowing rate for amounts secured by mortgages and equipment
notes, respectively. At December 31, 1996, amounts outstanding under this line
of credit with FFCA Mortgage Corporation totaled $148 million. Interest income
generated on this line of credit totaled $2.9 million in 1996 and is reflected
in revenues as "Related Party Interest" in the accompanying financial
statements. FFCA guarantees FFCA Mortgage Corporation's performance under its
hedging program, for which FFCA receives a fee equal to .19% of the notional
amount of the hedge contracts outstanding. At December 31, 1996, FFCA Mortgage
Corporation had outstanding an interest rate swap contract with a notional
amount of approximately $65 million. At December 31, 1996, FFCA Mortgage
Corporation had no outstanding liabilities under this contract and the fair
market value of the contract was $632,000.
Expenses increased to $61.1 million in 1996 from $49.8 million in 1995,
due primarily to an increase in interest expense. Interest expense rose by $10.7
million during 1996 due to the use of borrowings for investment in restaurant
properties during the year. FFCA's average debt balance increased from $175
million in 1995 to $335 million in 1996. Although FFCA's average debt balance
increased during 1996, its overall cost of capital decreased. In February 1996,
FFCA broadened its sources of capital by issuing its first unsecured medium-term
notes, which are six- and seven-year obligations, totaling $60 million. In
November, FFCA issued an additional $40 million in unsecured notes due 2026, but
callable by the holder in the year 2004. The unsecured notes issued during 1996
carry a weighted average interest rate of 6.98%. Proceeds from these unsecured
notes were used to pay down FFCA's bank line of credit. In December 1996, FFCA
amended its bank line of credit with participating banks to, among other things,
decrease the interest rate by .5%. These changes in FFCA's debt reduced its
effective borrowing rate from 7.82% during 1995 to 7.15% during 1996. Effective
December 27, 1996, FFCA also has the option under this bank loan facility to
borrow at rates that are competitively bid among the participating banks.
Property operating costs and operating, general and administrative
expense saw little change between years, except for an increase in operating
expenses primarily related to a $1.4 million provision for loan loss created in
1996. Depreciation and amortization expense decreased to $20.7 million from
$21.2 million, despite the investment in restaurant property during 1996
primarily due to the sale of over $10.5 million in restaurant equipment at the
expiration of the related lease terms in 1996.
19
<PAGE>
FFCA recorded net gains of $9.9 million on the sale of property during
1996 as compared to net gains of $977,000 recorded in 1995. Approximately $7.1
million of the total gain in 1996 was generated by the sale of $178.8 million in
mortgages in the securitization transaction consummated in June. The gain
recognized represents the difference between the carrying amount of the mortgage
loans sold and their adjusted sales price. It also includes deferred gains
recognized on certain of the mortgages sold. 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. Of the total
net gain of $9.9 million recognized in 1996, the $2.8 million remaining gain
represents the net effect of gains and losses from other sales of property which
occur primarily through the lessee's exercise of purchase options and through
the disposition of underperforming properties.
Approximately three-fourths of FFCA's land and building leases provide
for purchase options and approximately one-half of these options are currently
exercisable; however, only 15 properties were sold through purchase options in
1996 and only 10 such properties were sold in 1995. Where applicable, the lessee
also has the option to purchase equipment at the end of the related equipment
lease term, although few of these options remain unexercised as of December 31,
1996. Generally, the purchase options are exercisable at fair market value (but
not less than original cost in most cases). FFCA expects that the exercise of
purchase options will continue to be insignificant, because past experience has
shown that the increase in the fair market value of the properties will
generally offset any decrease in interest or lease rates the lessee could obtain
upon exercise of the purchase option, providing no measurable change in cash
flow.
FFCA periodically reviews its real estate portfolio for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the property may not be recoverable, such as may be the case with vacant
restaurant properties. If an impairment loss is indicated, the loss is measured
as the amount by which the carrying amount of the asset exceeds the fair value
of the asset. Gain on the sale of property on the consolidated statements of
income for the years ended December 31, 1996 and 1995 is net of approximately
$3.3 million and $3.4 million, respectively, of loss related to vacant and
underperforming properties. Vacant properties held for sale represent less than
1% of FFCA's total real estate investment portfolio.
Year ended December 31, 1995
compared to year ended December 31, 1994
FFCA reported net income of $51.3 million, or $1.27 per share, for the
year ended December 31, 1995 as compared to $26 million, or $.64 per share, for
the year ended December 31, 1994. Income before gain on the sale of property and
special charges rose to $53 million in 1995 from $51 million in 1994. These
results reflect the growth of FFCA's portfolio in 1995.
Total revenues rose to $102.6 million for the year ended December 31,
1995 from $91 million for the year ended December 31, 1994. Portfolio
investments were the primary source of revenue increases, despite the sale of 22
properties during 1995. Portfolio investments in 1995, totaling approximately
$278 million, are represented by approximately $135 million in mortgage
20
<PAGE>
loans and approximately $143 million in property subject to operating leases;
however, since these investments occurred throughout the year, their weighted
average balance in 1995 is equivalent to approximately $120 million of
investments. Lease and loan base rates on new investments ranged from
approximately 10% to 11.5%, with a weighted average rate of 10.9%.
Rental revenues include both rental payments received from lessees and
rent guaranty insurance payments. Rental revenues collected under the rent
guaranty insurance policies for 1995 decreased to $3.3 million from $6.2 million
in 1994 due to expiring rent insurance policies.
The restaurant leases and loans generally provide that lessees make
monthly payments equal to the greater of a fixed base rate or a percentage of
the gross sales of the restaurants (percentage rentals). Percentage rentals
approximated $4 million in 1995 as compared to $3.8 million in 1994. A portion
of the increase reflected in 1995 relates to lessees whose sales levels have,
for the first time, exceeded the threshold where percentage rent is due and 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.
The increase in interest expense from $2.5 million in 1994 to $15
million in 1995 is due to the use of borrowings during 1995 for the investment
in restaurant properties. During 1995, FFCA entered into an interest rate
agreement to enhance its ability to manage interest rate exposures in its debt
portfolio which exist as part of its ongoing business operations. The costs of
this hedge were deferred and are being amortized to interest expense over the
term of the associated debt. FFCA issued $200 million of unsecured senior notes
in November 1995. The issuance of these fixed rate notes allowed FFCA to pay
down its acquisition loan facility while also reducing its cost of borrowing. In
December 1995, FFCA replaced its original secured revolving credit facility
scheduled to expire in July 1996 (originally bearing interest at LIBOR plus
2.25%) with an unsecured revolving loan facility bearing interest at LIBOR plus
1.50%. As a result of the early extinguishment of the original revolving credit
facility, FFCA expensed $2.5 million in unamortized loan costs which is reported
as an extraordinary item on the consolidated statement of income.
Operating, general and administrative expenses decreased by
approximately $900,000, or 8%, primarily due to a decrease in professional fees
which include legal, accounting, consulting and appraisal services. Depreciation
and amortization decreased to $21.2 million from $22.8 million, despite the
investment in restaurant property during 1995 due to the sale of over $8 million
in restaurant equipment at the expiration of the related lease terms in 1995.
The gain on sale of property reflected on the consolidated statements of income
for the years ended December 31, 1995 and 1994 includes approximately $3.4
million and $1.6 million, respectively, of loss related to vacant properties
held for sale.
Liquidity and Capital Resources
Rental and mortgage interest revenue generated by FFCA's investments in
restaurant properties has, and will continue to, comprise the majority of the
21
<PAGE>
cash generated from operations. Operations in 1996 provided net cash of $86
million as compared to $79 million in 1995 with the increase resulting from the
growth of the real estate portfolio. Cash generated from operations provides
distributions to the shareholders in the form of quarterly dividends. This cash
may also be used on an interim basis to fund new investments in properties.
During 1996, FFCA invested $340 million in restaurant properties
through the acquisition of property, the investment in mortgage loans and notes
receivable, and the investment in its affiliate, FFCA Mortgage Corporation. At
December 31, 1996, FFCA Mortgage Corporation had $141 million in mortgage loans
held for sale representing 172 restaurant properties, and $14 million in
construction loans representing 22 restaurant properties under construction.
FFCA Mortgage Corporation obtained its acquisition financing through a secured
revolving line of credit with FFCA, bearing interest at a rate 1.5% and 2% above
FFCA's debt rate for amounts secured by mortgage loans and equipment notes,
respectively.
FFCA's investments in restaurant properties during 1996 were funded by
cash generated from operations, proceeds of unsecured notes issued during the
year ($100 million), net proceeds from the securitization transaction ($152
million), net draws on FFCA's revolving credit facility ($39 million) and
proceeds from the sale of property. During 1996, FFCA sold 79 properties and
related equipment (15 of which were through the lessee's exercise of their
purchase options on the properties) as compared to 22 properties sold in 1995.
There were more property sales in 1996 primarily due to FFCA's decision to sell
certain underperforming properties where remarketing efforts over the past
several years had failed to produce a suitable lessee. Nine additional
properties which exercised purchase options were refinanced as mortgages by FFCA
or its affiliates. Cash proceeds from these sales, the collection of mortgage
loan principal payments and the receipt of mortgage loan payoffs, approximating
$51 million in total, were used to partially fund new restaurant investments in
1996. Portfolio investments (including investments through FFCA's affiliate FFCA
Mortgage Corporation) totaled $340 million in 1996, an increase from $280
million in 1995, reflecting FFCA's continued focus on the growth of its
portfolio through restaurant property investments. Such investments include the
funding of notes receivable of $17.3 million in 1996 and $1.2 million in 1995.
Currently, FFCA's primary source of interim funding for new investments
is a $200 million unsecured acquisition loan facility. During 1996, this loan
facility bore interest at either LIBOR plus 1.5% or the bank's base rate, for a
weighted average interest rate of 7.12% as compared to the prior loan facility's
original rate of LIBOR plus 2.25% during 1995. This revolving credit facility
was amended on December 27, 1996 to further reduce the interest rate from LIBOR
plus 1.5% to LIBOR plus 1%. The loan facility expires in December 1998, with the
possibility of two annual extensions. 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.
At December 31, 1996, FFCA had cash and cash equivalents of $11.4
million and had $49.5 million available on its revolving credit facility. FFCA's
anticipated investments (including investments through its affiliate, FFCA
Mortgage Corporation) include commitments totaling
22
<PAGE>
approximately $270 million at the end of 1996. These commitments were made to
several large restaurant operators of Burger King, Wendy's, Arby's and other
restaurants to acquire or finance (subject to FFCA's customary underwriting
procedures) approximately 245 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, issuance of additional unsecured debt, issuance of mortgage-backed
securities through securitization or issuance of additional equity securities of
FFCA.
In November 1995, FFCA implemented a dividend reinvestment plan which
allows shareholders to acquire additional shares of FFCA stock by automatically
reinvesting the quarterly dividends. As of February 1, 1997, shareholders owning
approximately 7.2% of the outstanding shares of FFCA common stock participate in
the dividend reinvestment plan and dividends reinvested during 1996 totaled $4.9
million as compared to $852,000 in 1995.
FFCA declared a fourth quarter 1996 dividend of $0.45 per share, or
$1.80 per share on an annualized basis, payable on February 20, 1997 to
shareholders of record on February 10, 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.
Tenant Concentration
One restaurant operator, Foodmaker, Inc. ("Foodmaker"), accounted for
approximately 10.9% of FFCA's total rental and mortgage loan interest revenues
in 1996. Foodmaker accounted for 12.5% in 1995 and 14% of FFCA's total rental
and mortgage loan interest revenues in 1995 and 1994, respectively. Foodmaker
operates and franchises Jack in the Box restaurants. The relative decrease in
the percentage of FFCA's revenue from Foodmaker between 1994 and 1996 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. The following table represents selected financial data of
Foodmaker, Inc. and Subsidiaries as reported by Foodmaker in its 1996 annual
report.
23
<PAGE>
Foodmaker, Inc. and Subsidiaries
Selected Financial Data
(in Thousands)
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: September 29, 1996 October 1, 1995
------------------------------- ------------------ ---------------
<S> <C> <C>
Current Assets $ 96,476 $ 97,889
Noncurrent Assets 557,162 564,785
Current Liabilities 147,063 132,017
Noncurrent Liabilities 455,191 499,404
</TABLE>
<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
---------------------------------------------------------------
Consolidated Statements of Operations Data: September 29, 1996 October 1, 1995 October 2, 1994
------------------------------------------- ------------------ --------------- ---------------
<S> <C> <C> <C>
Gross Revenues $1,062,822 $1,018,716 $1,053,326
Costs and Expenses (including taxes) 1,042,771 1,087,674 1,089,594
Extraordinary Item - loss on early -
extinguishment of debt, net of taxes -- -- (3,302)
----------- ----------- -----------
Net earnings (loss) $ 20,051 $ (68,958) $ (39,570)
=========== =========== ===========
Earnings (loss) per share - primary and
fully diluted:
Earnings (loss) before extraordinary item $ .51 $(1.77) $ (.94)
Extraordinary item -- -- (.09)
------- ------- --------
Net earnings (loss) per share $ .51 $(1.77) $(1.03)
======= ======= ========
</TABLE>
In January 1994, Foodmaker contributed its Chi-Chi's Mexican restaurant
chain to Family Restaurants, Inc. ("FRI") in exchange for an approximate 39%
equity interest in FRI and other consideration including cash and debt
assumption. Therefore, the consolidated statements of operations for the years
reflected above include Chi-Chi's results of operations for only the first
fiscal quarter in 1994 and none in 1995 or 1996. In the first quarter of 1994,
Chi-Chi's revenues were $123.9 million, its costs of sales were $32.7 million,
its restaurant operating costs were $80.7 million, and its selling, general and
administrative expenses were $9.1 million.
Revenues increased $44.1 million, or 4.3% to $1,062.8 million in 1996 from
$1,018.7 million in 1995. Sales by Jack in the Box, Foodmaker-operated
restaurants increased $87.9 million, or 10.9% in 1996 from 1995. This increase
reflects increases in both per store average sales and in the average number of
restaurants operated by Foodmaker. The average number of Foodmaker-operated
restaurants were 868, 839 and 761 in 1996, 1995 and 1994, respectively. Per
store average sales for comparable restaurants increased approximately 7.2% in
1996 as compared to 3.5% in 1995, strengthened by marketing strategies including
a new advertising campaign and the introduction of aggressive value-priced
product alternatives.
Foodmaker recorded a loss in 1995 relating to its equity in FRI of $57.2
million, most of which was the result of the complete write-down of its
investment in FRI due to the write-off by FRI of the goodwill attributable to
Chi-Chi's. During fiscal year 1996, Foodmaker transferred its entire equity
interest in FRI to another entity with an equity interest in FRI. Since
Foodmaker's investment in FRI was previously written off in fiscal 1995, this
transfer had no effect on the consolidated financial condition or results of
operations of Foodmaker in fiscal 1996.
Jack in the Box restaurant operating costs increased $30.8 million, or
6.9%, due to increases in both the average number of Company-operated
restaurants and variable costs associated with improved sales volume. Jack in
the Box selling, general and administrative expenses decreased $5.9 million, or
7.6%, principally due to decreased advertising and promotions costs as Foodmaker
reduced its extra contributions to the marketing fund and its use of local
promotions. In 1996 Foodmaker received from suppliers cooperative advertising
funds of $4.8 million which formerly had been contributed directly to the
marketing fund. In 1995 general, administrative and other costs include an $8
million litigation settlement with stockholders and a $1.9 million gain on the
curtailment of postretirement benefits. Foodmaker incurred an extraordinary loss
of $5.1 million, less currently recognizable income tax benefits of $1.8
million, on the early extinguishment of debt in 1994. Foodmaker indicates that
it expects that sufficient cash flow will be generated from operations so that,
combined with other financing alternatives available to it, Foodmaker will be
able to meet all of its debt service requirements, as well as its capital
expenditures and working capital requirements, for the foreseeable future.
24
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and related financial information
required to be filed are attached to this Report. Reference is made to page F-1
of this Report for an index to the consolidated financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 6, 1997, to be filed pursuant to Regulation 14A.
Item 11. Executive Compensation.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 6, 1997, to be filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 6, 1997, to be filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 6, 1997, to be filed pursuant to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
25
<PAGE>
1. Financial Statements. See Index to Financial Statements on
page F-1 of this Report.
2. Financial Statement Schedules. See Index to Financial
Statements on page F-1 of this Report. All other schedules are
omitted since they are not required, are inapplicable, or the
required information is included in the financial statements
or notes thereto.
3. Exhibits.
The following is a complete list of exhibits filed as part of
this Form 10-K. For electronic filing purposes only, this
report contains Exhibit 27, Financial Data Schedule. Exhibit
numbers correspond to the numbers in the Exhibit Table of Item
601 of Regulation S-K.
Exhibit No. Description
- ----------- -----------
3.02 Amended and Restated Bylaws of the Company (1)
3.03 Restated Certificate of Incorporation of the Company (2)
4.01 Indenture dated as of November 21, 1995 relating to the 7%
Senior Notes due 2000 and the 7 7/8% Senior Notes due 2005
(3)
4.02 Specimen of Common Stock Certificate (1)
10.01 Acquisition, Construction and Term Loan Agreement, dated as
of December 29, 1988, by and between Franchise Finance
Corporation of America and Scottsdale Land Trust Limited
Partnership (1)
10.02 Promissory Note dated December 29, 1988, executed by
Franchise Finance Corporation of America in favor of
Scottsdale Land Trust Limited Partnership in the principal
amount of $8,500,000 (1)
10.11 1995 Stock Option and Incentive Plan of Franchise Finance
Corporation of America (4)
10.12 Revolving Loan Agreement dated as of September 1, 1996, by
and between Franchise Finance Corporation of America and
FFCA Mortgage Corporation (5)
26
<PAGE>
10.13 Equipment Revolving Loan Agreement dated as of September 1,
1996, by and between Franchise Finance Corporation of
America and FFCA Mortgage Corporation (5)
10.14 Guaranty of Franchise Finance Corporation of America, with
exhibits, dated December 31, 1996 with respect to the ISDA
Master Agreement and Schedule dated December 31, 1996 by
and between Franchise Finance Corporation of America and
FFCA Mortgage Corporation*
21.01 Subsidiaries of the Registrant*
23.01 Consent of Arthur Andersen LLP*
99.01 Credit Agreement dated as of December 27, 1995 among
Franchise Finance Corporation of America, Certain Lenders
and NationsBank of Texas, N.A., providing a credit facility
in the principal amount of $200,000,000 (the "Credit
Agreement") (6)
99.02 Guaranty Agreement dated as of December 27, 1995 made by
FFCA Acquisition Corporation and FFCA Institutional
Advisors, Inc., guaranteeing the obligations of Franchise
Finance Corporation of America under the Credit Agreement
(6)
99.03 Promissory Note dated as of December 27, 1995 executed by
Franchise Finance Corporation of America in favor of
NationsBank of Texas, N.A., in connection with the Credit
Agreement (6)
99.04 Subordination Agreement dated as of December 27, 1995, made
by FFCA Acquisition Corporation and Franchise Finance
Corporation of America for the benefit of Certain Lenders
and NationsBank of Texas, N.A., in connection with the
Credit Agreement (6)
99.05 Subordination Agreement dated as of December 27, 1995, made
by FFCA Institutional Advisors, Inc. and Franchise Finance
Corporation of America for the benefit of Certain Lenders
and NationsBank of Texas, N.A., in connection with the
Credit Agreement (6)
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
27
<PAGE>
Loan Pass-Through Certificates, Class A, Class B, Class C
and Class D (7)
99.07 First Amendment to Credit Agreement dated February 23, 1996
among Franchise Finance Corporation of America, Certain
Lenders and NationsBank of Texas, N.A. as Administrative
Lender (8)
99.08 Second Amendment to Credit Agreement dated June 24, 1996
among Franchise Finance Corporation of America, Certain
Lenders and NationsBank of Texas, N.A. as Administrative
Lender (7)
99.09 Third Amendment to Credit Agreement dated December 27, 1996
among Franchise Finance Corporation of America, Certain
Lenders and NationsBank of Texas, N.A. as Administrative
Lender*
- -------------
*Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-4 and amendments thereto, registration number 33-65302, as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, as filed with the Securities and
Exchange Commission.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated November 24, 1995, as filed with the Securities and Exchange Commission.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, as filed with the Securities and
Exchange Commission.
