UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-----------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------------
Commission file number
1-13116
FRANCHISE FINANCE CORPORATION OF AMERICA
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0736091
- --------------------------------------------------------------------------------
State of Incorporation) (I.R.S. Employer
Identification Number)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip code)
Registrants' telephone number including area code (602) 585-4500
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of each of the issuer's classes of common stock as
of August 7, 1998:
Common Stock, $0.01 par value 48,893,445
----------------------------------- --------------------
Class Number of Shares
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item l. Financial Statements.
------ ---------------------
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1998 AND DECEMBER 31, 1997
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
ASSETS
------
<S> <C> <C>
Investments:
Investments in Real Estate, at cost:
Land $ 433,053 $ 382,637
Buildings and Improvements 652,603 545,629
Equipment 20,588 23,039
----------- -----------
1,106,244 951,305
Less-Accumulated Depreciation 180,189 175,263
----------- -----------
Net Real Estate Investments 926,055 776,042
Mortgage Loans Held for Sale (Note 2) 167,836 251,622
Mortgage Loans Receivable, net of allowances
of $2,500 in 1998 and $2,600 in 1997 46,298 35,184
Real Estate Investment Securities 75,599 55,185
Other Investments 32,144 27,118
----------- -----------
Total Investments 1,247,932 1,145,151
Cash and Cash Equivalents 7,309 7,130
Accounts Receivable, net of allowances
of $2,500 in 1998 and $1,900 in 1997 8,187 7,581
Other Assets 21,846 19,336
----------- -----------
Total Assets $ 1,285,274 $ 1,179,198
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Dividends Payable $ 22,979 $ 19,640
Notes Payable (Note 4) 356,987 309,360
Borrowings Under Line of Credit 168,000 302,000
Mortgage Payable to Affiliate 8,500 8,500
Accrued Expenses and Other 18,010 16,702
----------- -----------
Total Liabilities 574,476 656,202
----------- -----------
Shareholders' Equity:
Preferred Stock, par value $.01 per share, 10 million shares
authorized, none issued or outstanding -- --
Common Stock, par value $.01 per share, authorized 200 million
shares, issued and outstanding 48,891,192 shares in 1998
and 41,787,543 shares in 1997 489 418
Capital in Excess of Par Value 769,761 583,056
Cumulative Net Income 249,064 202,106
Cumulative Dividends (308,516) (262,584)
----------- -----------
Total Shareholders' Equity 710,798 522,996
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,285,274 $ 1,179,198
=========== ===========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/98 6/30/97 6/30/98 6/30/97
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Rental $28,913 $24,838 $55,781 $49,221
Mortgage Loan Interest 6,719 3,588 15,591 5,118
Investment Income and Other 4,734 3,315 8,384 5,893
Interest (Related Party) -- 2,907 -- 7,190
------- ------- ------- -------
40,366 34,648 79,756 67,422
------- ------- ------- -------
EXPENSES:
Depreciation and Amortization 5,886 5,088 11,369 10,248
Operating, General and
Administrative 3,049 2,986 6,428 5,535
Property Costs 485 534 781 1,055
Interest 9,298 9,802 20,808 18,166
Interest (Related Party) 250 247 500 493
------- ------- ------- -------
18,968 18,657 39,886 35,497
------- ------- ------- -------
Income Before Gain on Sale of Property
and Other Costs 21,398 15,991 39,870 31,925
Gain on Sale of Property 6,986 3,631 7,088 6,940
Equity in Net Income of Affiliate -- 1,948 -- 920
------- ------- ------- -------
Net Income $28,384 $21,570 $46,958 $39,785
======= ======= ======= =======
Basic Net Income Per Share $ .58 $ .53 $ 1.02 $ .98
======= ======= ======= =======
Diluted Net Income Per Share (Note 5) $ .58 $ .53 $ 1.01 $ .97
======= ======= ======= =======
Number of Common Shares Used in
Basic Net Income Per Share 48,619 40,661 46,118 40,628
Incremental Shares from Assumed
Conversion of Options 407 312 439 347
------- ------- ------- -------