(5) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated September 1, 1996, as filed with the Securities and Exchange Commission.
(6) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated January 25, 1996, as filed with the Securities and Exchange Commission.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1996, as filed with the Securities and
Exchange Commission.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1996, as filed with the Securities and
Exchange Commission.
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
Form 8-K dated November 7, 1996
Item 5. Other Events--Agreement to lend to FFCA
Mortgage Corporation the maximum amount
of $225 million
28
<PAGE>
under a revolving loan agreement and to
lend the maximum amount of $25 million
under an equipment revolving loan
agreement
Item 7. Financial Statements and Exhibits-Revolving
Loan Agreement and Equipment Revolving
Loan Agreement
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FRANCHISE FINANCE CORPORATION OF AMERICA
Date: February 20, 1997 By /s/ M. H. Fleischer
-------------------------------------
M. H. Fleischer, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: February 20, 1997 By /s/ M. H. Fleischer
-------------------------------------
M. H. Fleischer, Chairman of the
Board, President, and Chief
Executive Officer
Date: February 20, 1997 By /s/ John R. Barravecchia
-------------------------------------
John R. Barravecchia, Executive
Vice President, Chief Financial
Officer and Treasurer
Date: February 20, 1997 By /s/ Catherine F. Long
-------------------------------------
Catherine F. Long, Senior Vice
President-Finance and Principal
Accounting Officer
Date: February 20, 1997 By /s/ Willie R. Barnes
-------------------------------------
Willie R. Barnes, Director
Date: February 20, 1997 By /s/ William C. Foxley
-------------------------------------
William C. Foxley, Director
<PAGE>
Date: February 20, 1997 By /s/ Robert W. Halliday
-------------------------------------
Robert W. Halliday, Director
Date: February 20, 1997 By /s/ Donald C. Hannah
-------------------------------------
Donald C. Hannah, Director
Date: February 20, 1997 By /s/ Dennis E. Mitchem
-------------------------------------
Dennis E. Mitchem, Director
Date: February 20, 1997 By /s/ Louis P. Neeb
-------------------------------------
Louis P. Neeb, Director
Date: February 20, 1997 By /s/ Kenneth B. Roath
-------------------------------------
Kenneth B. Roath, Director
Date: February 20, 1997 By /s/ Wendell J. Smith
-------------------------------------
Wendell J. Smith, Director
Date: February 20, 1997 By /s/ Casey J. Sylla
-------------------------------------
Casey J. Sylla, Director
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - December 31, 1996 and 1995 F-3
Consolidated Statements of Income For The Years Ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Changes in Shareholders' Equity
For The Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows For The Years Ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Schedule III - Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1996 F-16
Schedule IV - Schedule of Mortgage Loans on Real Estate
as of December 31, 1996 F-18
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Franchise Finance Corporation of America:
We have audited the accompanying consolidated balance sheets of FRANCHISE
FINANCE CORPORATION OF AMERICA (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Franchise Finance Corporation
of America and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 23, 1997.
F-2
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
--------------------------- --------------------------
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
ASSETS
------
<S> <C> <C>
Investments:
Investments in Real Estate, at cost (Note 3):
Land $ 346,626 $ 304,641
Buildings and Improvements 490,506 448,427
Equipment 31,083 41,512
--------- ---------
868,215 794,580
Less-Accumulated Depreciation 172,941 176,232
--------- ---------
Net Real Estate Investments 695,274 618,348
Mortgage Loans Receivable (Note 4) 57,808 199,486
Related Party Notes Receivable (Note 6) 147,616 --
Other Investments (Note 5) 37,836 --
--------- ---------
Total Investments 938,534 817,834
Cash and Cash Equivalents 11,350 2,067
Notes and Accounts Receivable, net of allowances
of $1,700 in 1996 and $2,000 in 1995 (Note 4) 22,020 6,820
Other Assets (Notes 2 and 11) 16,872 16,783
--------- ---------
Total Assets $ 988,776 $ 843,504
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts Payable and Accrued Expenses $ 6,827 $ 5,608
Dividends Payable 18,254 18,133
Notes Payable (Note 7) 298,956 198,702
Borrowings Under Line of Credit (Note 8) 150,500 110,000
Mortgage Payable to Affiliate (Note 11) 8,500 8,500
Rent Deposits and Other 10,369 8,744
--------- ---------
Total Liabilities 493,406 349,687
--------- ---------
Commitments and Contingencies (Note 14)
Shareholders' Equity (Notes 9 and 10):
Common Stock, par value $.01 per share, authorized 200 million
shares, issued and outstanding 40,564,076 shares in 1996
and 40,294,822 shares in 1995 406 403
Capital in Excess of Par Value 553,335 547,478
Cumulative Net Income 129,209 60,670
Cumulative Dividends (187,580) (114,734)
--------- ---------
Total Shareholders' Equity 495,370 493,817
--------- ---------
Total Liabilities and Shareholders' Equity $ 988,776 $ 843,504
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Rental $ 95,612 $ 86,182 $ 81,760
Mortgage Loan Interest 15,738 14,118 5,596
Investment Income and Other 6,955 2,283 3,706
Interest (Related Party) (Note 6) 2,861 -- --
--------- --------- ---------
121,166 102,583 91,062
--------- --------- ---------
Expenses:
Depreciation and Amortization 20,654 21,201 22,810
Operating, General and Administrative 11,488 10,283 11,195
Property Costs 2,041 2,046 2,310
Interest 25,974 15,276 2,477
Interest (Related Party) (Note 11) 973 961 951
--------- --------- ---------
61,130 49,767 39,743
--------- --------- ---------
Income Before Gain on Sale of Property
and Other Costs 60,036 52,816 51,319
Gain on Sale of Property (Note 2) 9,899 977 2,784
Equity in Net Loss of Affiliate (Note 5) (1,396) -- --
REIT Transaction Related Costs (Note 17) -- -- (28,198)
--------- --------- ---------
Income Before Extraordinary Item 68,539 53,793 25,905
Extraordinary Item - Loss on Early
Extinguishment of Debt (Note 8) -- (2,464) --
--------- --------- ---------
Net Income $ 68,539 $ 51,329 $ 25,905
========= ========= =========
Net Income Per Share (Note 2):
Income Before Extraordinary Item $ 1.69 $ 1.33 $ .64
Extraordinary Item -- (.06) --
--------- --------- ---------
Net Income Per Share $ 1.69 $ 1.27 $ .64
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-4
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
(amounts in thousands except per share data)
<TABLE>
<CAPTION>
Capital
Common in Excess of Cumulative Cumulative
Stock Par Value Net Income Dividends Total
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 10 $ 576,765 $ -- $ -- $ 576,775
Shareholders' contribution -- 3,189 -- -- 3,189
Distributions -- (33,650) -- -- (33,650)
Net income -- 16,564 -- -- 16,564
--------- --------- ---------- --------- ---------
BALANCE, June 1, 1994 (date of Consolidation) 10 562,868 -- -- 562,878
Shares issued in exchange for FFCA I
stock and limited partnership interests 393 (393) -- -- --
Payment of Variable Rate Notes and
fractional shares (Note 17) -- (11,745) -- -- (11,745)
Net distribution upon consolidation
(Note 17) -- (4,104) -- -- (4,104)
Net income -- -- 9,341 -- 9,341
Dividends declared - $1.05 per share -- -- -- (42,263) (42,263)
--------- --------- --------- --------- ---------
BALANCE, December 31, 1994 403 546,626 9,341 (42,263) 514,107
Capital contributions - dividend
reinvestment plan -- 852 -- -- 852
Net income - -- -- 51,329 -- 51,329
Dividends declared - $1.80 per share -- -- -- (72,471) (72,471)
--------- --------- --------- --------- ---------
BALANCE, December 31, 1995 403 547,478 60,670 (114,734) 493,817
Capital contributions - dividend
reinvestment plan 2 4,897 -- -- 4,899
Exercise of stock options 1 960 -- -- 961
Net income -- -- 68,539 -- 68,539
Dividends declared - $1.80 per share -- -- -- (72,846) (72,846)
--------- --------- --------- --------- ---------
BALANCE, December 31, 1996 $ 406 $ 553,335 $ 129,209 $(187,580) $ 495,370
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 68,539 $ 51,329 $ 25,905
Adjustments to net income:
Depreciation and amortization 20,654 21,201 22,810
Equity in net loss of affiliate 1,396 -- --
Provision for uncollectible mortgages 1,400 -- --
Gain on sale of property (9,899) (977) (2,784)
REIT transaction related costs -- -- 28,198
Loss on early extinguishment of debt -- 2,464 --
Other 4,189 4,604 1,854
--------- --------- ---------
Net cash provided by operating activities 86,279 78,621 75,983
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (128,713) (143,262) (48,233)
Investment in mortgage loans (49,102) (133,289) (33,868)
Investment in notes receivable (17,280) (1,200) --
Proceeds from securitization transaction 151,720 -- --
Collection of investment security principal 715 -- --
Investment in related party notes receivable (147,616) -- --
Investment in affiliate (9,500) -- --
Proceeds from sale of property 34,015 12,210 18,628
Receipt of mortgage loan payoffs 11,935 489 5,345
Collection of mortgage loan principal 4,867 5,337 2,445
--------- --------- ---------
Net cash used in investing activities (148,959) (259,715) (55,683)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (72,725) (72,471) (76,420)
Capital contributions 5,860 852 --
Proceeds from bank borrowings 254,000 361,412 64,475
Proceeds from issuance of notes 100,000 198,678 --
Payment of bank borrowings and loan fees (215,172) (317,405) (12,190)
Payment of variable rate notes and fractional shares -- -- (11,745)
Payment of REIT transaction related costs -- -- (24,173)
--------- --------- ---------
Net cash provided by (used in) financing activities 71,963 171,066 (60,053)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 9,283 (10,028) (39,753)
CASH AND CASH EQUIVALENTS, beginning of year 2,067 12,095 51,848
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 11,350 $ 2,067 $ 12,095
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-6
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
(1) ORGANIZATION AND OPERATION:
---------------------------
Franchise Finance Corporation of America ("FFCA") is a fully integrated
and self-administered real estate investment trust ("REIT") which invests in
chain restaurant real estate throughout the United States. FFCA provides
financing to chain restaurant operators with experienced management in
established restaurant chains principally through sale/leaseback transactions
and mortgage loans. FFCA and its predecessor companies, identified in Note 17,
have provided financing to the chain restaurant industry since 1981. FFCA's
portfolio of properties is diversified by tenant, restaurant concept and
geographic location. At December 31, 1996, FFCA had interests in 1,869
restaurant properties through various investments. FFCA's portfolio included
1,432 restaurant properties represented by investments in real estate and
mortgage loans receivable, 243 properties represented by securitized mortgage
loans in which FFCA holds a residual interest and 194 properties represented by
mortgage loans originated and held by FFCA's affiliate, FFCA Mortgage
Corporation (see Note 5). These restaurants are operated by approximately 400
restaurant operators in over 35 chains in 46 states.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Consolidation and Equity Method Investments - The accompanying
consolidated financial statements include the accounts of FFCA and its
wholly-owned subsidiaries, FFCA Acquisition Corporation, FFCA Residual Interest
Corporation, FFCA Secured Assets Corporation and FFCA Institutional Advisors,
Inc. All intercompany transactions have been eliminated. Investments in
companies in which FFCA has significant influence but less than a controlling
voting interest are accounted for using the equity method. Under the equity
method, only FFCA's investment in and amounts due from the equity investee are
included in the consolidated balance sheet, only FFCA's share of the investee's
earnings is included in the consolidated operating results, and only the cash
investment, loans or other cash paid to the investee, less any dividends, cash
distributions, loan repayments or other cash received from the investee, are
included in the consolidated cash flows.
Federal Income Taxes - FFCA has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended, as of June 1, 1994. As a result, FFCA
generally will not be subject to federal income taxation at the corporate level
provided it meets certain tests which, among other things, require that its
assets consist primarily of real estate, its income be derived primarily from
real estate and at least 95% of its taxable income be distributed annually to
its shareholders. The tax basis of the assets and liabilities has been recorded
based upon the value of the consideration exchanged upon the merger of FFCA with
its predecessor companies (see Note 17) and, accordingly, the tax basis of the
net assets exceeds the book basis by approximately $228 million at December 31,
1996. Prior to June 1, 1994, the majority of FFCA's operations were conducted
through public real estate limited partnerships. In accordance with partnership
taxation, each of the partners is responsible for reporting his or her share of
taxable income. Accordingly, no income tax provision has been made in the
accompanying consolidated financial statements.
Real Estate - FFCA records the acquisition of real estate at cost,
which includes miscellaneous acquisition and closing costs. Depreciation is
computed using the straight-line method over the estimated useful life of 24 to
30 years for the restaurant buildings and improvements and 7 to 8 years for
restaurant equipment. FFCA periodically reviews its real estate portfolio for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the property may not be recoverable, such as may be the case
with vacant restaurant properties. If an impairment loss is indicated, the loss
is measured as the amount by which the carrying amount of the asset exceeds the
estimated fair value of the asset. Gain on sale of property in the consolidated
statements of income for the years ended December 31, 1996, 1995 and 1994 is
F-7
<PAGE>
net of approximately $3.3 million, $3.4 million and $1.6 million, respectively,
of impairment loss related to certain vacant properties. Vacant properties held
for sale represent less than 1% of the total real estate investment portfolio at
December 31, 1996.
Lease and Loan Origination Fees and Costs - FFCA generally receives a
fee related to activities performed to process a borrower's request for and
origination of credit. Direct costs associated with these activities are offset
against the related fees received and the balance is deferred and amortized into
revenue over the term of the related lease or loan.
Cash and Cash Equivalents - Cash and cash equivalents include all cash
and highly liquid investment securities with maturities at acquisition of three
months or less. Such investment securities are carried at cost plus accrued
interest which approximates fair market value.
Prepaid Rent Insurance - Other Assets include prepaid rent insurance
which is amortized over a period of 118 months using the straight-line method.
The policy guarantees 80% of rental payments for land and note payments on
buildings (but not equipment) for a period of 10 years. At December 31, 1996,
14% of the total cost of FFCA's real estate is covered by rent insurance.
Included in rental revenue for 1996, 1995 and 1994 is approximately $1.7
million, $3.3 million and $6.2 million, respectively, of rent insurance revenue.
Rent insurance coverage on FFCA properties expires at various dates, with the
majority of the policies expiring by 1998.
Debt Financing Costs - Included in Other Assets are costs totaling $5.3
million in 1996 and 1995 (net of accumulated amortization of $1.1 million in
1996 and $90,000 in 1995) associated with the issuance in 1995 of FFCA's Senior
Notes and the issuance in 1996 of various unsecured notes, which costs are
amortized over the terms of the notes on a straight-line basis. Amortization of
these debt issuance costs for the years ended December 31, 1996 and 1995
amounted to $994,000 and $90,000, respectively, which is included in interest
expense in the accompanying financial statements.
Derivative Financial Instruments - FFCA may periodically use derivative
financial instruments to enhance its ability to manage interest rate exposures
in its debt portfolio which exist as part of its ongoing business operations.
FFCA does not hold or issue derivative financial instruments for speculative
trading purposes. The derivative instruments used are interest rate agreements
which are non-leveraged and involve little complexity. Gains and losses under
such agreements designated as hedges are deferred and amortized to interest
expense over the term of the associated debt. FFCA had no derivative instruments
outstanding during 1996.
Rental Revenue Recognition - FFCA leases its real estate under
long-term net leases which are classified as operating leases. Rental revenue
from operating leases is recognized as it is earned.
Investment Property Sales - FFCA records certain sales of property and
equipment under the installment or cost recovery method. Gains totaling
approximately $664,000 in 1996, $3 million in 1995 and $600,000 in 1994 were
deferred on such sales. For financial reporting purposes, deferred gains on
property sales reduced the related mortgage loan receivable balances and totaled
$1.5 million and $6.6 million at December 31, 1996 and 1995, respectively.
Net Income Per Share - Net income per share is calculated using
40,603,307 and 40,294,427 weighted average common and common equivalent shares
outstanding during 1996 and 1995, respectively. In 1994 net income per share is
calculated using 40,250,719 shares of FFCA's common stock issued upon
consummation of the Consolidation (see Note 17) as if these shares were
outstanding the entire year.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues
F-8
<PAGE>
and expenses during the reporting period. Although management believes its
estimates are reasonable, actual results could differ from those estimates.
(3) INVESTMENTS IN REAL ESTATE:
---------------------------
FFCA's real estate portfolio is leased to tenants under long-term net
operating leases. The lease agreements generally provide for monthly rentals
equal to the greater of a percentage of the property's cost or a percentage of
its gross sales. The term of the leases is generally 20 years for land and
buildings and seven or eight years for equipment (if any). The initial terms of
FFCA's leases extend through 2017 with a weighted average remaining term of 11.5
years as of December 31, 1996. Land and building leases generally provide for
two or four five-year renewal options. Generally, the lessee has the option to
purchase equipment at the end of the lease term and land and buildings anytime
after the first ten years of the lease at fair market value (but not less than
original cost in most cases). Leases entered into after 1994 generally provide
for 90-day option windows at various dates during the lease term. Approximately
three-fourths of FFCA's land and building leases provide for purchase options,
one-half of which are currently exercisable. One lessee (Foodmaker, Inc.),
operating 170 Jack In The Box restaurants in the western United States,
accounted for approximately 10.9% of FFCA's revenues received from investments
in chain restaurant real estate in 1996, 12.5% in 1995 and 14% in 1994.
Minimum future rentals under noncancellable operating leases as of
December 31, 1996, are as follows (amounts in thousands):
Year ending December 31,
------------------------
1997 $ 91,459
1998 91,261
1999 90,561
2000 88,606
2001 87,019
Thereafter 622,260
----------
Total minimum future rentals $1,071,166
==========
The above table assumes that all leases which expire are not renewed;
therefore, neither renewal rentals nor rentals from replacement lessees are
included. In addition, minimum future rentals do not include contingent rentals
which may be received under the leases based upon a percentage of the lessee's
gross sales ("percentage rentals"). These percentage rentals totaled
approximately $5 million in 1996, $4 million in 1995 and $3.8 million in 1994.
(4) MORTGAGE LOANS RECEIVABLE:
--------------------------
At December 31, 1996, FFCA held first mortgage loans on the land and/or
buildings and/or equipment of approximately 236 restaurants represented by $37.8
million in participating fixed-rate loans (net of reserve of $1.4 million in
1996) and $20 million in variable-rate loans. Generally, the fixed-rate loans
carry interest rates ranging from 10% to 13.5% per annum and mature 5 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 and carry an average
interest rate of 7.625% at December 31, 1996. Principal and interest payments on
the mortgage loans are due in level amounts with payments aggregating
approximately $9 million per year to maturity. These mortgage loans receivable
are held for long-term investment.
In addition to the base interest, the mortgage loan agreements
generally provide for additional interest payments based on a percentage of the
mortgagor's gross restaurant sales ("participations"). Participating mortgage
loans originated after 1994 generally provide for no prepayment for the first
ten years of the loan or provide for prepayment penalties. Participating
mortgage loans originated prior to 1994 were on properties
F-9
<PAGE>
for which FFCA held title to the land only and made mortgage loans for the
related restaurant buildings and are generally are not subject to prepayment
without the lessee exercising the related land lease purchase option.
FFCA also held various notes totaling $18.8 million at December 31,
1996 and $3 million at December 31, 1995 (net of allowances of $875,000 in 1996
and $850,000 in 1995). Generally, the notes carry interest rates ranging from
10% to 12% per annum and mature 5 to 10 years from the date of origination.
(5) OTHER INVESTMENTS:
------------------
Investment Securities - Certain mortgage loans originated by FFCA and
its predecessors totaling $178.8 million were securitized on June 27, 1996 and
Secured Franchise Loan Pass-Through Certificates (the "Certificates") were sold
to investors. The servicing rights and any participations 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. These investment securities, totaling $29.7
million at December 31, 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. The gain on the sale of the mortgage loans
was reduced by establishing a reserve approximating $4.5 million for estimated
probable losses under the subordination provisions of the securitization.
These securities are classified as available for sale.
Investment in Affiliate - At December 31, 1996, FFCA held an investment
in FFCA Mortgage Corporation (Mortgage Corp.), which FFCA accounts for under the
equity method. Originally, Mortgage Corp. was a wholly-owned subsidiary of FFCA
formed in 1996 to originate mortgage loans to be held for future securitization
transactions. Mortgage Corp. was substantially inactive until September 1996
when FFCA exchanged all of the voting common stock of Mortgage Corp. for 100
shares of newly-issued, non-voting preferred stock. The preferred stock, which
represents all of the issued and outstanding stock of such class, entitles FFCA
to 95% of any dividends declared by Mortgage Corp. and 95% of Mortgage Corp.'s
profits and losses. The Chief Executive Officer of FFCA owns all of the
outstanding (voting) common stock of Mortgage Corp.
A summary of selected financial information as reported by Mortgage
Corp. as of, and for the year ended December 31, 1996, is set forth below
(amounts in thousands):
Revenues $ 2,336
Interest expense 2,861
Net loss $ (1,470)
Mortgage loans held for sale $ 140,967
Total Assets 156,928
Notes payable to FFCA (see Note 6) 147,616
Total Liabilities 148,398
Total Shareholders' Equity $ 8,530
(6) RELATED PARTY NOTES RECEIVABLE:
-------------------------------
FFCA provides funding to its affiliate, Mortgage Corp., for
the origination of mortgage loans. Under revolving loan agreements with Mortgage
Corp., FFCA is entitled to receive a draw fee of 1% and interest at a rate equal
to LIBOR or a Base rate (as defined in the agreement), plus a margin. The margin
for advances secured by real property is 2.5% and the margin for advances
secured by equipment is 3.0%. FFCA also provides temporary working capital
advances to Mortgage Corp. bearing an interest rate of LIBOR plus 3.0%.
F-10
<PAGE>
At December 31, 1996, FFCA had notes receivable from Mortgage Corp. outstanding
under these agreements totaling $147.6 million. The notes are due in December
1998.
(7) NOTES PAYABLE:
-------------
FFCA's notes payable consist of the following:
1996 1995
-------- --------
(amounts in thousands)
7% Senior Notes due 2000, net of unamortized discount
of $952 in 1996 and $1,196 in 1995 $149,048 $148,804
7.875% Senior Notes due 2005, net of unamortized
discount of $92 in 1996 and $102 in 1995 49,908 49,898
6.78% Notes due 2002 30,000 -
7.02% Notes due 2003 30,000 -
7.1% Notes due 2026, callable by holder in 2004 40,000 -
-------- --------
$298,956 $198,702
======== ========
In October 1995, FFCA registered with the Securities and Exchange
Commission up to $500 million of debt and equity securities to be issued from
time to time in the future. In November 1995, FFCA issued unsecured debt
consisting of $150 million of Senior Notes due November 30, 2000 and $50 million
of Senior Notes due November 30, 2005. The effective rates on the Senior Notes
approximate 7.2% and 7.9%, respectively. During 1996, FFCA issued unsecured debt
consisting of $100 million of notes due at various dates from 2002 through 2026,
with a weighted average interest rate of 6.98%.
Interest on this unsecured debt is payable semi-annually in arrears on
each May 30 and November 30 with principal due at maturity. With the exception
of the $40 million notes due 2026, the notes may not be redeemed prior to their
respective maturities. The note agreements contain certain covenants which,
among other restrictions, limit the incurrence of additional debt if FFCA's debt
exceeds 60% of total assets (40%, if secured debt) as defined in the note
agreements, or if FFCA's debt service coverage is less than 1.5 to 1. As of
December 31, 1996, FFCA was in compliance with its note covenants.
Subsequent to December 31, 1996, 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 on these notes is payable quarterly in
arrears commencing April 14, 1997, with quarterly interest reset dates. The
notes are subject to optional redemption by FFCA on a quarterly basis at a
redemption price of 100% of the principal amount of the notes.
(8) BORROWINGS UNDER LINE OF CREDIT:
--------------------------------
Borrowings under FFCA's line of credit consist of the following:
1996 1995
--------- --------
(amounts in thousands)
Borrowings at 30-day LIBOR plus 1% (ranging from
6.6875% to 6.75%) at December 31, 1996 and
LIBOR plus 1.5% (7.35%) at December 31, 1995 $ 85,500 $102,500
Borrowings at Base rate (8.25% and 8.50% at December 31,
1996 and 1995, respectively), subsequently converted
to LIBOR loans 65,000 7,500
-------- --------
$150,500 $110,000
======== ========
At December 31, 1996, FFCA had outstanding $150.5 million on a $200
million acquisition loan facility with participating banks used to provide funds
for the acquisition or financing of chain restaurant properties. This unsecured
revolving credit facility is due in periodic installments of interest only
(weighted
F-11
<PAGE>
average of 7.03% in 1996 and 7.79% in 1995). Effective December 27, 1996, FFCA
also has the option under this loan facility to borrow at rates that are
competitively bid among the participating banks. The loan facility provides for
a fee on the unused commitment amount of .20% per annum, payable quarterly in
arrears. The acquisition loan facility expires in December 1998, with the
possibility of two annual extensions.
In 1995, FFCA initiated an early termination of its credit facility
which enabled it to reduce its cost of borrowings while also removing the bank's
security interest in the stock of FFCA's wholly-owned subsidiary, FFCA
Acquisition Corporation. As a result of the early extinguishment of this debt,
FFCA expensed approximately $2.5 million in unamortized loan costs in 1995 which
is reported as an extraordinary item on the consolidated statement of income.
Amortization of loan fees related to these facilities for the years
ended December 31, 1996 and 1995 amounted to $1.4 million and $2.1 million,
respectively, which is included in interest expense in the accompanying
consolidated financial statements. The credit agreement contains covenants
which, among other restrictions, require FFCA to maintain a fixed charge
coverage ratio of 2 to 1 and a minimum net worth of $425 million, as defined. As
of December 31, 1996, FFCA was in compliance with its debt covenants.
(9) DIVIDENDS:
----------
FFCA declared a fourth quarter 1996 dividend of $.45 per share, payable
on February 20, 1997, to shareholders of record on February 10, 1997. For tax
reporting purposes, this dividend is not included in the shareholders' 1996
taxable income. The dividend payments made by FFCA to its shareholders for 1996
are characterized as ordinary income of $1.58 per share and capital gain of $.22
per share. Dividend payments made by FFCA to its shareholders for 1995 are
characterized as ordinary income of $1.35 per share. FFCA's dividend payments
for the period from June 1, 1994 to December 31, 1994, including the fourth
quarter 1994 dividend, were characterized as ordinary income of $0.87 per share
and return of capital of $0.18 per share.
(10) STOCK OPTIONS:
--------------
On May 10, 1995, FFCA shareholders approved a stock option and
incentive plan which permits the issuance of options, restricted stock and other
stock-based awards to key employees, the Board of Directors and certain
independent contractors of FFCA. The plan reserves 3,018,804 shares of common
stock for grant and provides that the term of each award be determined by the
compensation committee of the Board of Directors. Under the terms of the plan,
options granted may be either non-qualified or incentive stock options and the
exercise price, determined by the committee, may not be less than the fair
market value of a share of common stock on the grant date. Options granted to
FFCA's non-employee directors are immediately exercisable, while the remaining
options generally vest over a three-year period from the date of grant. The
options expire ten years after the date of grant.
FFCA measures the compensation cost of its stock option and incentive
plan using the intrinsic value based method of accounting prescribed in APB
Opinion 25, "Accounting for Stock Issued to Employees". Accordingly, no
compensation cost has been recognized for its stock option and incentive plan.
Had FFCA's compensation cost been determined using the fair value based method
of accounting prescribed by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", FFCA's net income and earnings per
share would have been changed to the following pro forma amounts (in thousands,
except per share data):
1996 1995
-------------- ---------------
Net income as reported $68,539 $51,329
Net income pro forma $67,605 $48,812
Earnings per share as reported $1.69 $1.27
Earnings per share pro forma $1.67 $1.21
F-12
<PAGE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
8.2% and 8%; expected stock price volatility of 20.13% and 21.36%; risk-free
interest rates of 5.59% and 6.52%; and an expected option term of seven years.
A summary of the status of FFCA's stock option and incentive plan as of
December 31, 1996 and 1995, and changes during the years then ended, is
presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price
--------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 1,227,989 $19.50 - -
Granted 526,091 $21.87 1,227,989 $19.50
Exercised 48,899 $19.63 - -
Outstanding, end of year 1,705,181 $20.23 1,227,989 $19.50
Options exercisable, end of year 400,181 $19.64 20,489 $19.75
Weighted average fair value of
each option granted during year $2.05 $1.78
</TABLE>
As of December 31, 1996, options outstanding under the plan had exercise prices
ranging from $19.50 to $21.88 with a weighted average price of $20.23, and
expiration dates ranging from May 10, 2005 to May 13, 2006 with a weighted
average remaining term of 8.6 years.
(11) RELATED PARTY TRANSACTIONS:
---------------------------
In 1988, a partnership managed by an affiliate of FFCA provided
financing for land purchased by FFCA from the partnership and for the
construction of the corporate headquarters of FFCA (together, the FFCA
Premises). The term of the mortgage loan on the FFCA Premises is ten years and
provides for payments of interest only, at the rate of 10% per year, until May
2000, at which time the entire principal amount must be repaid to the
partnership. The loan also provides for the payment of additional interest upon
maturity based upon the increase, if any, in the value of the FFCA Premises, as
defined in the loan agreement. FFCA is accruing this additional interest over
the term of the loan based on an estimated payment of $1.1 million. Under
certain circumstances, FFCA may be required to prepay the loan; however,
management does not believe that such circumstances are probable. The loan is
secured by land and land improvements, the FFCA Premises and the guaranty of an
affiliate. The FFCA Premises, including equipment, amounted to $9 million in
1996 and 1995 (net of accumulated depreciation of $2.6 million in 1996 and $2.4
million in 1995) and is included in Other Assets in the accompanying financial
statements.
FFCA provides certain accounting, computer, investor and other
administrative services to its affiliates under a service agreement which
provides for a monthly fee based upon the amount of services used by each
affiliate. Fees for such services aggregated approximately $1.6 million in 1996,
$760,000 in 1995 and $599,000 in 1994.
(12) FINANCIAL INSTRUMENTS:
----------------------
The carrying value of FFCA's financial instruments approximates fair
value, except for differences with respect to mortgage loans receivable,
investment securities and long-term, fixed-rate debt (Notes Payable, Borrowings
Under Line of Credit and Mortgage Payable to Affiliate). The fair value of a
financial instrument is generally determined by reference to its quoted market
price or, if quoted market prices are not available, to the quoted market price
of a financial instrument with similar characteristics.
The fair value of FFCA's mortgage loans receivable is estimated by
discounting the future cash flows using the current interest rates for similar
loans with similar maturities at December 31, 1996, and exceeded its carrying
amount by $2.8 million. The fair value of FFCA's long-term investment securities
is based on
F-13
<PAGE>
quoted market prices of similar investments and, as of December 31, 1996,
exceeded the carrying amount by $8.8 million. Based on the level of interest
rates prevailing at December 31, 1996, the fair value of FFCA's long-term, fixed
rate debt exceeded its carrying amount by $5.5 million. Combined, this is
equivalent to an unrealized gain of $6.1 million; however, changes in the
unrealized gains or losses on mortgage loans receivable, the long-term
investment securities and fixed-rate debt do not result in the realization or
expenditure of cash unless the investments are actually sold or the debt is
retired.
(13) EMPLOYEE SAVINGS PLAN:
----------------------
The FFCA 401K Plan (the Plan) was established as a savings plan for
FFCA's employees who have been employed by FFCA (or its predecessor) for a
minimum of six months. The Plan allows employees to make their own contributions
through payroll deductions. FFCA matches participating employees' contributions
up to six percent of the participating employees' salaries. Employer matching
contributions are made in FFCA stock, which is purchased by the Plan on the open
market, and are subject to years-of-service vesting requirements. Employer
contributions totaled $213,000 in 1996, $169,000 in 1995 and $70,000 in 1994.
(14) COMMITMENTS AND CONTINGENCIES:
------------------------------
In the normal course of business, FFCA and its affiliates make
commitments to extend credit to meet the financing needs of its clients in the
chain restaurant industry. FFCA evaluates each client's credit and, based on
management's evaluation of the client and the proposed restaurant site,
determines the amount of credit to be extended and collateral obtained. The
commitments generally have fixed expiration dates or other termination clauses
and require payment of a fee by the client. At December 31, 1996, FFCA's
outstanding commitments to extend credit and to fund Mortgage Corp.'s
commitments to extend credit aggregated approximately $270 million.
FFCA guarantees Mortgage Corp.'s performance under a hedging program,
for which FFCA receives a guaranty fee equal to .19% of the notional amount of
the hedge contracts outstanding. In 1996, Mortgage Corp. had outstanding an
interest rate swap contract with a notional amount of approximately $65 million.
The counterparty to this contract requires FFCA (as guarantor of Mortgage
Corp.'s performance) to meet certain covenants which correspond to the covenants
provided for under FFCA's line of credit (see Note 8). At December 31, 1996,
FFCA was in compliance with these covenants. Mortgage Corp. had no outstanding
liabilities under this contract during 1996 and would have received $632,000 if
it had terminated this swap contract at December 31, 1996.
(15) ADDITIONAL FINANCIAL INFORMATION:
---------------------------------
Additional information with respect to cash flows follows (amounts in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -------
<S> <C> <C> <C>
Mortgage loans obtained as part of property sale proceeds,
net of deferred gain $825 $5,542 $2,356
Acquisition of property and equipment through foreclosure $1,245 - $120
Shares issued in exchange for limited partnership interests - - $393
Distribution of FFCA I assets to shareholders - - $4,104
Investment in securities $30,763 - -
Interest paid $23,692 $12,802 $3,030
Taxes paid/(refunds received) $27 $(816) $231
</TABLE>
F-14
<PAGE>
(16) QUARTERLY FINANCIAL INFORMATION (Unaudited):
--------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
1996
- ----
Revenues $29,667 $31,208 $29,061 $31,230
Net income 13,777 21,894 15,831 17,037
Net income per share 0.34 0.54 0.39 0.42
Dividends per share $ 0.45 $ 0.45 $ 0.45 $ 0.45
Weighted average shares 40,425 40,486 40,683 40,865
1995
- ----
Revenues $23,231 $24,854 $26,524 $27,974
Income before extraordinary item 13,707 12,887 13,695 13,504
Net income 13,707 12,887 13,695 11,040
Income before extraordinary item per share 0.34 0.32 0.34 0.33
Net income per share 0.34 0.32 0.34 0.27
Dividends per share $ 0.45 $ 0.45 $ 0.45 $ 0.45
Weighted average shares 40,251 40,251 40,251 40,394
</TABLE>
(17) REIT FORMATION:
---------------
FFCA was organized as a Delaware corporation in June 1993 to facilitate
the consolidation by merger (the Consolidation) of Franchise Finance Corporation
of America I (FFCA I) and eleven public real estate limited partnerships (the
Partnerships) with and into FFCA. The Consolidation was effected on June 1, 1994
and was accounted for as a reorganization of affiliated companies under common
control in a manner similar to a pooling of interests. Certain costs incurred to
effect the Consolidation and integrate the continuing operations of the separate
companies were expensed in 1994 and are included in REIT Transaction Related
Costs in the accompanying consolidated statements of income. The Consolidation
did not require any material adjustments to conform the accounting policies of
the predecessor companies to that of FFCA; however, certain reclassifications
have been made to prior years' financial statements to conform with current year
presentation.
FFCA I and investors in the Partnerships who elected to invest in FFCA
received shares of common stock of FFCA totaling 40,250,719 shares (fractional
shares totaling $918,820 were paid in cash). Certain investors elected to
receive variable rate senior notes (the Variable Rate Notes) totaling
$10,825,911. Rather than issuing the Variable Rate Notes, FFCA paid to those
investors an amount equal to the Variable Rate Notes plus interest at an
annualized rate of 5.0625% for the period June 1, 1994 through June 30, 1994.
Certain non-real estate assets and liabilities of FFCA I were not included in
the Consolidation and, accordingly, were not transferred to FFCA. These amounts
are treated as a net distribution upon Consolidation in the accompanying
financial statements.