Number of Common Shares Used in
Diluted Net Income Per Share 49,026 40,973 46,557 40,975
======= ======= ======= =======
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Issued Capital in
------------------------ Excess of Cumulative Cumulative
Shares Amount Par Value Net Income Dividends Total
--------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 41,788 $ 418 $ 583,056 $ 202,106 $(262,584) $ 522,996
Capital contributions -
Issuance of common stock 6,936 69 182,638 -- -- 182,707
Dividend reinvestment plan 111 1 2,981 -- -- 2,982
Exercise of stock options 56 1 1,086 -- -- 1,087
Net income -- -- -- 46,958 -- 46,958
Dividends declared -
$.94 per share -- -- -- -- (45,932) (45,932)
--------- --------- --------- --------- --------- ---------
BALANCE, June 30, 1998 48,891 $ 489 $ 769,761 $ 249,064 $(308,516) $ 710,798
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 46,958 $ 39,785
Adjustments to net income:
Depreciation and amortization 11,369 10,248
Gain on sale of property (7,088) (6,940)
Equity in net income of affiliate -- (920)
Other (133) (3,234)
--------- ---------
Net cash provided by operating activities 51,106 38,939
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (169,565) (29,549)
Investment in mortgage loans (267,471) (138,101)
Investment in notes receivable (15,453) (5,540)
Collection of related party notes receivable -- 120,210
Purchase of investment securities -- (15,946)
Proceeds from securitization transaction (Note 2) 316,766 103,975
Proceeds from sale of property 8,665 16,632
Receipt of mortgage loan and note payoffs 10,427 6,691
Collection of mortgage loan and note principal 6,525 3,707
Collection of investment security principal 1,496 726
--------- ---------
Net cash provided by investing activities (108,610) 62,805
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (42,593) (36,540)
Proceeds from issuance of common stock 186,776 3,076
Proceeds from bank borrowings 309,000 167,000
Proceeds from issuance of notes 47,500 50,000
Payment of bank borrowings (443,000) (293,300)
--------- ---------
Net cash used in financing activities 57,683 (109,764)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 179 (8,020)
CASH AND CASH EQUIVALENTS, beginning of period 7,130 11,350
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 7,309 $ 3,330
========= =========
Supplemental Disclosure of Noncash Activities:
Investment in securities resulting from securitization $ 21,653 $ 11,303
========= =========
Mortgage loan obtained as part of property sale proceeds,
net of deferred gain $ 1,447 $ 767
========= =========
</TABLE>
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1998
-------------
(1) NEW PRONOUNCEMENT:
------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. This standard is
effective for FFCA's fiscal year 2000 at which time FFCA plans to adopt it. The
adoption of this new accounting standard would not have had a material effect on
FFCA's financial statements for the three and six months ended June 30, 1998 and
1997.
(2) MORTGAGE LOANS HELD FOR SALE:
-----------------------------
Certain mortgage loans originated for sale by FFCA totaling $335
million were securitized on May 14, 1998 and Secured Franchise Loan Trust
Certificates (the "Certificates") were sold to investors. Upon sale, the
mortgage loans receivable were removed from the balance sheet and a gain on the
sale was recognized for the difference between the carrying amount of the
mortgage loans and the adjusted sales price. The servicing rights on these
mortgage loans have been retained by FFCA and are not significant. FFCA also
retained certain interests in approximately 9% of the aggregate mortgage loan
principal balance through the purchase of subordinated investment securities of
the securitization trust. These investment securities, totaling $21.7 million,
were accounted for as the sale of mortgage loans and the purchase of
mortgage-backed securities classified as trading securities at fair value and
are included in Real Estate Investment Securities in the accompanying
consolidated balance sheets. At June 30, 1998, the fair market values of FFCA's
investment securities approximate cost.