The consolidated statement of income for the year ended December 31,
1994 includes the operations of the Predecessor Companies combined from the
beginning of the year through May 31, 1994 and those of FFCA from June 1, 1994
to December 31, 1994. For the period January 1, 1994 through May 31, 1994, the
Partnerships recorded revenues of $37 million and net income of $22 million, and
FFCA I recorded revenues of $5.3 million and a net loss of $4.8 million.
Intercompany eliminations totaled $4 million and $180,000 in revenues and net
income, respectively. The results of operations of FFCA I for the period January
1, 1994 through May 31, 1994 include expenses approximating $6 million in
connection with the payoff of deferred compensation arrangements and stock
compensation paid prior to, and in connection with, the Consolidation. The
Partnerships involved in the Consolidation are Hardee's Lease Partners 1980,
Insured Income Properties 1981, Insured Income Properties 1982, Insured Income
Properties 1983, Insured Income Properties 1984, Insured Income Properties 1985,
Insured Income Properties 1986, Insured Income Properties 1988, Insured Pension
Investors 1983, Insured Pension Investors 1984 and Insured Pension Investors
1985.
F-15
<PAGE>
SCHEDULE III
Page 1 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1996
-----------------------
<TABLE>
<CAPTION>
Initial Cost to Company and
Gross Amount at December 31, 1996 Accumulated Depreciation
-------------------------------------------------------- ------------------------------------------
No. of
U.S. Region Properties Land Buildings Equipment Total Buildings Equipment Total
- ----------- ---------- ------------- ------------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mideast 153 $ 43,882,530 $ 60,873,051 $ 1,315,153 $106,070,734 $ 13,224,901 $ 1,267,623 $ 14,492,524
Northeast 83 22,824,405 34,489,767 1,084,507 58,398,679 6,207,576 1,070,937 7,278,513
E.N. Central 182 36,259,877 74,953,212 6,552,107 117,765,196 25,410,377 6,289,979 31,700,356
W.N. Central 125 24,458,495 45,690,513 3,761,446 73,910,454 15,469,004 3,633,742 19,102,746
Southeast 381 92,079,509 133,796,454 8,254,388 234,130,351 40,480,022 8,208,086 48,688,108
Southwest 203 57,081,173 74,257,333 6,696,205 138,034,711 21,159,148 6,614,547 27,773,695
Mountain 96 28,629,979 37,304,547 2,726,400 68,660,926 9,992,603 2,671,572 12,664,175
Pacific 128 41,410,124 29,141,246 693,051 71,244,421 10,548,094 693,080 11,241,174
----- ------------ ------------- ------------ ------------ ------------- ------------ -------------
TOTAL 1,351 $346,626,092 $490,506,123 $ 31,083,257 $868,215,472 $ 142,491,725 $ 30,449,566 $ 172,941,291
===== ============ ============= ============ ============ ============= ============ =============
</TABLE>
F-16
<PAGE>
SCHEDULE III
Page 2 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1996
-----------------------
NOTES:
(1) All property is restaurant property.
(2) There are no encumbrances on properties.
(3) The aggregate cost for Federal income tax purposes is approximately
$902 million.
(4) Depreciation is computed over the estimated useful life of 24 to 30
years for the restaurant buildings and improvements and 7 to 8 years
for the restaurant equipment.
(5) Transactions in real estate and equipment and accumulated depreciation
during 1996, 1995, and 1994 are summarized as follows:
Accumulated
Cost Depreciation
---- ------------
Balance, December 31, 1993 $661,576,553 $159,353,879
Acquisitions 48,233,127 -
Repossessed equipment 119,681 -
Cost of real estate sold (19,907,230) (4,098,224)
Cost of equipment sold (7,296,677) (6,472,931)
Impairment loss (1,600,000) -
Depreciation expense - 20,786,738
------------ --------------
Balance, December 31, 1994 681,125,454 169,569,462
Acquisitions 143,261,856 -
Cost of real estate sold (17,992,264) (4,952,633)
Cost of equipment sold (8,399,941) (7,850,715)
Impairment loss (3,415,000) -
Depreciation expense - 19,466,354
------------ --------------
Balance, December 31, 1995 794,580,105 176,232,468
Acquisitions 128,713,459 -
Cost of real estate sold (42,447,500) (12,705,404)
Cost of equipment sold (10,590,592) (10,121,887)
Foreclosed property 1,245,000 -
Impairment loss (3,285,000) -
Depreciation expense - 19,536,114
------------ --------------
Balance, December 31, 1996 $868,215,472 $172,941,291
============ ============
F-17
<PAGE>
SCHEDULE IV
Page 1 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
-----------------------------------------
AS OF DECEMBER 31, 1996
-----------------------
<TABLE>
No. of Face Amount Carrying Amount Interest Maturity Date
U.S. Region Original Loan Amount Financed Properties of Mortgages of Mortgages Rate Range Range
- ----------- -------------------- ------------------- ------------ ------------ ---------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Southeast under $500,000 41 $ 5,967,464 $ 4,131,576 10.5% - 13.5% Jul. 1999 - Aug. 2016
$501,000-$1,000,000 2 1,291,234 858,062 10.0% - 10.5% Jan. 2000 - Sep. 2014
------------ ------------
7,258,698 4,989,638
------------ ------------
Mideast under $500,000 6 1,181,980 944,518 11.0% - 12.5% Nov. 1997 - Mar. 2003
$501,000-$1,000,000 1 750,000 405,546 10.5% Jan. 2006
over $1,000,000 1 1,290,500 649,074 10.0% Oct. 1999
------------ ------------
3,222,480 1,999,138
------------ ------------
Northeast under $500,000 25 4,391,769 3,850,342 11.25% - 11.5% Apr. 2003 - Nov. 2003
over $1,000,000 3 4,126,175 2,565,257 11.5% Sep. 2015 - Nov. 2015
------------ ------------
8,517,944 6,415,599
------------ ------------
E.N. Central under $500,000 26 1,398,468 1,001,020 11.0% - 12.5% Nov. 1997 - Oct. 2002
$501,000-$1,000,000 11 7,752,120 7,088,756 11.0% - 15.0% Oct. 1999 - May 2015
over $1,000,000 1 1,600,000 1,534,380 10.5% Sep. 2015
------------ ------------
10,750,588 9,624,156
------------ ------------
W.N. Central under $500,000 17 1,523,008 1,235,416 10.0% - 11.25% Oct. 1996 - Oct. 2002
$501,000-$1,000,000 8 5,382,821 4,286,422 10.5% - 13.5% Jan. 2002 - Oct. 2005
------------ ------------
6,905,829 5,521,838
------------ ------------
Southwest $20,000,000* 60 20,000,000 20,000,000 7.63% Jan. 1998
under $500,000 19 3,993,418 3,508,370 10.5% - 12.5% Nov. 1997 - Jun. 2016
------------ ------------
23,993,418 23,508,370
------------ ------------
Mountain under $500,000 9 2,924,234 2,488,717 10.25% - 11.29% June 1996 - Apr. 2003
$501,000-$1,000,000 4 2,484,337 1,805,885 10.75% - 14.5% Mar. 2001 - Nov. 2005
------------ ------------
5,408,571 4,294,602
------------ ------------
Pacific $501,000-$1,000,000 1 548,672 532,533 11.5% Oct. 2002
over $1,000,000 1 1,200,000 921,900 10.6% Jun. 2008
------------ ------------
1,748,672 1,454,433
------------ ------------
TOTAL $67,806,200 $57,807,774
============ ============
</TABLE>
*Variable Rate Mortgage Loan
F-18
<PAGE>
SCHEDULE IV
Page 2 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
-----------------------------------------
AS OF DECEMBER 31, 1996
-----------------------
NOTES:
(1) Generally, loans are first mortgages for restaurant land, buildings
and/or equipment.
(2) Principal and interest are payable at level amounts to maturity.
(3) For mortgages where the land is under a ground lease, there are
generally no provisions for prepayment of the mortgage loans in whole
or in part, except upon sale of the related property.
(4) There are no prior liens.
(5) The aggregate cost for Federal income tax purposes is approximately
$61 million.
(6) Transactions in mortgage loans on real estate during 1996, 1995 and
1994 are summarized as follows:
Balance, December 31, 1993 $ 38,091,398
Additions during period:
New mortgage loans 36,641,734
Deferred gain, net of gain recognized (513,306)
Unamortized loan fees, net of amortization (261,321)
Deductions during period:
Collections of principal (2,149,648)
Mortgage loan payoffs (5,709,042)
Foreclosures (119,681)
--------------
Balance, December 31, 1994 65,980,134
Additions during period:
New mortgage loans 141,788,744
Deferred gain, net of gain recognized (2,714,965)
Unamortized loan fees, net of amortization (1,228,717)
Deductions during period:
Collections of principal (3,381,980)
Mortgage loan payoffs (956,538)
--------------
Balance, December 31, 1995 199,486,678
Additions during period:
New mortgage loans 50,592,083
Recognition of deferred gain, net of additional
deferred gains in 1996 5,145,117
Net loan fees recognized 1,490,038
Deductions during period:
Collections of principal (4,867,192)
Mortgage loan payoffs (190,769,351)
Reserve for mortgage loan losses (1,400,000)
Foreclosures (1,869,599)
-------------
Balance, December 31, 1996 $57,807,774
=============
F-19
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
-------------------------------
Exhibit Index
-------------------------------
The following is a complete list of exhibits filed as part of this Form 10-K.
For electronic filing purposes only, this report contains Exhibit 27, Financial
Data Schedule. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit No. Description
- ----------- -----------
3.02 Amended and Restated Bylaws of the Company (1)
3.03 Restated Certificate of Incorporation of the Company (2)
4.01 Indenture dated as of November 21, 1995 relating to the
7% Senior Notes due 2000 and the 7 7/8% Senior Notes due
2005 (3)
4.02 Specimen of Common Stock Certificate (1)
10.01 Acquisition, Construction and Term Loan Agreement, dated
as of December 29, 1988, by and between Franchise Finance
Corporation of America and Scottsdale Land Trust Limited
Partnership (1)
10.02 Promissory Note dated December 29, 1988, executed by
Franchise Finance Corporation of America in favor of
Scottsdale Land Trust Limited Partnership in the
principal amount of $8,500,000 (1)
10.11 1995 Stock Option and Incentive Plan of Franchise Finance
Corporation of America (4)
10.12 Revolving Loan Agreement dated as of September 1, 1996,
by and between Franchise Finance Corporation of America
and FFCA Mortgage Corporation (5)
10.13 Equipment Revolving Loan Agreement dated as of September
1, 1996, by and between Franchise Finance Corporation of
America and FFCA Mortgage Corporation (5)
10.14 Guaranty of Franchise Finance Corporation of America,
with exhibits, dated December 31, 1996 with respect to
the ISDA Master Agreement and Schedule dated December 31,
<PAGE>
1996 by and between Franchise Finance Corporation of
America and FFCA Mortgage Corporation*
21.01 Subsidiaries of the Registrant*
23.01 Consent of Arthur Andersen LLP*
99.01 Credit Agreement dated as of December 27, 1995 among
Franchise Finance Corporation of America, Certain Lenders
and NationsBank of Texas, N.A., providing a credit
facility in the principal amount of $200,000,000 (the
"Credit Agreement") (6)
99.02 Guaranty Agreement dated as of December 27, 1995 made by
FFCA Acquisition Corporation and FFCA Institutional
Advisors, Inc., guaranteeing the obligations of Franchise
Finance Corporation of America under the Credit
Agreement (6)
99.03 Promissory Note dated as of December 27, 1995 executed by
Franchise Finance Corporation of America in favor of
NationsBank of Texas, N.A., in connection with the Credit
Agreement (6)
99.04 Subordination Agreement dated as of December 27, 1995,
made by FFCA Acquisition Corporation and Franchise
Finance Corporation of America for the benefit of Certain
Lenders and NationsBank of Texas, N.A., in connection
with the Credit Agreement (6)
99.05 Subordination Agreement dated as of December 27, 1995,
made by FFCA Institutional Advisors, Inc. and Franchise
Finance Corporation of America for the benefit of Certain
Lenders and NationsBank of Texas, N.A., in connection
with the Credit Agreement (6)
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 (7)
99.07 First Amendment to Credit Agreement dated February 23,
1996 among Franchise Finance Corporation of America,
Certain Lenders and NationsBank of Texas, N.A. as
Administrative Lender (8)
<PAGE>
99.08 Second Amendment to Credit Agreement dated June 24, 1996
among Franchise Finance Corporation of America, Certain
Lenders and NationsBank of Texas, N.A. as Administrative
Lender (7)
99.09 Third Amendment to Credit Agreement dated December 27,
1996 among Franchise Finance Corporation of America,
Certain Lenders and NationsBank of Texas, N.A. as
Administrative Lender*
- --------------
*Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-4 and amendments thereto, registration number 33-65302, as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, as filed with the Securities and
Exchange Commission.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated November 24, 1995, as filed with the Securities and Exchange Commission.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, as filed with the Securities and
Exchange Commission.
(5) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated September 1, 1996, as filed with the Securities and Exchange Commission.
(6) Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated January 25, 1996, as filed with the Securities and Exchange Commission.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1996, as filed with the Securities and
Exchange Commission.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1996, as filed with the Securities and
Exchange Commission.
GUARANTY OF FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------------------
THIS GUARANTY, dated December 31, 1996, is given by Franchise Finance
Corporation of America, a corporation organized under the laws of the State of
Delaware (the "Guarantor") in favor of NationsBank, N.A., a national banking
association organized under the laws of the United States ("NationsBank") .
1. Unconditional Guaranty. In consideration of and to induce NationsBank to
enter into any Transactions, as defined in the ISDA Master Agreement between our
subsidiary FFCA Mortgage Corporation ("Counterparty") and NationsBank, dated
December 31, 1996 (the "Agreement"), the Guarantor unconditionally guarantees to
NationsBank and its successors and assigns (collectively, the "Bank"), the
prompt payment when due of all present and future obligations and liabilities of
all kinds (including any renewals, extensions or modifications thereof) arising
out of any Transactions pursuant to the Agreement between the Bank and the
Counterparty (the "Obligations") .
This Guaranty is unconditional and shall not be affected by the genuineness,
validity, regularity or enforceability of the Obligations or any instrument
evidencing any Obligations, or by the existence, validity, enforceability,
perfection, or extent of any collateral therefor, or by any circumstance
relating to the Obligations which might otherwise constitute a defense to this
Guaranty. This Guaranty is absolute and unconditional and shall remain in full
force and effect and be binding upon the Guarantor, its successors and assigns
until all of the Obligations have been satisfied in full. In the event that any
payment by the Counterparty in respect of any Obligations is rescinded or must
otherwise be returned for any reason whatsoever the Guarantor shall remain
liable hereunder in respect of such Obligations as if such payment had not been
made.
The Guarantor agrees that the Bank may resort to the Guarantor for payment of
any of the Obligations whether or not the Bank has proceeded against any other
obligor principally or secondarily liable for any Obligations, including the
Counterparty. The Bank shall not be obligated to file any claim relating to the
Obligations, including any claim in the event that the Counterparty becomes
subject to a bankruptcy, reorganization or similar proceeding, and the failure
of the Bank to file any such claim shall not affect the Guarantor's obligations
hereunder. The Guarantor also specifically waives the presentment to or demand
of payment from anyone whomsoever liable upon any of the Obligations, including
presentment, demand, protest or notice of dishonor, and all other notices
whatsoever.
2. Consents. The Guarantor agrees that the Bank may at any time extend the time
of payment of or renew any of the Obligations, or make any agreement with the
Counterparty or with any other party or person liable on any of the Obligations,
for the extension, renewal, payment, compromise, discharge or release of the
Obligations (in whole or in part), or for any modification of the terms thereof
or of any agreement between the Bank and Counterparty or any such other party or
person, without in any way impairing or affecting this Guaranty for any
outstanding Obligations.
3. Rights; Expenses. No failure by the Bank to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Bank of any right,
remedy or power hereunder preclude any other or future exercise of any right,
remedy or power. Each and every right, remedy and power hereby granted to the
Bank or allowed by law or other agreement shall be cumulative and not exclusive
of any other right, remedy or power. The Guarantor agrees to pay on demand all
out-of-pocket expenses (including the reasonable fees and expenses of Bank's
counsel) in any way relating to the enforcement or protection of Bank's rights
under this Guaranty.
-1-
<PAGE>
4. Subrogation. The Guarantor shall not exercise any rights which it may have or
acquire by way of subrogation until all of the Obligations are paid in full to
the Bank. If any amounts are paid to the Guarantor in violation of the foregoing
limitation, then such amounts shall be held in trust for the benefit of the Bank
and shall forthwith be paid to the Bank to reduce the amount of outstanding
Obligations, whether matured or unmatured. Subject to the foregoing, upon
payment of all of the Obligations to the Bank, the Guarantor shall be subrogated
to the rights of the Bank against the Counterparty, and the Bank agrees to take
at the Guarantor's expense such actions as the Guarantor may reasonably require
to implement such subrogation.
5. Assignment; Termination. The Guarantor shall not assign its rights, interest,
duties or obligations hereunder to any other person without the Bank's prior
written consent. This Guaranty may be terminated by the Guarantor upon thirty
(30) days' prior written notice to the Bank, and will remain in force until such
time period elapses; provided, however, that the Guarantor shall remain fully
liable for, and this Guaranty shall continue to govern, all Obligations arising
or which may arise from Transactions entered into between the Bank and the
Counterparty prior to the actual termination of the Guaranty. None of the terms
or provisions of this Guaranty may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Guarantor and the Bank.
6. Taxes. All payments by the Guarantor hereunder will be made in full without
set-off or counterclaim and free and clear of and without withholding or
deduction for or on account of any present or future taxes, duties or other
charges, unless the withholding or deduction of such taxes or duties is required
by law. In any such event, however, the Guarantor shall pay such additional
amounts as may be necessary in order that the net amount received by the Bank
after such withholding or deduction shall equal the full amounts of moneys which
would have been received by the Bank in the absence of such withholding or
deduction. The Guarantor will pay all stamp duties and other documentary taxes
payable in connection with this Guaranty and will keep the Bank indemnified
against failure to pay the same.
7. Payments. The Guarantor hereby guarantees that the Obligations will be paid
to the Bank without set-off or counterclaim, in lawful currency of the United
States of America at the offices of the Bank as specified in the Agreement.