(3) DERIVATIVE FINANCIAL INSTRUMENTS:
---------------------------------
FFCA uses derivative financial instruments to manage interest rate
exposures that exist as a part of its ongoing business operations. The portfolio
of fixed-rate mortgage loans held for sale through securitization is funded on
an interim basis by FFCA's variable rate bank credit facility. FFCA hedges
against fluctuations in interest rates that could adversely affect the value of
the mortgage loans to be sold. At June 30, 1998, FFCA had interest rate swap
contracts outstanding with a total notional amount of $98 million. FFCA intends
to terminate these contracts upon securitization of the fixed-rate mortgage
loans in late 1998, at which time both the gain or loss on the securitization of
the fixed-rate mortgage loans and the gain or loss on the termination of the
interest rate swap contracts will be measured and recognized in the statement of
operations. FFCA had no outstanding liabilities under these contracts at June
30, 1998 and, based on the level of interest rates prevailing, FFCA would have
paid approximately $786,000 if it had terminated these swap contracts at June
30, 1998.
In June 1998, FFCA entered into an interest rate agreement to hedge
exposure to fluctuations in interest rates on anticipated debt with a face
amount of $100 million. FFCA intends to terminate this interest rate agreement
upon the issuance of unsecured notes during the third quarter of 1998, at which
time the gain or loss to be realized upon settlement of this agreement, and
related costs, will be deferred and amortized into interest expense over the
period of the underlying debt. FFCA had no outstanding liabilities under this
contract at June 30, 1998 and, based on the level of interest rates prevailing,
FFCA would have paid approximately $168,000 if it had terminated this interest
rate agreement at June 30, 1998.
<PAGE>
(4) NOTES PAYABLE:
--------------
In January 1998, FFCA issued $17 million in unsecured notes due in
2007, bearing interest at a rate of 6.86%. In April 1998, FFCA issued $30.5
million in unsecured notes due in 2008, bearing interest at a rate of 7.07%.
Interest on the notes is payable semi-annually in arrears on each May 30 and
November 30 with principal due at maturity.
(5) EARNINGS PER SHARE:
-------------------
Earnings per share amounts for 1997 have been restated to conform to
1998's presentation as required by Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share". Stock options to purchase 245,089 weighted
shares of common stock at prices ranging from $27.125 per share to $27.625 per
share were outstanding during the quarter ended June 30, 1998 but were not
included in the computation of diluted earnings per share, because the options'
exercise price was greater than the average market price of the common shares
during this period. For the same reason, stock options to purchase 195,668
weighted shares of common stock (representing options granted in January 1998)
at $27.625 per share were outstanding during the six months ended June 30, 1998
but were not included in the computation of diluted earnings per share.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
General
- -------
Franchise Finance Corporation of America ("FFCA") is a self-administered real
estate investment trust ("REIT") which provides real estate financing to the
chain restaurant industry, as well as to the convenience store and automotive
services and parts industries through various financial products, including
sale-leaseback transactions, mortgage loans, equipment loans and construction
financing. At June 30, 1998, FFCA had interests in 3,129 properties consisting
of investments in 2,600 chain restaurant properties, 465 convenience stores, 54
automotive services and parts stores and 10 other retail properties. FFCA's
portfolio included 2,003 chain store properties represented by investments in
real estate and mortgage loans and 1,126 properties represented by securitized
mortgage loans in which FFCA holds a residual interest.
Liquidity and Capital Resources
- -------------------------------
FFCA's investment activities are funded initially by cash generated from
operations and draws on FFCA's revolving credit facility. This loan facility is
used as a warehousing line until a sufficiently large pool of portfolio
investments is accumulated to warrant the sale of loans through a securitization
transaction, or the issuance of additional debt or equity securities of FFCA.