8. Representations. The Guarantor is duly organized, validly subsisting and in
good standing under the laws of its jurisdiction of incorporation or
organization, and has full corporate power to execute, deliver and perform this
Guaranty. The Guarantor has duly authorized this Guaranty, and the signatory of
this Guaranty has been duly authorized and has full power to execute and deliver
this Guaranty on behalf of the Guarantor. This Guaranty and the providing
thereof to the Bank does not violate any of the Guarantor's constitutive
documents, and this Guaranty does not violate any law, regulation or agreement
applicable to the Guarantor or its assets. This Guaranty constitutes a valid,
binding and enforceable agreement against the Guarantor in accordance with its
terms
9. Governing Law; Jurisdiction. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to its conflicts of laws principles. With respect to any suit, action
or proceeding concerning this Guaranty, the Bank and the Guarantor submit to the
non-exclusive jurisdiction of the Federal and State courts located in the City,
County and State of New York. The Bank and the Guarantor specifically and
irrevocably waives (i) any objection which it may have at any time to the laying
of venue of any suit, action or proceeding brought in such courts, (ii) any
claim that the same has been brought in an inconvenient forum, and (iii) the
right to object that such courts do not have jurisdiction over it.
-2-
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered by the
Guarantor to the Bank as of the date first above written.
Franchise Finance Corporation of America
By: /s/ John Barravechia
- ---------------------------------------------------
Name: John Barravechia
Title: Chief Financial Officer
ACCEPTED AND AGREED:
--------------------
NationsBank, N.A.
By: /s/ R. Vaughan Dodd
-------------------------
Name: R. Vaughan Dodd
Title: Senior Vice President
<PAGE>
(Multicurrency--Cross Border)
ISDA(R)
International Swap Dealers Association. Inc.
MASTER AGREEMENT
dated as of December 31, 1996
---------------------
NationsBank, N.A. and FFCA Mortgage Corporation
- ------------------------------------ -----------------------------------------
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. Interpretation
(a) Definitions. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the
provisions of the Schedule and the other provisions of this Master Agreement,
the Schedule will prevail. In the event of any inconsistency between the
provisions of any Confirmation and this Master Agreement (including the
Schedule), such Confirmation will prevail for the purpose of the relevant
Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in
freely transferable funds and in the manner customary for payments in
the required currency. Where settlement is by delivery (that is, other
than by payment), such delivery will be made for receipt on the due
date in the manner customary for the relevant obligation unless
otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent specified
in this Agreement.
Copyright (C)1992 by International Swap Dealers Association, Inc.
<PAGE>
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change,
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that
party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be deducted
or withheld from any additional amount paid by X to Y under this
Section 2(d)) promptly upon the earlier of determining that such
deduction or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy), or
other documentation reasonably acceptable to Y, evidencing such payment
to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount
actually received by Y (free and clear of Indemnifiable Taxes, whether
assessed against X or Y) will equal the full amount Y would have
received had no such deduction or withholding been required. However, X
will not be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); of
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure would
not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, on
or after the date on which a Transaction is entered into
(regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (II) a Change in Tax
Law.
ISDA (R) 1992
2
<PAGE>
(ii) Liability. If:-
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make
any deduction or withholding in respect of which X would not be
required to pay an additional amount to Y under Section
2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax, Y will promptly pay to X the amount
of such liability (including any related liability for interest, but
including any related liability for penalties only if Y has failed to
comply with or perform any agreement contained in Section 4(a)(i),
4(a)(iii) of 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
of elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:--
(a) Basic Representations.
(i) Status. It is duly organised and validly existing under the laws of
the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it has
under any Credit Support Document to which it is a party and has taken
all necessary action to authorise such execution, delivery and
performance;
(iii) No Violation or Conflict. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment of
any court or other agency of government applicable to it or any of its
assets or any contractual restriction binding on or affecting it or any
of its assets;
(iv) Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in
full force and effect and all conditions of any such consents have been
complied with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal,
valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought in a
proceeding in equity or at law)).
ISDA (R) 1992
3
<PAGE>
(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would
occur as a result of its entering into or performing its obligations
under this Agreement or any Credit Support Document to which it is a
party,
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or
proceeding at law or in equity or before any court, tribunal,
governmental body, agency or official or any arbitrator that is likely
to affect the legality, validity or enforceability against it of this
Agreement or any Credit Support Document to which it is a party or its
ability to perform its obligations under this Agreement or such Credit
Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as
of the date of the information, true, accurate and complete in every
material respect.
(e) Payer Tax Representation. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(e) is accurate
and true.
(f) Payee Tax Representations. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is
accurate and true.
4. Agreements
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) Furnish Specified Information. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified
in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation;
and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to
allow such other party or its Credit Support Provider to make a payment
under this Agreement or any applicable Credit Support Document without
any deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of
such demand), with any such form or document to be accurate and
completed in a manner reasonably satisfactory to such other party and
to be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable,
(b) Maintain Authorisations. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) Comply with Laws. If will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,
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organised managed and controlled, or considered to have its seat or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. Events of Default and Termination Events
(a) Event of Default. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an 'Event of Default") with respect to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is
given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied
with or performed by the party in accordance with this Agreement if
such failure is not remedied on or before the thirtieth day after
notice of such failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to
be complied with or performed by it in accordance with any
Credit Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of this
Agreement (in either case other than in accordance with its
terms) prior to the satisfaction of all obligations of such
party under each Transaction to which such Credit Support
Document relates without the written consent of the other party;
or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of such Credit Support Document;
(iv) Misrepresentation. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made
or repeated by the party or any Credit Support Provider of such party
in this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material respect when made or repeated
or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to
any applicable notice requirement or grace period, there occurs a
liquidation of, an acceleration of obligations under, or an early
termination of, that Specified Transaction, (2) defaults, after giving
effect to any applicable notice requirement or grace period, in making
any payment or delivery due on the last payment, delivery or exchange
date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least three Local
Business Days if there is no applicable notice requirement or grace
period) or (3) disaffirms, disclaims, repudiates or rejects, in whole
or in part, a Specified Transaction (or such action is taken by any
person or entity appointed or empowered to operate it or act on its
behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (l) a default,
event of default or other similar condition or event (however
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described) in respect of such party, any Credit Support Provider of
such party of any applicable Specified Entity of such party under one
or more agreements or instruments relating to Specified Indebtedness of
any of them (individually or collectively) in an aggregate amount of
not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming,
or becoming capable at such time of being declared, due and payable
under such agreements or instruments, before it would otherwise have
been due and payable or (2) a default by such party, such Credit
Support Provider or such Specified Entity (individually or
collectively) in making one of more payments on the due date thereof in
an aggregate amount of not less than the applicable Threshold Amount
under such agreements or instruments (after giving effect to any
applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability-
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights,
or a petition is presented for its winding-up or liquidation,
and, in the case of any such proceeding or petition instituted
or presented against it, such proceeding or petition (A) results
in a judgment of insolvency or bankruptcy or the entry of an
order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged
stayed or restrained, in each case within 30 days thereafter:
(8) causes or is subject to any event with respect to it which,
under the applicable laws of any jurisdiction, has an analogous
effect to any of the events specified in clauses (1) to (7)
(inclusive); or (9) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any
of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer.--
(1) the resulting, surviving or transferee entity fails to
assume all the obligations of such party or such Credit Support
Provider under this Agreement or any Credit Support Document to
which it or its predecessor was a party by operation of law or
pursuant to an agreement reasonably satisfactory to the other
party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its
obligations under this Agreement,
(b) Termination Events. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any
Specified Entity of such party of any event specified below constitutes
an Illegality if the event is specified in (i) below, a Tax Event if
the event is specified in (ii) below or a Tax Event Upon Merger if the
event is specified in (iii) below, and, if specified to be applicable,
a Credit Event
ISDA (R) 1992
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) Illegality. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent jurisdiction
of any applicable law after such date, it becomes unlawful (other than
as a result of a breach by the party of Section 4(b)) for such party
(which will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other material
provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party
(or such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into,(regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y) a
Change in Tax Law, the party (which will be the Affected Party) will,
or there is a substantial likelihood that it will, on the next
succeeding Scheduled Payment Date (1) be required to pay to the other
party an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except
in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no
additional amount is required to be paid in respect of such Tax under
Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or
(B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to
pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has
been deducted or withheld for or on account of any Indemnifiable Tax in
respect of which the other party is not required to pay an additional
amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in
either case as a result of a party consolidating or amalgamating with,
or merging with or into, or transferring all or substantially all its
assets to, another entity (which will be the Affected Party) where such
action does not constitute an event described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and
such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such Credit
Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its
successor or transferee, as appropriate, will be the Affected Party);
or
(v) Additional Termination Event. If any "Additional Termination Event"
is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also constitutes
an Illegality, it will be treated as an Illegality and will not constitute an
Event of Default.
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6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) Transfer to Avoid Termination Event. If either an Illegality under
Section 5(b)(i)(l) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is
the Affected Party, the Affected Party will, as a condition to its
right to designate an Early Termination Date under Section 6(b)(iv),
use all reasonable efforts (which will not require such party to incur
a loss, excluding immaterial, incidental expenses) to transfer within
20 days after it gives notice under Section 6(b)(i) all its rights and
obligations under this Agreement in respect of the Affected
Transactions to another of its Offices or Affiliates so that such
Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's
policies in effect at such time would permit it to enter into
transactions with the transferee on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(l)
or a Tax Event occurs and there are two Affected Parties, each party
will use all reasonable efforts to reach agreement within 30 days after
notice thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iv) Right to Terminate. If:-
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected
with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party,
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected party in the case of a
Tax Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then
ISDA (R) 1992
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is to
be paid. In the absence of written confirmation from the source of a
quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day
that notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event
of Default) and on the day which is two Local Business Days after the
day on which notice of the amount payable is effective (in the case of
an Early Termination Date which is designated as a result of a
Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well
as after judgment) in the Termination Currency, from (and including)
the relevant Early Termination Date to (but excluding) the date such
amount is paid, at the Applicable Rate. Such interest will be
calculated on the basis of daily compounding and the actual number of
days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an
Event of Default--
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A)
the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party over (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting party, if a
positive number, the Non-defaulting Party's Loss in respect of
this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A)
the sum of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party less (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it
is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's
Loss in respect of this Agreement. If that amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative number, the Non-defaulting Party will
pay the absolute value of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is
not the Affected Party, respectively, and, if Loss applies and
fewer than all the Transactions are being terminated, Loss shall
be calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine
a Settlement Amount in respect of the Terminated
Transactions, and an amount will be payable equal to (I)
the sum of (a) one-half of the difference between the
Settlement Amount of the party with the higher Settlement
Amount ("X") and the Settlement Amount of the party with
the lower Settlement Amount ("Y") and (b) the Termination
Currency Equivalent of the Unpaid Amounts owing to X less
(II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable
equal to one-half of the difference between the Loss of the
party with the higher Loss ("X") and the Loss of the party
with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of
that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies
in respect of a party, the amount determined under this Section 6(e)
will be subject to such adjustments as are appropriate and permitted by
law to reflect any payments or deliveries made by one party to the
other under this Agreement (and retained by such other party) during
the period from the relevant Early Termination Date to the date for
payment determined under Section 6(d)(ii),
(iv) Pre-Estimate. The parties agree that if Market Quotation applies
an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this Agreement neither party will be
entitled to recover any additional damages as a consequence of such
losses.
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7. Transfer
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. Contractual Currency
(a) Payment in the Contractual Currency. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable law,
any obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) Judgments. To the extent permitted by applicable law, if any judgment
or order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
of claim or proof being made for any other sums payable in respect of this
Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.
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9. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival Of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organisation of such party, the
obligations of such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
ISDA (R) 1992
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<PAGE>
to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including. but not limited to, costs of collection.
12. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it
is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine):
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit action or proceedings relating
to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan in
New York City, if this Agreement is expressed to be governed by the
laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings,
that such court does not have any jurisdiction over such party,
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any
ISDA (R) 1992
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<PAGE>
reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court. (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. Definitions
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls. directly or indirectly. the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"consent" includes a consent approval, action, authorisation, exemption, notice,
filing. registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
ISDA (R) 1992
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<PAGE>
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(l) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section I1. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
ISDA (R) 1992
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<PAGE>
been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Marker-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a),
"Office" means a branch or office of a party, which may be such party's head or
home office.
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction,
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:-
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
ISDA (R) 1992
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"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market
ISDA (R) 1992
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<PAGE>
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the Termination Currency Equivalents of the fair market values reasonably
determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
NationsBank, N.A. FFCA Mortgage Corporation
- -------------------------------- -------------------------------------
(Name of Party) (Name of Party)
By: /s/ R. Vaughan Dodd By: /s/ Gary J. Naquin
------------------------------ -----------------------------------
Name: R. Vaughan Dodd Name: Gary J. Naquin
Title: Senior Vice President Title: President
Date: 12-31-96 Date: 12-31-96
ISDA (R) 1992
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<PAGE>
SCHEDULE to the MASTER AGREEMENT
dated as of December 31, 1996 between
NATIONSBANK, N.A. ("Party A") and
FFCA MORTGAGE CORPORATION ("Party B")
PART 1: Termination Provisions and Certain Other Matters
------------------------------------------------
(a) "Credit Agreement" means the Credit Agreement dated as of December 27,
1995 among Franchise Finance Corporation of America, certain lenders, and
NationsBank of Texas, N.A., as Administrative Lender, as amended, modified,
supplemented, restated or replaced from time to time.
(b) "Specified Entity" means in relation to Party A for the purpose of:-
Section 5(a)(v), none; Section 5(a)(vi), none; Section 5(a)(vii), none;
and Section 5(b)(iv), none;
in relation to Party B for the purpose of:-
Section 5(a)(v), none; Section 5(a)(vi), none; Section 5(a)(vii), none;
and Section 5(b)(iv), none.
(c) "Specified Transaction" will have the meaning specified in Section l4.
(d) The "Cross-Default" provisions of Section 5(a)(vi) will apply to Party
A and Party B. In connection therewith, "Specified Indebtedness" will have the
meaning specified in Section 14, except that such term shall not include
obligations in respect of deposits received in the ordinary course of a party's
banking business, and "Threshold Amount" means with respect to Party A, an
amount equal to three percent of Party A's shareholders' equity, determined in
accordance with generally accepted accounting principles in such party's
jurisdiction of incorporation or organization, consistently applied, as at the
end of such party's most recently completed fiscal year and, with respect to
Party B, $1,000,000.
With respect to Party B, an Event of Default (with Party B being the Defaulting
Party) shall also occur under this Agreement upon the occurrence of any Event of
Default specified in the Credit Agreement.
(e) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will
apply to Party A and to the Credit Support Provider of Party B.
(f) The "Automatic Early Termination" provision of Section 6(a) will not
apply to Party A or Party B.
(g) Payments on Early Termination. For the purpose of Section 6(e):-
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(h) "Termination Currency" means United States Dollars.
1
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(i) Additional Termination Event. Additional Termination Event will not
apply.
PART 2: Tax Representations
-------------------
(a) Payer Tax Representations. For the purpose of Section 3(e) of this
Agreement, Party A and Party B will make the following representation:-
It is not required by any applicable law, as modified by the practice
of any relevant governmental revenue authority of any Relevant
Jurisdiction to make any deduction or withholding for or on account of
any Tax from any payment (other than interest under Section 2(e),
6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party
under this Agreement. In making this representation, it may rely on (x)
the accuracy of any representations made by the other party pursuant to
Section 3(f) of this Agreement, (y) the satisfaction of the agreement
contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the
accuracy and effectiveness of any document provided by the other party
pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (z) the
satisfaction of the agreement of the other party contained in Section
4(d) of this Agreement, provided that it shall not be a breach of this
representation where reliance is placed on clause (y) and the other
party does not deliver a form or document under Section 4(a)(iii) by
reason of material prejudice to its legal or commercial position.
(b) Payee Tax Representations. For the purposes of Section 3(f) of this
Agreement, Party A and Party B make no representations.
PART 3: Agreement to Deliver Documents
------------------------------
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees
to deliver the following documents:
(a) Tax forms, documents or certificates to be delivered are: none.
(b) Other documents to be delivered are:-
<TABLE>
<CAPTION>
Form/ Date by Covered by
Party required to Document/ which to be Section 3(d)
deliver document Certificate delivered Representation
- -------------------- ---------------------------------- ------------------------------ -------------------
<S> <C> <C> <C>
Party A and Certified copies of all Upon execution and delivery Yes
Party B corporate authorizations and any of this Agreement
other documents with respect to
the execution, delivery and
performance of this Agreement
and any Credit Support Document
Party A and Certificate of authority and Upon execution and delivery Yes
Party B specimen signatures of of this Agreement and
individuals executing this thereafter upon request of
Agreement, any Credit Support the other party
Document and Confirmations.
</TABLE>
2
<PAGE>
PART 4: Miscellaneous
-------------
(a) Address for Notices. For the purpose of Section 12(a) of this
Agreement:-
Address for notice or communications to Party A:
NationsBank, N.A.
100 N. Tryon St., NC1-007-13-01
Charlotte, North Carolina 28255
Attention: Derivatives Documentation Unit
(Telex No: 669959; Answerback: NATIONSBK CHA)
Facsimile No.: 704-386-4113
Address for notice or communications to Party B:
FFCA Mortgage Corporation
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: Gary Naquin
Telephone No.: 800-528-1179
Facsimile No.: 602-585-2225
with a copy to:
FFCA Mortgage Corporation
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: Dennis Ruben
Telephone No.: 800-528-1179
Facsimile No.: 602-585-2225
As to Party B's Credit Support Provider:
Franchise Finance Corporation of America
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: John Barravecchia
Telephone No.: 800-528-1179
Facsimile No.: 602-585-2225
with a copy to:
Franchise Finance Corporation of America
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: Dennis Ruben
Telephone No.: 800-528-1179
Facsimile No.: 602-585-2225
(b) Process Agent. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
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<PAGE>
(c) Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(c) of this Agreement:-
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) Calculation Agent. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(f) Credit Support Document. Details of any Credit Support Document:-
The Guaranty of Franchise Finance Corporation of America dated as of the date
hereof and substantially in the form of Exhibit I hereto.
(g) Credit Support Provider. Credit Support Provider means in relation to
Party A,
Not applicable.
Credit Support Provider means in relation to Party B,
Franchise Finance Corporation of America.
(h) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference to that
jurisdiction's choice of law doctrine).
(i) Netting of Payments. Subparagraph (ii) of Section 2(c) will not apply
to any Transaction unless specified in the relevant Confirmation.
(j) "Affiliate" will have the meaning specified in Section 14 of this
Agreement.
PART 5: Other Provisions
----------------
(a) The parties agree to add the following provision to the Agreement as
Section 6(f):
"Set-off. Any amount (the "Early Termination Amount") payable to one
party (the Payee) by the other party (the Payer) under Section 6(e), in
circumstances where there is a Defaulting Party or one Affected Party in the
case where a Termination Event under Section 5(b)(iv) has occurred, will, at the
option of the party ("X") other than the Defaulting Party or the Affected Party
(and without prior notice to the Defaulting Party or the Affected Party), be
reduced by its set-off against any amount(s) (the "Other Agreement Amount")
payable (whether at such time or in the future or upon the occurrence of a
contingency) by the Payee to the Payer (irrespective of the currency, place of
payment or booking office of the obligations) under any other agreement(s)
between the Payee and the Payer or instrument(s) or undertaking(s) issued or
executed by one party to or in favor of, the other party (and the Other
Agreement Amount will be discharged promptly and in all respects to the extent
it is so set-off). X will give notice to the other party of any set-off effected
under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other Agreement
Amount (or the relevant portion of such amounts) may be converted by X into the
currency in which the other is denominated at the rate of exchange at which such
party would be able, acting in a reasonable manner and in good faith, to
purchase the relevant amount of such currency.