During the second quarter of 1998, FFCA funded $258 million in new
sale-leaseback and mortgage loan investments, representing $196.9 million in
chain restaurant properties, $39.5 million in convenience stores and $22 million
in automotive services and parts stores. This brings the year-to-date total
investments to $444 million, up 120% from $201 million in the first six months
of 1997. At June 30, 1998, FFCA's portfolio represents over 3,100 locations in
48 states and Canada, approximately 381 of which were financed in the second
quarter of 1998. In addition to this geographic diversification, the portfolio
is also represented by more than 400 different operators in approximately 50
retail chains.
During the quarter ended June 30, 1998, FFCA completed a securitization
transaction, its third and largest transaction since 1996. The transaction,
backed by a total of 558 chain store loans with an outstanding aggregate
principal balance of $335 million, consisted of a diversified pool of fixed-rate
and floating-rate mortgage and equipment loans. Approximately 91% of the
principal balance of the securitized mortgage loan pool was sold to outside
parties, while FFCA holds subordinated certificates representing the remaining
nine percent. FFCA also retained the servicing rights on the mortgage loans.
Asset-backed securities aggregating $305 million were priced in eleven classes
(all of which were rated investment grade) and sold to outside parties. The net
cash proceeds to FFCA were used to reduce amounts outstanding on its bank line
of credit. A net gain approximating $6 million was recognized on this
transaction (after deductions for transaction costs). At June 30, 1998, FFCA
held approximately $76 million in subordinated securities related to its three
securitization transactions. To date there have been no losses in any of FFCA's
securitized mortgage loan pools.
From the time the fixed-rate mortgage loans are originated until the time they
are sold through a securitization transaction, FFCA hedges against fluctuations
in interest rates through the use of derivative financial instruments. At June
30, 1998, FFCA had outstanding interest rate swap contracts aggregating $98
million in notional amount. FFCA intends to terminate these contracts upon
securitization of the related fixed-rate mortgage loans, at which time FFCA
would generally expect to receive (if rates rise) or pay (if rates fall) an
amount equal to the present value of the difference between the LIBOR rate set
at the beginning of the interest rate agreement and the then existing LIBOR
rate. At that time, both the gain or loss on the securitization of the
fixed-rate mortgage loans and the gain or loss on the termination of the
interest rate swap contracts will be measured and recognized in the statement of
operations. Based on the level of interest rates prevailing, FFCA would have
paid approximately $786,000 if it had terminated the swap contracts at June 30,
1998. In addition, FFCA entered into an interest rate agreement to hedge
exposure to fluctuations in interest rates on anticipated debt with a face
amount of $100 million. The gain or loss to be realized upon settlement of this
agreement, and
<PAGE>
related costs, will be deferred and amortized into interest expense over the
period of the underlying debt. Based on interest rates prevailing, FFCA would
have paid $168,000 to terminate this contract at June 30, 1998.
Rental and mortgage interest revenue generated by FFCA's portfolio investments
has, and will continue to, comprise the majority of the cash generated from
operations. Operations during the six-month period ended June 30, 1998 provided
net cash of $51 million as compared to $39 million in 1997. The increase in cash
provided by operations is primarily due to increased revenues from the growth in
the size of the portfolio. Cash generated from operations provides distributions
to the shareholders in the form of quarterly dividends. This cash also may be
used on an interim basis to fund new investments in properties or to pay down
debt.
FFCA's primary source of interim funding for new investments continues to be its
$350 million unsecured acquisition loan facility. At June 30, 1998, FFCA had
cash and cash equivalents of $7.3 million and $182 million available on its bank
line of credit. FFCA's anticipated investments include commitments totaling over
$650 million at June 30, 1998. These commitments were made to several large
operators who operated chain restaurants such as of Burger King, Applebee's and
Chili's, to convenience store operators such as Circle K and to operators of
automotive services and parts stores such as Checker Auto and Midas, to acquire
or finance (subject to FFCA's customary underwriting procedures) over 550 chain
store properties over the next year. FFCA anticipates funding these specific
commitments, and other investments in chain store properties, through amounts
available on its revolving credit facilities, issuance of additional unsecured
debt, issuance of mortgage-backed securities through securitization or issuance
of additional equity securities of FFCA.