4
<PAGE>
If an obligation is unascertained, X may in good faith estimate that obligation
and set-off in respect of the estimate, subject to the relevant party accounting
to the other when the obligation is ascertained.
Nothing in this Section 6(f) shall be effective to create a charge or other
security interest. This Section 6(f) shall be without prejudice and in addition
to any right of set-off, combination of accounts, lien or other right to which
any party is at any time otherwise entitled (whether by operation of law,
contract or otherwise)."
(b) Exchange of Confirmations. For each Transaction entered into hereunder,
Party A shall promptly send to Party B a Confirmation, via telex or facsimile
transmission. Party B agrees to respond to such Confirmation within three (3)
Business Days, either confirming agreement thereto or requesting a correction of
any error(s) contained therein. Failure by Party B to respond within such period
shall not affect the validity or enforceability of such Transaction and shall be
deemed to be an affirmation of the terms contained in such Confirmation, absent
manifest error. The parties agree that any such exchange of telexes or facsimile
transmissions shall constitute a Confirmation for all purposes hereunder.
(c) Notice by Facsimile Transmission. Section 12(a) is hereby amended by
inserting the words "or 13(c)" between the number "6" and the word "may" in the
second line thereof.
(d) Waiver of Right to Trial by Jury. Each party hereby irrevocably waives
any and all rights to trial by jury with respect to any legal proceeding arising
out of or relating to this Agreement or any Transaction contemplated hereby.
(e) Recording of Conversations. Each party to this Agreement acknowledges
and agrees to the tape or electronic recording of conversations between the
parties to this Agreement whether by one or other or both of the parties, and
that any such recordings may be submitted in evidence in any action or
proceeding relating to the Agreement or any Transaction.
(f) Eligible Swap Participant. Each party represents to the other that it
is an "eligible swap participant" as defined under the regulations of the
Commodity Futures Trading Commission, currently at 17 C.F.R. ss.35.1(b)(2).
(g) Relationship Between Parties. Each party represents to the other party
and will be deemed to represent to the other party on the date on which it
enters into a Transaction that (absent a written agreement between the parties
that expressly imposes affirmative obligations to the contrary for that
Transaction):-
(i) Non-Reliance. It is acting for its own account, and it has made its
own independent decisions to enter into that Transaction and as to whether that
Transaction is appropriate or proper for it based upon its own judgment and upon
advice from such advisors as it has deemed necessary. It is not relying on any
communication (written or oral) of the other party as investment advice or as a
recommendation to enter into that Transaction; it being understood that
information and explanations related to the terms and conditions of a
Transaction shall not be considered investment advice or a recommendation to
enter into that Transaction. Further, such party has not received from the other
party any assurance or guarantee as to the expected results of that Transaction.
(ii) Evaluation and Understanding. It is capable of evaluating and
understanding (on its own behalf or through independent professional advice),
and understands and accepts, the terms, conditions and risks of that
Transaction. It is also capable of assuming, and assumes, the financial and
other risks of that Transaction.
(iii) Status of Parties. The other party is not acting as an agent,
fiduciary or advisor for it in respect of that Transaction.
5
<PAGE>
(h) Agreement Modification. Section 5(a)(iv) of the Agreement is hereby
amended by inserting "material" immediately before the first occurrence of
"representation" in the first line thereof.
(i) Incorporation by Reference of Terms of Credit Agreement. The covenants
set forth in Articles V and VI of the Credit Agreement, as in effect as of the
date of this Agreement, and the representations and warranties of Party B
contained in Article IV of the Credit Agreement, as in effect as of the date of
this Agreement, are hereby incorporated by reference in, and made part of, this
Agreement to the same extent as if such covenants and representations were set
forth in full herein. Party B hereby agrees that, during the period commencing
with the date of this Agreement through and including such date on which all of
Party B's obligations under this Agreement are fully performed, Party B will (a)
observe, perform, and fulfill (subject to any grace periods provided in the
Credit Agreement) each and every such covenant applicable to Party B, as such
covenants are in effect on the date of this Agreement and (b) deliver to Party A
at the address for notices to Party A provided in Part 4 each notice, document,
certificate or other writing as Party B is obligated to furnish to any other
party to the Credit Agreement. No amendment or modification of, or waiver
granted under, such covenants of the Credit Agreement shall be effective with
respect to such covenants as incorporated into this Agreement without the
written consent of Party A. In the event the Credit Agreement terminates or
becomes no longer binding on Party B prior to the termination of this Agreement,
such covenants will remain in force and effect for purposes of this Agreement as
though set forth in full herein until the date on which all of Party B's
obligations under this Agreement are fully performed, and this Agreement is
terminated.
(j) Optional Termination. Any party hereto may terminate any Transaction
before its stated Termination Date on a Cash Settlement Date (as defined below)
by giving a notice in writing (a "Termination Notice"), by facsimile or by telex
to the other party, not less than five (5) Business Days before the Cash
Settlement Date. For purposes hereof, "Cash Settlement Date" shall mean December
27, 2000 and bi-annually thereafter (but excluding the stated Termination Date).
Provided that said Termination Notice has been given, then the appropriate party
shall receive a cash settlement of the relevant Transaction, which shall be an
amount in USD equal to the amount which would have been payable if the Cash
Settlement Date were an Early Termination Date with respect to the relevant
Transaction as a result of a Termination Event (the "Cash Settlement Amount").
The Calculation Agent shall determine the Cash Settlement Amount in good faith
in accordance with its normal market practices as at the close of business two
(2) Business Days prior to the Cash Settlement Date, and shall notify the other
party of the Cash Settlement Amount to be either paid by it or received by it,
as the case may be, on the Cash Settlement Date; provided, however, that if
Party B disputes the Cash Settlement Amount then the Cash Settlement Amount
shall be determined by averaging the determinations of the Cash Settlement
Amount from three Reference Market-makers chosen by agreement of the parties.
Once a Termination Notice is given, it shall be irrevocable unless otherwise
agreed by the parties. Once the Cash Settlement Amount has been fully and
finally paid, then all rights, duties and obligations of the parties under and
with respect to the relevant Transaction shall terminate.
Accepted and agreed:
NATIONSBANK, N.A. FFCA MORTGAGE CORPORATION
/s/ R. Vaughan Dodd /s/ Gary J. Naquin
- ------------------------------ --------------------------------
Name: R. Vaughan Dodd Name: Gary J. Naquin
Title: Senior Vice President Title: President
6
<PAGE>
EXHIBIT I
---------
GUARANTY OF FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------------------
THIS GUARANTY, dated ______, is given by Franchise Finance Corporation of
America, a ____________________ (the "Guarantor") in favor of NationsBank, N.A.,
a national banking association organized under the laws of the United States
("NationsBank") .
1. Unconditional Guaranty. In consideration of and to induce NationsBank to
enter into any Transactions, as defined in the ISDA Master Agreement between our
subsidiary FFCA Mortgage Corporation ("Counterparty") and NationsBank, dated
December 31, 1996 (the "Agreement"), the Guarantor unconditionally guarantees to
NationsBank and its successors and assigns (collectively, the "Bank"), the
prompt payment when due of all present and future obligations and liabilities of
all kinds (including any renewals, extensions or modifications thereof) arising
out of any Transactions pursuant to the Agreement between the Bank and the
Counterparty (the "Obligations") .
This Guaranty is unconditional and shall not be affected by the genuineness,
validity, regularity or enforceability of the Obligations or any instrument
evidencing any Obligations, or by the existence, validity, enforceability,
perfection, or extent of any collateral therefor, or by any circumstance
relating to the Obligations which might otherwise constitute a defense to this
Guaranty. This Guaranty is absolute and unconditional and shall remain in full
force and effect and be binding upon the Guarantor, its successors and assigns
until all of the Obligations have been satisfied in full. In the event that any
payment by the Counterparty in respect of any Obligations is rescinded or must
otherwise be returned for any reason whatsoever the Guarantor shall remain
liable hereunder in respect of such Obligations as if such payment had not been
made.
The Guarantor agrees that the Bank may resort to the Guarantor for payment of
any of the Obligations whether or not the Bank has proceeded against any other
obligor principally or secondarily liable for any Obligations, including the
Counterparty. The Bank shall not be obligated to file any claim relating to the
Obligations, including any claim in the event that the Counterparty becomes
subject to a bankruptcy, reorganization or similar proceeding, and the failure
of the Bank to file any such claim shall not affect the Guarantor's obligations
hereunder. The Guarantor also specifically waives the presentment to or demand
of payment from anyone whomsoever liable upon any of the Obligations, including
presentment, demand, protest or notice of dishonor, and all other notices
whatsoever.
2. Consents. The Guarantor agrees that the Bank may at any time extend the time
of payment of or renew any of the Obligations, or make any agreement with the
Counterparty or with any other party or person liable on any of the Obligations,
for the extension, renewal, payment, compromise, discharge or release of the
Obligations (in whole or in part), or for any modification of the terms thereof
or of any agreement between the Bank and Counterparty or any such other party or
person, without in any way impairing or affecting this Guaranty for any
outstanding Obligations.
3. Rights; Expenses. No failure by the Bank to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Bank of any right,
remedy or power hereunder preclude any other or future exercise of any right,
remedy or power. Each and every right, remedy and power hereby granted to the
Bank or allowed by law or other agreement shall be cumulative and not exclusive
of any other right, remedy or power. The Guarantor agrees to pay on demand all
out-of-pocket expenses (including the reasonable fees and expenses of Bank's
counsel) in any way relating to the enforcement or protection of Bank's rights
under this Guaranty.
7
<PAGE>
4. Subrogation. The Guarantor shall not exercise any rights which it may have or
acquire by way of subrogation until all of the Obligations are paid in full to
the Bank. If any amounts are paid to the Guarantor in violation of the foregoing
limitation, then such amounts shall be held in trust for the benefit of the Bank
and shall forthwith be paid to the Bank to reduce the amount of outstanding
Obligations, whether matured or unmatured. Subject to the foregoing, upon
payment of all of the Obligations to the Bank, the Guarantor shall be subrogated
to the rights of the Bank against the Counterparty, and the Bank agrees to take
at the Guarantor's expense such actions as the Guarantor may reasonably require
to implement such subrogation.
5. Assignment; Termination. The Guarantor shall not assign its rights, interest,
duties or obligations hereunder to any other person without the Bank's prior
written consent. This Guaranty may be terminated by the Guarantor upon thirty
(30) days' prior written notice to the Bank, and will remain in force until such
time period elapses; provided, however, that the Guarantor shall remain fully
liable for, and this Guaranty shall continue to govern, all Obligations arising
or which may arise from Transactions entered into between the Bank and the
Counterparty prior to the actual termination of the Guaranty. None of the terms
or provisions of this Guaranty may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Guarantor and the Bank.
6. Taxes. All payments by the Guarantor hereunder will be made in full without
set-off or counterclaim and free and clear of and without withholding or
deduction for or on account of any present or future taxes, duties or other
charges, unless the withholding or deduction of such taxes or duties is required
by law. In any such event, however, the Guarantor shall pay such additional
amounts as may be necessary in order that the net amount received by the Bank
after such withholding or deduction shall equal the full amounts of moneys which
would have been received by the Bank in the absence of such withholding or
deduction. The Guarantor will pay all stamp duties and other documentary taxes
payable in connection with this Guaranty and will keep the Bank indemnified
against failure to pay the same.
7. Payments. The Guarantor hereby guarantees that the Obligations will be paid
to the Bank without set-off or counterclaim, in lawful currency of the United
States of America at the offices of the Bank as specified in the Agreement.
8. Representations. The Guarantor is duly organized, validly subsisting and in
good standing under the laws of its jurisdiction of incorporation or
organization, and has full corporate power to execute, deliver and perform this
Guaranty. The Guarantor has duly authorized this Guaranty, and the signatory of
this Guaranty has been duly authorized and has full power to execute and deliver
this Guaranty on behalf of the Guarantor. This Guaranty and the providing
thereof to the Bank does not violate any of the Guarantor's constitutive
documents, and this Guaranty does not violate any law, regulation or agreement
applicable to the Guarantor or its assets. This Guaranty constitutes a valid,
binding and enforceable agreement against the Guarantor in accordance with its
terms
9. Governing Law; Jurisdiction. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to its conflicts of laws principles. With respect to any suit, action
or proceeding concerning this Guaranty, the Bank and the Guarantor submit to the
non-exclusive jurisdiction of the Federal and State courts located in the City,
County and State of New York. The Bank and the Guarantor specifically and
irrevocably waives (i) any objection which it may have at any time to the laying
of venue of any suit, action or proceeding brought in such courts, (ii) any
claim that the same has been brought in an inconvenient forum, and (iii) the
right to object that such courts do not have jurisdiction over it.
8
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered by the
Guarantor to the Bank as of the date first above written.
Franchise Finance Corporation of America
By: /s/ Gary J. Naquin
- ----------------------------------------------------
Name: Gary J. Naquin
Title: President
ACCEPTED AND AGREED:
NationsBank, N.A.
By: /s/ R. Vaughan Dodd
-------------------------
Name: R. Vaughan Dodd
Title: Senior Vice President
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
FFCA Institutional Advisors, Inc.
FFCA Acquisition Corporation
FFCA Secured Assets Corporation
FFCA Residual Interest Corporation
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into Franchise Finance Corporation of
America's previously filed Registration Statements No. 33-627-69, 33-626-29 and
333-001-23.
Arthur Andersen LLP
Phoenix, Arizona,
February 20, 1997.
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment"),
dated as of December 27, 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, certain of the 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, and that certain Second Amendment to Credit Agreement, dated
as of June 24, 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 amend the
Credit Agreement to (i) decrease the Commitment, (ii) extend the Conversion Date
and the Maturity Date, (iii) add Union Bank of Switzerland (New York Branch) as
a Lender thereto, (iv) delete Texas Commerce Bank National Association as a
Lender thereto ("TCB"), and (v) make certain other amendments thereto.
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) The dollar amount of "$250,000,000" set forth in (i) the BACKGROUND
section, (ii) the definition of "Commitment" in Section 1.1 and (iii) Section
2.3(a) of the Credit Agreement is hereby amended to be "$200,000,000".
(b) The defined term "Absolute Bid Rate" is hereby added to Section 1.1
of the Credit Agreement in proper alphabetical order to read as follows:
"`Absolute Bid Rate' means an absolute fixed rate of interest
per annum."
(c) The defined term "Absolute Bid Rate Loan" is hereby added to
Section 1.1 of the Credit Agreement in proper alphabetical order to read as
follows:
"`Absolute Bid Rate Loan' means a Bid Rate Loan which bears
interest at an Absolute Rate."
(d) The definition of "Applicable Margin" set forth in Section 1.1 of
the Credit Agreement is hereby deleted in its entirety and the following is
hereby substituted in lieu thereof:
<PAGE>
"`Applicable Margin' means the following per annum
percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Base Rate LIBOR
------------- --------- -----
<S> <C> <C>
Category 1 - There is no Index Debt Rating or the Index Debt Rating 0.25 1.50
- ----------
is the following: below BBB- by S&P or below Baa3 by Moody's
Category 2 - The Index Debt Rating is the following: BBB- by S&P or 0.00 1.00
- ----------
Baa3 by Moody's
Category 3 - The Index Debt Rating is the following: BBB by S&P or 0.00 0.95
- ----------
Baa2 by Moody's
Category 4 - The Index Debt Rating is the following: BBB+ by S&P or 0.00 0.90
- ----------
Baa1 by Moody's
Category 5 - The Index Debt Rating is the following: A- or better by 0.00 0.80
- ----------
S&P or A3 or better by Moody's
</TABLE>
The Applicable Margin payable by Company on the Advances outstanding
hereunder shall be adjusted on each Adjustment Date according to the
most recent determination of the Index Debt Rating; provided, that if
(i) there exists a Default or (ii) Company does not have an Index Debt
Rating, the Applicable Margin shall be (A) 0.25% per annum with respect
to Base Rate Advances and (B) 1.50% per annum with respect to LIBOR
Advances. For purposes of the foregoing, if the Index Debt Rating
established by S&P or Moody's shall fall within a different category,
the Applicable Margin shall be determined by reference to whichever
Index Debt Rating shall fall within the inferior (or numerically lower)
category. If the rating system of Moody's or S&P shall change prior to
the Maturity Date, Company and Lenders shall negotiate in good faith to
amend the references to specific ratings in this definition to reflect
such changed rating system."
(e) The defined term "Bid Rate Loan" is hereby added to Section 1.1 of
the Credit Agreement in proper alphabetical order to read as follows:
"`Bid Rate Loan' means an Advance the interest rate on which
is determined by agreement between Company and Lender making such
Advance pursuant to Section 2.1(c)."
(f) The defined term "Bid Rate Note" is hereby added to Section 1.1 of
the Credit Agreement in proper alphabetical order to read as follows:
"`Bid Rate Note' means each promissory note of Company
evidencing Bid Rate
-2-
<PAGE>
Loans, in substantially the form of Exhibit J hereto, as each such note
may be amended, extended, restated, renewed, substituted or replaced
from time to time."
(g) The definition of "Conversion Date" set forth in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and the following is hereby
substituted in lieu thereof:
"`Conversion Date' means December 27, 1998, or such later date
as established pursuant to Section 2.15 hereof."
(h) The definition of "Facility" set forth in Section 1.1 of the Credit
Agreement is hereby deleted in its entirety and the following is hereby
substituted in lieu thereof:
"`Facility' means the Revolving Loan, the Term Loan and the
Bid Rate Loans evidenced by this Agreement and the other Loan Papers."
(i) The defined term "LIBOR Bid Rate" is hereby added to Section 1.1 of
the Credit Agreement in proper alphabetical order to read as follows:
"`LIBOR Bid Rate' means a rate per annum equal to the LIBOR
Rate Basis for the term in question plus a margin specified by a
Lender."
(j) The defined term "LIBOR Bid Rate Loan " is hereby added to Section
1.1 of the Credit Agreement in proper alphabetical order to read as follows:
"`LIBOR Bid Rate Loan' means a Bid Rate Loan which bears
interest at the LIBOR Bid Rate."
(k) The definition of "Majority Lenders" set forth in Section 1.1 of
the Credit Agreement is hereby deleted in its entirety and the following is
hereby substituted in lieu thereof:
"`Majority Lenders' means any combination of Lenders having at
least 66.67% of the Advances under the Revolving Loan and under the
Term Loan; provided, however, that if no Advances under the Revolving
Loan and under the Term Loan are outstanding under this Agreement, such
term means any combination of Lenders having a Specified Percentage
equal to at least 66.67% of the Commitment."