In April 1998, FFCA issued $30.5 million in unsecured notes due in 2008 bearing
interest at a rate of 7.07%. Also in April, FFCA raised $24 million in equity
through the sale of approximately 893,000 shares of common stock to a unit
investment trust.
FFCA has a dividend reinvestment plan that allows shareholders to acquire
additional shares of FFCA stock by automatically reinvesting their quarterly
dividends. As of June 30, 1998, shareholders owning approximately 6.5% of the
outstanding shares of FFCA common stock participate in the dividend reinvestment
plan and dividends reinvested during the quarter ended June 30, 1998 totaled
approximately $1.5 million. FFCA declared a second quarter 1998 dividend of
$0.47 per share, or $1.88 per share on an annualized basis, payable on August
20, 1998 to shareholders of record on August 10, 1998. 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.
Results of Operations
- ---------------------
FFCA's operations for the second quarter of 1998 resulted in net income of $28
million ($.58 per share diluted) as compared to net income of $22 million ($.53
per share diluted) in the comparable quarter of 1997. For the six-months ended
June 30, 1998, FFCA reported net income of $47 million ($1.01 per share diluted)
as compared to net income of $40 million ($.97 per share diluted). The increase
in net income between 1997 and 1998 resulted from an increase in the size of
FFCA's real estate investment portfolio and from an increase in interest rate
spreads (the difference between interest rates earned on FFCA's real estate
assets and interest rates paid on the related debt).
Total revenues rose 17% to $40.4 million during the quarter from $34.6 million
in the comparable quarter of 1997 primarily due to the growth of FFCA's
investment portfolio. Revenues for the related six-month periods showed similar
growth between years. FFCA's primary source of revenue growth is rental revenues
generated by new investments in chain store properties. Approximately 92% of
FFCA's 1998 revenues to date were generated by investments in restaurant
properties. As a result of FFCA's 1997 expansion into the financing of
convenience stores and the auto services and parts industry, new investments
during 1998 reflected 66% of the investment dollars were made in the restaurant
industry, 28% in convenience stores and 6% in the auto parts and services
industry. FFCA management believes that such investment diversity is likely to
continue. Since the second quarter of 1997, FFCA made new investments in
property subject to operating leases of approximately $266 million, including
$123 million in the second quarter of 1998. Weighted average base lease
<PAGE>
rates on new investments in 1998 rose to 10.4%, as compared to 9.7% for the
comparable six-month period in 1997. Partially offsetting the rental revenue
increases generated by new investments were decreases in rent related to
properties sold.
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 $1.9 million in the second quarter of 1998 as
compared to $1.6 million in the comparable quarter of 1997. Contingent rentals
for the related six-month periods were $3.2 million in 1998 and $2.7 million in
1997. In May 1998, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on Issue 98-9 relating to the accounting for
contingent rent in interim financial periods. The consensus requires that a
lessor defer recognition of contingent rental revenue in interim periods until
the specified target that triggers the contingent rental revenue is achieved.
The implementation of this pronouncement did not have a material impact on the
results of operations for the quarter ended June 30, 1998. Future quarterly
contingent rental revenues may be affected based on the timing of the dates on
which specified targets are achieved by FFCA's lessees.
Mortgage interest income generated by FFCA's loan portfolio totaled $6.7 million
for the quarter ended June 30, 1998 and $15.6 million year to date. The majority
of the mortgage interest income is generated by mortgage loans that are held for
sale. In 1997, mortgage investment activity was split between FFCA and an
unconsolidated affiliate, FFCA Mortgage Corporation. When considered together,
the mortgage interest income from FFCA's direct investments in mortgage loans
and related party interest income from indirect investments in mortgage loans
(through FFCA Mortgage Corporation), totaled $6.5 million and $12.3 million for
the quarter and six months ended June 30, 1997, respectively. Rates achieved on
the loans originated during the first six months of 1998 averaged 9% which is
relatively unchanged from the rates achieved during the first six months of
1997. Increases and decreases in mortgage interest income between quarters has
been, and will continue to be, impacted by the amount of loans held for sale and
the timing of the sale of these loans through securitization transactions.