(l) The definition of "Maturity Date" set forth in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
"`Maturity Date' means December 27, 2000, or such later date
as established pursuant to Section 2.15 hereof, or such earlier date
all of the Obligations become due and payable (whether by acceleration,
prepayment in full, scheduled reduction or otherwise)."
-3-
<PAGE>
(m) The definitions "Note" and "Notes" set forth in Section 1.1 of the
Credit Agreement are hereby deleted in their entirety and the following is
substituted in lieu thereof:
"`Note' means each and "Notes" means all (a) Revolving Loan
Notes, (b) Term Loan Notes, and (c) Bid Rate Loan Notes."
(n) The defined term "Revolving Loan Note" is hereby incorporated into
this Third Amendment and added to Section 1.1 of the Credit Agreement in proper
alphabetical order to read as follows:
"`Revolving Loan Note' means each promissory note of Company
evidencing the Advances and obligations owing hereunder to each Lender
under the Revolving Loan, in substantially the form of Exhibit A
hereto, as each such note may be amended, extended, restated, renewed,
substituted or replaced from time to time."
(o) The defined term "Term Loan Note" is hereby incorporated into this
Third Amendment and added to Section 1.1 of the Credit Agreement in proper
alphabetical order to read as follows:
"`Term Loan Note' means each promissory note of Company
evidencing the Advances and obligations owing hereunder to each Lender
under the Term Loan, in substantially the form of Exhibit B hereto, as
each such note may be amended, extended, restated, renewed, substituted
or replaced from time to time."
(p) The definition of "Total Unencumbered Assets" set forth in Section
1.1 of the Credit Agreement is hereby deleted in its entirety and the following
is hereby substituted in lieu thereof:
"`Total Unencumbered Assets' means, at any time, the aggregate
amount of Total Assets of Company and its Consolidated Subsidiaries
determined in accordance with GAAP on a consolidated basis which are
not subject to a Lien, other than Permitted Liens of the type described
in clauses (a) through (f) of the definition thereof."
(q) The definition of "Total Unsecured Indebtedness" set forth in
Section 1.1 of the Credit Agreement is hereby deleted in its entirety and the
following is hereby substituted in lieu thereof:
"`Total Unsecured Indebtedness' means, at any time, the
aggregate amount of Indebtedness of Company and its Consolidated
Subsidiaries that is not secured by a Lien, other than Permitted Liens
of the type described in clauses (a) through (f) of the definition
thereof."
(r) The definition of "Type" set forth in Section 1.1 of the Credit
Agreement is hereby deleted in its entirety and the following is hereby
substituted in lieu thereof:
-4-
<PAGE>
"`Type' refers to the distribution between Advances bearing
interest at the Base Rate, LIBOR Rate, Absolute Bid Rate or LIBOR Bid
Rate."
(s) The definition of "Unused Commitment" set forth in Section 1.1 of
the Credit Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
"`Unused Commitment' means, on any date, with respect to each
Lender, an amount equal to the product of such Lender's Specified
Percentage multiplied by the Commitment in effect on such date, minus
an amount equal to the sum of (a) all outstanding Advances made by such
Lender under the Revolving Loan which are outstanding on such date and
(b) all Bid Rate Loans made by such Lender which are outstanding on
such date."
(t) Section 2.1(a) of the Credit Agreement is hereby amended by adding
the following sentence to the end thereof to read as follows:
"Notwithstanding anything in this Section 2.1(a) or Section
2.1(c) to the contrary, at no time shall the sum of (i) the aggregate
principal amount of Advances outstanding under the Revolving Loan and
(ii) the aggregate principal amount of Bid Rate Loans outstanding
exceed the Commitment."
(u) Section 2.1 of the Credit Agreement is hereby amended by adding
Section 2.1(c) thereto to read as follows:
"(c) Bid Rate Loans. Each Lender may, in its sole discretion
and on the terms and conditions set forth in this Agreement, make Bid
Rate Loans to Company from time to time until the Conversion Date in an
aggregate amount not in excess of the difference between the Commitment
minus the aggregate outstanding principal amount of all Advances under
the Revolving Loan; provided, however, at no time shall the sum of (i)
the aggregate outstanding principal amount of all Bid Rate Loans made
by all Banks plus (ii) the aggregate principal amount of all
outstanding Advances under the Revolving Loan exceed the Commitment.
Each Bid Rate Loan shall be for a term of not less than 7 days and not
more than six months. Bid Rate Loans may not be prepaid without the
prior written consent of the Lender making such Bid Rate Loan. Each
Borrowing of Bid Rate Loans shall be an aggregate principal amount
which is at least $10,000,000 and which is an integral multiple of
$1,000,000 in excess thereof, and each Bid Rate Loan by a Lender shall
be in a principal amount which is at least $1,000,000 and which is an
integral multiple of $1,000,000 in excess thereof. Notwithstanding
anything herein to the contrary, the aggregate principal amount of Bid
Rate Loans outstanding at any time may not exceed $100,000,000. No
Lender shall have any obligation to make Bid Rate Loans, and Company
shall have no obligation to accept any offers for Bid Rate Loans."
(v) Section 2.2 of the Credit Agreement is hereby deleted in its
entirety and the
-5-
<PAGE>
following is hereby substituted in lieu thereof:
"2.2. Making Advances.
(a) Each Borrowing of Advances under the Revolving Loan and
the Term Loan shall be made upon the written notice of Company,
received by Administrative Lender not later than (i) 12:00 noon three
Business Days prior to the proposed date of the Borrowing, in the case
of LIBOR Advances and (ii) not later than 10:00 a.m. on the date of
such Borrowing, in the case of Base Rate Advances. Each such notice of
a Borrowing (a "Borrowing Notice") shall be by telecopy, promptly
confirmed by letter, in substantially the form of Exhibit F hereto
specifying therein:
(i) the date of such proposed Borrowing, which shall
be a Business Day;
(ii) the amount of such proposed Borrowing which, (A)
with respect to Advances under the Revolving Loan, shall not
exceed the Commitment less the sum of Advances under the
Revolving Loan plus Bid Rate Loans then outstanding, (B) with
respect to Advances under the Term Loan, shall not, when
aggregated together with all other outstanding Advances under
the Term Loan, exceed the Reduced Term Loan Amount and (C)
shall, for the Revolving Loan and Term Loan in the case of a
Borrowing of LIBOR Advances, be in an amount of not less than
$5,000,000 or an integral multiple of $1,000,000 in excess
thereof and, in the case of a Borrowing of Base Rate Advances,
be in an amount of not less than $1,000,000 or an integral
multiple of $500,000 in excess thereof;
(iii) the Type of Advances of which the Borrowing is
to be comprised; and
(iv) if the Borrowing is to be comprised of LIBOR
Advances, the duration of the initial Interest Period
applicable to such Advances.
If the Borrowing Notice fails to specify the duration of the
initial Interest Period for any Borrowing comprised of LIBOR Advances,
such Interest Period shall be one month. Administrative Lender shall
give prompt notice (which may be by telecopy or telephonic, to be
confirmed by telecopy) of its receipt of a Borrowing Notice to each
Lender. Each Lender shall, before 2:00 p.m. on the date of each Advance
hereunder under the Revolving Loan (other than a Refinancing Advance),
make available to
Administrative Lender
NationsBank Plaza
901 Main Street
13th Floor
Dallas, Texas 75202
Attn. Theresa Belk
-6-
<PAGE>
such Lender's Specified Percentage of the aggregate Advances under the
Revolving Loan to be made on that day in immediately available funds.
(b) Unless any applicable condition specified in Article III
hereof has not been satisfied, Administrative Lender will make the
funds on Advances under the Revolving Loan promptly available to
Company (other than with respect to a Refinancing Advance) by wiring
Norwest Bank Minneapolis, N.A., ABA #091000019, Beneficiary Bank:
Norwest Bank Arizona, Beneficiary Account: 8711701002, Beneficiary
Name: FFCA, or such other account as shall have been specified by
Company.
(c) After giving effect to any Borrowing, (i) there shall not
be more than ten different Interest Periods in effect and (ii) the
aggregate principal of outstanding Advances, shall, (A) prior to the
Conversion Date, not exceed the Commitment, and (B) after the
Conversion Date, not exceed the Reduced Term Loan Amount.
(d) No Interest Period for a Borrowing under the Facility
shall extend beyond the Maturity Date.
(e) Unless a Lender shall have notified Administrative Lender
prior to the date of any Advance under the Revolving Loan or the Term
Loan that it will not make available its Specified Percentage of any
such Advance, Administrative Lender may assume that such Lender has
made the appropriate amount available in accordance with Section
2.2(a), and Administrative Lender may, in reliance upon such
assumption, make available to Company a corresponding amount. If and to
the extent any Lender shall not have made such amount available to
Administrative Lender, such Lender and Company severally agree to repay
to Administrative Lender immediately on demand such corresponding
amount together with interest thereon, from the date such amount is
made available to Company until the date such amount is repaid to
Administrative Lender, at (i) in the case of Company, the Base Rate,
and (ii) in the case of such Lender, the Federal Funds Rate. The
obligation of Company under this Section 2.2(e) shall not affect or
impair any right of Company against any Lender for such Lender's breach
of its obligation to fund Advances under the Revolving Loan or the Term
Loan.
(f) The failure by any Lender to make available its Specified
Percentage of any Advance under the Revolving Loan or the Term Loan
shall not relieve any other Lender of its obligation, if any, to make
available its Specified Percentage of any such Advance. In no event,
however, shall any such Lender be responsible for the failure of any
other Lender to make available any portion of any Advance. No Lender
shall be relieved of its obligation to fund its Specified Percentage of
any Advance under the Revolving Loan notwithstanding the fact that at
any time the aggregate outstanding principal amount of all Bid Rate
Loans and Advances under the Revolving Loan made by such Lender exceeds
its Specified Percentage of the Commitment.
-7-
<PAGE>
(g) Company shall indemnify each Lender against any
Consequential Loss incurred by each Lender as a result of (i) any
failure to fulfill, on or before the date specified in the Borrowing
Notice for an Advance under the Revolving Loan or the Term Loan, the
conditions to such Advance set forth herein or (ii) Company's
requesting that an Advance under the Revolving Loan or the Term Loan
not be made on the date specified in the Borrowing Notice.
(h) With respect to each Borrowing consisting of Bid Rate
Loans, Company shall give Administrative Lender and each Lender prior
to 10:00 a.m., (i) in the case of LIBOR Bid Rate Loans, at least four
Business Days prior to the proposed Borrowing and (ii) in the case of
Absolute Bid Rate Loans, at least two Business Days prior to the
proposed Borrowing, irrevocable written notice of its intention to
borrow Bid Rate Loans. Such notice of borrowing shall specify (i) the
requested funding date, which shall be a Business Day, (ii) the
aggregate amount of the proposed Borrowing of Bid Rate Loans (which
shall be at least $10,000,000 and which is an integral multiple of
$1,000,000 in excess thereof), (iii) the term of the Bid Rate Loans
selected by Company, provided that such term shall not extend past the
Conversion Date, (iv) whether the Bid Rate Loans requested are Absolute
Bid Rate Loans or LIBOR Bid Rate Loans, and (v) any other terms
applicable thereto. Company shall pay a $1,000 non-refundable,
administrative fee for the account of Administrative Lender for each
notice of proposed Borrowing consisting of Bid Rate Loans. Such fee
shall be paid to Administrative Lender on the date of delivery of
Company's notice of intention to borrow Bid Rate Loans, and shall not
be refunded notwithstanding that the proposed Borrowing is canceled by
Borrower or no Lender offers to make a Bid Rate Loan.
(i) Each Lender shall, if, in its sole discretion, it
elects to do so, irrevocably offer to make one or more Bid
Rate Loans to Company as part of such proposed Borrowing at a
rate or rates of interest specified by such Lender in its sole
discretion, by delivering a written quote to Administrative
Lender before 10:00 a.m., (A) three Business Days prior to the
proposed date of Borrowing, in the case of a request for LIBOR
Bid Rate Loans, and (B) one Business Day prior to the proposed
date of Borrowing, in the case of a request for Absolute Bid
Rate Loans, setting forth (A) the minimum amount (which shall
be $1,000,000 or an integral multiple in excess thereof) and
maximum amount of each Bid Rate Loan which such Lender would
be willing to make as part of the proposed Borrowing (which
amounts may exceed such Lender's Specified Percentage of the
Commitment) and (B) the rate or rates of interest therefor. If
any Lender shall fail to respond to Administrative Lender by
such time, such Lender shall be deemed to have elected not to
make an offer.
(ii) Not later than 11:00 a.m. (A) three Business
Days prior to the proposed date of Borrowing in the case of
LIBOR Bid Rate Loans and (B) on the date of the proposed
Borrowing in the case of Absolute Bid Rate Loans, Company
-8-
<PAGE>
shall, in turn, either
(A) cancel such proposed Borrowing by giving
Administrative Lender notice to that effect, or
(B) accept one or more of the offers made by
any Lender or Lenders pursuant to clause (i) above,
in its sole discretion, by giving notice to
Administrative Lender of the amount of each Bid Rate
Loan (which amount shall be equal to or greater than
the minimum amount, and equal to or less than the
maximum amount, for which notification was given to
Company by any Lender for such Bid Rate Loan pursuant
to clause (i) above) to be made by each Lender as
part of such Borrowing, and reject any remaining
offers made by Lenders pursuant to clause (i) above
by giving Administrative Lender notice to that
effect; provided, however, that acceptance by Company
of offers may only be made on the basis of ascending
LIBOR Bid Rates and Absolute Bid Rates within each
term with respect to Lenders whose outstanding
Advances do not exceed or would not exceed as a
result of such Bid Rate Loans its Specified
Percentage of the Commitment; and, provided, further,
that if offers are made by two or more such Lenders
with the same LIBOR Bid Rates or Absolute Bid Rates
for a greater aggregate principal amount than the
amount for which such offers are accepted for the
related term, the principal amount of Bid Rate Loans
accepted shall be allocated by Company among such
Lenders as nearly as possible (in multiples not less
than $1,000,000) in proportion to the aggregate
principal amount of such offers.
(iii) Administrative Lender shall promptly notify
each bidding Lender whether or not its Bid Rate Loan has been
accepted (which notice to those Lenders whose Bid Rate Loans
have been accepted will be given within one hour from the time
such bid was accepted by Company). After completing the
notifications referred to in the immediately preceding
sentence, Administrative Lender shall notify each bidding
Lender (A) the aggregate amount of Bid Rate Loans made in
connection with such proposed Borrowing, (B) each date on
which any Bid Rate Loan shall mature, (C) the principal amount
of Bid Rate Loans which shall mature on each such date, (D)
the interest rate for each such Bid Rate Loan, (E) the highest
and lowest bid submitted by Lenders in connection with each
Bid Rate Loan request and (F) Lender making each such Bid Rate
Loan.
(iv) If Administrative Lender shall at any time elect
to submit a bid for a Bid Rate Loan in its capacity as a
Lender, it shall submit such bid directly to Company one-half
hour earlier than the latest time at which other Lenders are
required to submit their bid to Administrative Lender pursuant
to Section 2(h)(i) hereof.
-9-
<PAGE>
(v) If Company accepts one or more offers made by any
Lender or Lenders pursuant to clause (ii)(B) above, each such
Lender shall, unless any applicable condition specified in
Article III hereof has not been satisfied, make the funds
under the Bid Rate Loans promptly available to Company by
wiring Norwest Bank Minneapolis, N.A., ABA # 091000019,
Beneficiary Bank: Norwest Bank Arizona, Beneficiary Account:
8711701002, Beneficiary Name: FFCA, or such other account as
shall have been specified by Company."
(w) Section 2.3(a) of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
"(a) The obligations of Company with respect to all Advances
(i) under the Revolving Loan made by each Lender shall be evidenced by
a Revolving Loan Note in the amount of such Lender's Specified
Percentage of $200,000,000 (as the same may be modified pursuant to
Section 9.4 hereof), (ii) under the Term Loan made by each Lender shall
be evidenced by a Term Loan Note in the amount of the sum of such
Lender's Specified Percentage of Initial Term Loan Amount (as the same
may be modified pursuant to Section 9.4 hereof), and (iii) in respect
of Bid Rate Loans made by each Lender shall be evidenced by a Bid Rate
Note in the principal amount not to exceed $100,000,000."
(x) Section 2.4(c) of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
"(c) Commitment Reductions, Generally. To the extent that the
sum of the aggregate outstanding (i) Advances under the Revolving Loan
plus (ii) Bid Rate Loans exceed the Commitment after any reduction
thereof, Company shall simultaneously repay on the date of such
reduction, any such excess amount and all accrued interest thereon,
together with any amounts constituting any Consequential Loss. Once
reduced or terminated pursuant to this Section 2.4, the Commitment may
not be increased or reinstated."
(y) Section 2.6(c) of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
"(c) Bid Rate Loans. Company shall repay Bid Rate Loans at
such time as agreed upon between Company and each Lender making Bid
Rate Loans pursuant to Section 2.2(h)."
(z) Section 2.6 of the Credit Agreement is hereby amended by adding a
new clause (d) thereto to read as follows:
"(d) Other Obligations. Except if an earlier date is otherwise
provided in this
-10-
<PAGE>
Agreement, all Obligations not otherwise due and payable under Sections
2.6(a), 2.6(b) and 2.6(c) above shall be due and payable in full on the
Maturity Date."
(aa) Section 2.7 of the Credit Agreement is hereby amended by adding a
new clause (d) thereto to read as follows:
"(d) Bid Rate Loans. Bid Rate Loans shall bear interest at the
rate per annum agreed to by Company and each Lender making Bid Rate
Loans pursuant to Section 2.2(h). Interest on each Bid Rate Loan shall
be computed and shall be payable at such times as agreed upon between
Company and each Lender making Bid Rate Loans pursuant to Section
2.2(h)."
(ab) Section 2.10(a) of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
"2.10 Fees. (a) Subject to Section 9.8 hereof, Company agrees
to pay to Administrative Lender, for the account of each Lender, a
Commitment Fee on the average daily amount of each Lender's Unused
Commitment, from the Closing Date through the Conversion Date, payable
quarterly in arrears on each Quarterly Date occurring after the Closing
Date, with the last such payment due and owing on the Conversion Date
at the following per annum percentage applicable in the following
situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
Category 1 - There is no Index Debt Rating or the Index Debt Rating is the 0.375%
- -----------
following: below BBB- by S&P or below Baa3 by Moody's
Category 2 - The Index Debt Rating is the following: BBB-, BBB or 0.200%
- -----------
BBB+ by S&P or Baa3, Baa2 or Baa1 by Moody's
Category 3 - The Index Debt Rating is the following: A- or better by 0.150%
- -----------
S&P or A3 or better by Moody's
</TABLE>
The Commitment Fee shall be (i) fully earned when due and nonrefundable
when paid and (ii) adjusted on each Adjustment Date according to the
most recent determination of the Index Debt Rating. For purposes of the
foregoing, if the Index Debt Rating established by S&P or Moody's shall
fall within a different category, the Commitment Fee shall be
determined by reference to whichever Index Debt Rating shall fall
within the inferior (or numerically lower) category."