Although FFCA no longer receives mortgage interest income from the mortgages it
sold during 1997 and 1998, it retains certain interests through the purchase of
subordinated investment securities. These securities generate revenues that are
included in "Investment Income and Other" in the accompanying financial
statements and represent the majority of the increase in this income between
years.
Expenses increased to $19 million during the quarter ended June 30, 1998 from
$18.7 million in the comparable quarter of 1997 primarily due to an increase in
depreciation and amortization expense related to property purchases in the past
12 months. Expenses increased to $39.9 million during the six months ended June
30, 1998 from $35.5 million in the comparable period of 1997 due to an increase
in interest expense, depreciation and amortization expense and operating,
general and administrative expenses. Interest expense rose $2.6 million due to
the use of borrowings for investment in chain store properties. FFCA's
outstanding borrowings averaged $570 million during the first six months of 1998
as compared to $490 million during the first six months of 1997. Operating,
general and administrative expenses in the first six months of 1998 increased by
$893,000 as compared to the same period in 1997. The increase is primarily
attributable to the addition of personnel and other resources devoted to the
expansion of FFCA's line of financial products. Also included in 1998 is
compensation expense representing the amortization over the five-year vesting
period of the market value of 29,886 shares of restricted stock granted in 1998
at $27.625 per share.
During the quarter, FFCA sold 12 properties (as compared to 15 properties sold
in the second quarter of 1997) and recorded net gains totaling $820,000 on these
sales, as compared to net gains of $3.2 million recorded in the second quarter
of 1997. Cash proceeds from the sale of property and from mortgage loan and note
payoffs during the quarter, totaling $11 million, were used to fund new
investments. Year to date, such sales totaled 22 properties, representing $19
million in cash proceeds.
In the opinion of management, the financial information included in this report
reflects all adjustments necessary for fair presentation. All adjustments are of
a normal recurring nature.
<PAGE>
Part II -- Other Information
- ----------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
An annual meeting of the stockholders of FFCA (the Meeting) was held on May 13,
1998. The following table sets forth each of the proposals that the stockholders
were asked to vote upon and the results of the Meeting:
Proposal Results
-------- -------
1. A proposal to elect twelve directors
to the Board of Directors:
Morton H. Fleischer For 35,527,528
Withheld 364,970
Willie R. Barnes, Esq. For 35,430,274
Withheld 464,375
Kelvin L. Davis For 35,539,877
Withheld 352,243
William C. Foxley For 35,528,643
Withheld 363,856
Robert W. Halliday For 35,406,517
Withheld 485,803
Donald C. Hannah For 35,525,161
Withheld 367,347
Dennis E. Mitchem For 35,426,278
Withheld 465,050
Louis P. Neeb For 35,532,087
Withheld 360,401
Kenneth B. Roath For 35,532,205
Withheld 360,284
Wendell J. Smith For 35,524,248
Withheld 368,240
Casey J. Sylla For 35,531,717
Withheld 360,771
Shelby Yastrow For 35,530,335
Withheld 362,173
2. A proposal to ratify the selection of For 35,371,780
Arthur Andersen LLP as FFCA's Against 139,715
independent auditors for the fiscal year Abstain 380,885
ending December 31, 1998
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) The following is a complete list of exhibits filed as part of this
Form 10-Q. For electronic filing purposes only, this report
contains Exhibit 27, Financial Data Schedule. Exhibit numbers
correspond to the numbers in the Exhibit Table of Item 601 of
Regulation S-K.
99.01 Purchase agreement dated May 7, 1998 between FFCA
Secured Lending Corporation, and Morgan Stanley & Co.