(ac) Section 2.12(a) of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
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<PAGE>
"(a) Company shall make each payment not later than 1:00 p.m.
on the day when due in immediately available funds to Administrative
Lender, (i) in respect of the Revolving Loan and the Term Loan, for the
Ratable account of Lenders unless otherwise specifically provided
herein, and (ii) in respect of the Bid Rate Loans, for the account of
each Lender making Bid Rate Loans, at
Administrative Lender
NationsBank Plaza
901 Main Street
13th Floor
Dallas, Texas 75202
Attn. Theresa Belk
for the further credit to the account of Franchise Finance Corporation
of America. No later than the end of each day when each payment
hereunder is made, Company shall notify Theresa Belk, telephone (214)
508-2158, facsimile (214) 508-2118, or such other Person as
Administrative Lender may from time to time specify. Notwithstanding
anything in this Section 2.16(a) or any other provision of this
Agreement or any other Loan Paper to the contrary, any payment by
Company in respect of any Advances after acceleration of the Advances
pursuant to Section 7.2 or any monies received by Administrative Lender
or any Lender as a result of the exercise of remedies under any Loan
Paper after acceleration of Advances pursuant to Section 7.2 shall be
distributed pro rata to each Lender based on the percentage that the
outstanding Advances owed to such Lender bears to the aggregate
Advances owed to all Lenders."
(ad) Section 2.15 of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
"2.15. Extension of Conversion Date. During each of 1997 and
1998, Company may notify Administrative Lender in writing by no later
than October 1 of each such year of its desire to extend the Conversion
Date (and, consequently, the Maturity Date) for an additional 12
months. If such notice is given, Administrative Lender, no later than
November 15 of each such year, will notify Company in writing of
Lenders' decision whether to extend the Conversion Date (and,
consequently, the Maturity Date). Extensions of the Conversion Date
(and, consequently, the Maturity Date) shall be at the option and in
the sole discretion of Lenders, and the decision to extend the
Conversion Date shall require the consent of all Lenders. If either
Company or Administrative Lender fail to give notice within the time
prescribed above, the Conversion Date (and, consequently, the Maturity
Date) shall be the then present Conversion Date (and, consequently, the
then present Maturity Date), unless otherwise extended by the parties
hereto. Any extension of the Conversion Date (and, consequently, the
Maturity Date) pursuant to this Section 2.15 shall not (i) require any
renewal Note unless otherwise requested by Administrative Lender and
(ii) be effective until and unless Company shall pay to Administrative
Lender, for the account of Lenders in accordance with their
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<PAGE>
Specified Percentages, a Revolving Loan Extension Fee based on the
amount of the Commitment and the Index Debt Rating in effect on the
date of extension of the Conversion Date at the following per annum
percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
Category 1 - There is no Index Debt Rating or the Index Debt Rating is the following: 0.250%
- ----------
below BBB- by S&P or below Baa3 by Moody's
Category 2 - The Index Debt Rating is the following: BBB- by S&P or Baa3 by Moody's 0.150%
- ----------
Category 3 - The Index Debt Rating is the following: BBB by S&P or Baa2 by Moody's 0.125%
- ----------
Category 4 - The Index Debt Rating is the following: BBB+ by S&P or Baa1 by Moody's 0.100%
- ----------
Category 5 - The Index Debt Rating is the following: A- or better by S&P or A3 or 0.080%
- ----------
better by Moody's
</TABLE>
For purposes of the foregoing, if the Index Debt Rating established by
S&P or Moody's shall fall within a different category, the Revolving
Loan Extension Fee shall be determined by reference to whichever Index
Debt Rating shall fall within the inferior (or numerically lower)
category."
(ae) Section 3.3 of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
"3.3. Conditions Precedent to the Making of the Term Loan. The
obligation of each Lender to make the Term Loan shall be subject to the
further condition precedent that on the date of the making of the Term
Loan (a) the following statements shall be true:
(i) The representations and warranties contained in
Article IV hereof are true and correct on such date, as though
made on and as of such date;
(ii) No event has occurred and is continuing, or
would result from the making of Advances under the Term Loan
that does or could constitute a Default or Event of Default;
(iii) There shall have occurred no Material Adverse
Change, and the making of the Term Loan and Advances
thereunder shall not cause or result in a Material Adverse
Change;
-13-
<PAGE>
(iv) Company shall have delivered to each Lender a
Note, duly completed and executed, in the form of Exhibit B
hereto, evidencing Advances under the Term Loan;
(v) Company shall have paid to Administrative Lender,
for the account of Lenders in accordance with their Specified
Percentages, a Term Loan Conversion Fee based on the amount of
the Term Loan at the following per annum percentages,
applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
Category 1 - There is no Index Debt Rating or the Index Debt Rating is the 1.000%
- ----------
following: below BBB- by S&P or below Baa3 by Moody's
Category 2 - The Index Debt Rating is the following: BBB- by S&P or Baa3 by 0.750%
- ----------
Moody's
Category 3 - The Index Debt Rating is the following: BBB by S&P or Baa2 by 0.500%
- ----------
Moody's
Category 4 - The Index Debt Rating is the following: BBB+ by S&P or Baa1 by 0.375%
- ----------
Moody's
Category 5 - The Index Debt Rating is the following: A- or better by S&P or A3 0.250%
- ----------
or better by Moody's
</TABLE>
For purposes of the foregoing, if the Index Debt Rating established by
S&P or Moody's shall fall within a different category, the Term Loan
Conversion Fee shall be determined by reference to whichever Index Debt
Rating shall fall within the inferior (or numerically lower) category,
and (b) Administrative Lender shall have received, in form and
substance acceptable to it, such other approvals, documents,
certificates, opinions, and information as it may deem necessary or
appropriate."
(af) The Specified Percentage of each Lender shall be the Specified
Percentage set forth opposite each Lender on the signatory pages to this Third
Amendment.
(ag) Each Bid Rate Note shall be in the form of Exhibit J attached to
this Third 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:
-14-
<PAGE>
(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 Third Amendment, the Revolving Loan Notes, the Bid Rate Notes, and
the Credit Agreement, as amended by this Third Amendment, the execution,
delivery and performance of this Third Amendment, the Revolving Notes, the Bid
Rate Notes, and the Credit Agreement, as amended by this Third Amendment, have
been duly authorized by all corporate action of Company, and this Third
Amendment, the Revolving Notes, the Bid Rate Notes, 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 Third
Amendment, the Revolving Notes, the Bid Rate Notes, or the Credit Agreement, as
amended by this Third Amendment, nor the consummation of any 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 Third Amendment, the Revolving Notes, the Bid Rate Notes, and the Credit
Agreement, as amended by this Third Amendment, or (ii) acknowledgement of this
Third Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be effective
as of December 27, 1996, subject to the following:
(a) Administrative Lender shall have received counterparts of this
Third Amendment executed by the Lenders;
(b) Administrative Lender shall have received counterparts of this
Third Amendment executed by Company and acknowledged by each Guarantor;
(c) the representations and warranties set forth in Section 2 of this
Third Amendment shall be true and correct;
(d) Administrative Lender shall have received duly executed Revolving
Loan Notes,
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<PAGE>
payable to the order of each Lender in an amount equal to such Lender's
Specified Percentage, as established hereby;
(e) Administrative Lender shall have received duly executed Bid Rate
Notes, payable to the order of each Lender in the principal amount not to exceed
$100,000,000;
(f) Administrative Lender shall have received an opinion of counsel of
Company and its Subsidiaries, dated the date of this Third Amendment, acceptable
to Lenders and otherwise in form and substance satisfactory to Lenders and
Special Counsel, with respect to this Third Amendment and otherwise, including,
without limitations opinions (i) to the valid legal and binding nature of this
Third Amendment, the Revolving Loan Notes, the Bid Rate Notes, and the Credit
Agreement as amended hereby, (ii) to the power, authorization and corporate
matters of Company and its Subsidiaries taken with respect to this Third
Amendment, the Revolving Notes, the Bid Rate Notes, and the Credit Agreement, as
amended hereby, (iii) that the execution, delivery and performance by Company
and its Subsidiaries of this Third Amendment, the Revolving Notes, the Bid Rate
Notes, 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 (iv) to such other matters as are reasonably requested by
Special Counsel;
(g) Administrative Lender shall have received certified corporate
resolutions of Company and each Guarantor authorizing the execution, delivery
and performance of this Third Amendment, the Revolving Loan Notes and the Bid
Rate Notes;
(h) Administrative Lender shall have received an opinion of Special
Counsel, dated as of the date of this Third Amendment, acceptable to Lenders,
with respect to the enforceability of this Third Amendment, the Revolving Loan
Notes and the Credit Agreement, as amended hereby, and the other Loan Papers;
(i) simultaneously herewith, TCB shall be paid in full all amounts due
and owing to it pursuant to the Loan Papers, and TCB shall (i) execute a release
of Company with respect to all obligations of Company to TCB under the Loan
Papers and (ii) return its Revolving Loan Note to Administrative Lender marked
"Paid In Full" or words of similar import;
(j) Administrative Lender shall have received, for the account of each
Lender, a fee equal to 0.15% of each Lender's Specified Percentage of the
Commitment, as established hereby;
(k) simultaneously herewith, Administrative Lender shall have received
payment of all fees due and payable thereto pursuant to that certain fee letter
from Administrative Lender and its Affiliate to Company, dated November 7, 1996;
and
(l) 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.
-16-
<PAGE>
4. FUNDING. Simultaneously with the satisfaction of the Conditions of
Effectiveness set forth in Section 3 hereof, each Lender shall be deemed to have
purchased or sold, as the case may be, without recourse an amount of each other
Lender's Advances under the Revolving Loan such that after giving effect to this
Third Amendment, the portion of outstanding Advances under the Revolving Loan
owed to each Lender shall be equal to its Specified Percentage, as established
hereby, of the outstanding Advances under the Revolving Loan.
5. PRIOR NOTES. Simultaneously with the satisfaction of the Conditions
of Effectiveness set forth in Section 3 hereof, each Lender which was a party to
the Credit Agreement prior to this Third Amendment (other than TCB) shall return
its prior Revolving Loan Note to Administrative Lender marked "Renewed" or words
of similar import.
6. GUARANTOR'S ACKNOWLEDGEMENT. By signing below, each Guarantor (i)
acknowledges, consents and agrees to the execution, delivery and performance by
Company of this Third 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 Third Amendment or any of the provisions contemplated herein, (iii)
ratifies and confirms its obligations under its Guaranty Agreement and
Subordination Agreement, and (iv) acknowledges and agrees that it has no claim
or offsets against, or defenses or counterclaims to, its Guaranty Agreement and
Subordination Agreement.
7. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Third 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 Third
Amendment.
(b) The Credit Agreement, as amended by this Third Amendment, and all
other Loan Papers shall remain in full force and effect and are hereby ratified
and confirmed.
8. 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 Third Amendment and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of Special Counsel).
9. EXECUTION IN COUNTERPARTS. This Third 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.
10. GOVERNING LAW; BINDING EFFECT. This Third Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
(without giving
-17-
<PAGE>
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.
11. HEADINGS. Section headings in this Third Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Third Amendment for any other purpose.
12. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS THIRD
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
================================================================================
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
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
-19-
<PAGE>
NATIONSBANK OF TEXAS, N.A., as
Administrative Lender and Lender
Specified Percentage:
15.250%
By: /s/ Frank M. Johnson
----------------------------------
Name: Frank M. Johnson
---------------------------
Title: Senior Vice President
--------------------------
-20-
<PAGE>
AMSOUTH BANK OF ALABAMA
Specified Percentage:
10.750%
By: /s/ Steven R. Chester
----------------------------------
Name: Steven R. Chester
---------------------------
Title: Real Estate Loan Officer
--------------------------
-21-
<PAGE>
BANK OF MONTREAL, CHICAGO BRANCH
Specified Percentage:
10.750%
By: /s/ Jeffery G. Hoppen
----------------------------------
Name: Jeffery G. Hoppen
---------------------------
Title: Director
--------------------------
-22-
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
Specified Percentage:
10.750%
By: /s/ Koh Takemoto
----------------------------------
Name: Koh Takemoto
---------------------------
Title: Joint General Manager
--------------------------
By: /s/ John Korthuis
----------------------------------
Name: John Korthuis
---------------------------
Title: Vice President
--------------------------
-23-
<PAGE>
DRESDNER BANK AG
Specified Percentage: NEW YORK AND GRAND CAYMAN BRANCHES
7.500%
By: /s/ Thomas J. Nadramia
----------------------------------
Name: Thomas J. Nadramia
----------------------------
Title: Vice President
---------------------------
By: /s/ John W. Sweeney
----------------------------------
Name: John W. Sweeney
----------------------------
Title: Assistant Vice President
----------------------------
-24-
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
Specified Percentage:
7.500%
By: /s/ Robert S. Bucklin
----------------------------------
Name: Robert S. Bucklin
---------------------------
Title: Deputy General Manager
--------------------------
By: /s/ Ellen M. Tackling
----------------------------------
Name: Ellen M. Tackling
----------------------------
Title: Vice President
--------------------------
-25-
<PAGE>
BANK HAPOALIM, B.M.
Specified Percentage:
6.500%
By: /s/ David Cohen
----------------------------------
Name: David Cohen
---------------------------
Title: First Vice President &
Manager
---------------------------
By: /s/ Bruce E. Wetter
----------------------------------
Name: Bruce E. Wetter
---------------------------
Title: Vice President
---------------------------
-26-
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT,
LOS ANGELES BRANCH
Specified Percentage:
6.500%
By: /s/ Christian Jagenberg
----------------------------------
Christian Jagenberg
Senior Vice President
By: /s/ Wolter Mehring
----------------------------------
Wolter Mehring
Vice President
-27-
<PAGE>
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
Specified Percentage:
6.500%
By: /s/ Toshinari Iyoda
----------------------------------
Name: Toshinari Iyoda
---------------------------
Title: SVP & Senior Manager
---------------------------
-28-
<PAGE>
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION
Specified Percentage:
6.500%
By: /s/ J. Daniel McKirgan
----------------------------------
Name: J. Daniel McKirgan
---------------------------
Title: Vice President
---------------------------
-29-
<PAGE>
SIGNET BANK
Specified Percentage:
6.500%
By: /s/ John A. Schissel
----------------------------------
Name: John A. Schissel
---------------------------
Title: Vice President
---------------------------
-30-
<PAGE>
UNION BANK OF SWITZERLAND (NEW
YORK BRANCH)
Specified Percentage:
5.000%
By: /s/ Howard T. Margolis
----------------------------------
Name: Howard T. Margolis
---------------------------
Title: Assistant Vice President
---------------------------
By: /s/ Albert Rabil, III
----------------------------------
Name: Albert Rabil, III
---------------------------
Title: Managing Director
---------------------------
-31-
<PAGE>
ACKNOWLEDGED AND AGREED:
FFCA ACQUISITION CORPORATION
FFCA INSTITUTIONAL ADVISORS, INC.
FFCA MORTGAGE CORPORATION
By: /s/ John R. Barravecchia
----------------------------------
John R. Barravecchia
Executive Vice President and
Chief Financial Officer
-32-
<PAGE>
EXHIBIT J
---------
BID RATE NOTE
$100,000,000 Dallas, Texas December 27, 1996
FOR VALUE RECEIVED, the undersigned, FRANCHISE FINANCE CORPORATION OF
AMERICA, a Delaware corporation ("Borrower"), HEREBY PROMISES TO PAY to the
order of NationsBank, N.A. ("Lender") the lesser of ONE HUNDRED MILLION AND
NO/100 DOLLARS ($100,000,000.00) and the unpaid principal amount of the Bid Rate
Loans (as defined in the Credit Agreement hereinafter defined) made by Lender to
Borrower, pursuant to the Credit Agreement, payable at such times, and in such
amounts, as are agreed to by Lender and Borrower pursuant to Section 2.2(h) of
the Credit Agreement. The books and records of Administrative Lender shall be
prima facie evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of the
Bid Rate Loans from the date made until such principal amount is paid in full,
at such interest rates, and payable at such times, as are agreed to by Lender
and Borrower pursuant to Section 2.2(h) of the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Lender (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Lender may direct, in immediately available funds.
This Bid Rate Note is one of the Bid Rate Notes evidencing Bid Rate
Loans referred to in, and is entitled to the benefits of, the Credit Agreement
dated as of December 27, 1995 among Borrower, NationsBank of Texas, N.A., as
Administrative Lender, Lender and certain other lenders (as from time to time
amended, modified or supplemented, the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of an Event of Default (as defined in the
Credit Agreement) and also for prepayments on account of principal hereof prior
to the maturity hereof upon the terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees to application of any debt of Lender to the payment hereof;
agrees that extensions and renewals without limit as to number, acceptance of
any number of partial payments, releases of any party liable hereon, and
releases or substitutions of collateral, before or after maturity, shall not
release or discharge its obligation under this Bid Rate Note; and agrees to pay
in addition to all other sums due hereunder reasonable attorney's fees if this
Bid Rate Note is placed in the hands of an attorney for collection or if it is
collected through bankruptcy or other judicial proceeding. Borrower agrees that
during the full term hereof the maximum lawful interest rate for this Bid Rate
Note
<PAGE>
determined under Texas law shall be the indicated rate ceiling as specified in
Article 5069-1.04 of V.A.T.S. Further, to the extent that any other lawful rate
ceiling exceeds the rate ceiling so determined, then the higher rate ceiling
shall apply. Chapter 15 of the Texas Credit Code does not apply to this Bid Rate
Note.
This Bid Rate Note shall be governed by and construed in accordance
with the laws of the State of Texas.
FRANCHISE FINANCE CORPORATION
OF AMERICA, a Delaware corporation
By: /s/ John R. Barravecchia
----------------------------------
John R. Barravecchia
Executive Vice President and
Chief Financial Officer
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR
ENDED DECEMBER 31, 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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,350
<SECURITIES> 29,733
<RECEIVABLES> 23,720
<ALLOWANCES> 1,700
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 868,215
<DEPRECIATION> 172,941
<TOTAL-ASSETS> 988,776
<CURRENT-LIABILITIES> 0
<BONDS> 457,956
0
0
<COMMON> 406
<OTHER-SE> 494,964
<TOTAL-LIABILITY-AND-EQUITY> 988,776
<SALES> 0
<TOTAL-REVENUES> 121,166
<CGS> 0
<TOTAL-COSTS> 2,041
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,947
<INCOME-PRETAX> 68,539
<INCOME-TAX> 0
<INCOME-CONTINUING> 68,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,539
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 0
</TABLE>