Incorporated, Salomon Brothers Inc, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as
initial purchasers of $305,152,000 aggregate
principal or notional amount of Secured Franchise
Loan Trust Certificates, Series 1998-1, Class A-1a,
Class A-1b, Class A-2a, Class A-2b, Class B-1, Class
B-2, Class C-1, Class C-2, Class D-1, Class D-2 and
Class IO
99.02 First Amendment to Second Amended and Restated Credit
Agreement, dated June 30, 1998, between FFCA,
NationsBank, N.A. and Certain Lenders
(b) During the quarter ended June 30, 1998, FFCA filed the following
reports on Form 8-K:
Form 8-K dated April 16, 1998, filed April 22, 1998, reporting the
distribution agreement with respect to the issue and sale by FFCA
of up to $400 million in medium term notes under Item 5, Other
Events, and Item 7, Financial Statements and Exhibits.
Form 8-K dated February 18, 1998, filed April 28, 1998, reporting
the underwriting agreements with respect to the issue and sale by
FFCA of shares of its common stock under Item 5, Other Events, and
Item 7, Financial Statements and Exhibits.
Form 8-K dated May 14, 1998, filed June 4, 1998, reporting the
sale of approximately $305.2 million of secured franchise loan
trust certificates under Item 5, Other Events.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRANCHISE FINANCE CORPORATION OF AMERICA
Date: August 10, 1998 By /s/ John Barravecchia
------------------------------------------------
John Barravecchia, Executive Vice President,
Chief Financial Officer and Treasurer
Date: August 10, 1998 By /s/ Catherine F. Long
------------------------------------------------
Catherine F. Long, Senior Vice President Finance
and Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
The following is a complete list of exhibits filed as part of this Form 10-Q.
For electronic filing purposes only, this report contains Exhibit 27, Financial
Data Schedule. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
99.01 Purchase agreement dated May 7, 1998
between FFCA Secured Lending
Corporation,and Morgan Stanley & Co.
Incorporated, Salomon Brothers Inc, and
Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as initial purchasers of
$305,152,000 aggregate principal or
notional amount of Secured Franchise Loan
Trust Certificates, Series 1998-1, Class
A-1a, Class A-1b, Class A-2a, Class A-2b,
Class B-1, Class B-2, Class C-1, Class
C-2, Class D-1, Class D-2 and Class IO
99.02 First Amendment to Second Amended and
Restated Credit Agreement, dated June 30,
1998, between FFCA, NationsBank, N.A. and
Certain Lenders
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1998 AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX
MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,309
<SECURITIES> 0
<RECEIVABLES> 10,687
<ALLOWANCES> 2,500
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,106,244
<DEPRECIATION> 180,189
<TOTAL-ASSETS> 1,285,274
<CURRENT-LIABILITIES> 0
<BONDS> 533,487
0
0
<COMMON> 489
<OTHER-SE> 710,309
<TOTAL-LIABILITY-AND-EQUITY> 1,285,274
<SALES> 0
<TOTAL-REVENUES> 79,756
<CGS> 0
<TOTAL-COSTS> 781
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,308
<INCOME-PRETAX> 46,958
<INCOME-TAX> 0
<INCOME-CONTINUING> 46,958
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,958
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.01
</TABLE>
$305,152,000
FFCA SECURED LENDING CORPORATION
SECURED FRANCHISE LOAN
TRUST CERTIFICATES, SERIES 1998-1
PURCHASE AGREEMENT
May 7, 1998
<PAGE>
May 7, 1998
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
FFCA Secured Lending Corporation, a Delaware corporation (the
"Company"), proposes to sell to the several purchasers named in Schedule I
hereto (the "Initial Purchasers") $305,152,000 aggregate principal or notional
amount of FFCA Secured Lending Corporation Secured Franchise Loan Trust
Certificates, Series 1998-1, Class A-1a, Class A-1b, Class A-2a, Class A-2b,
Class B-1, Class B-2, Class C-1, Class C-2, Class D-1, Class D-2 and Class IO
(the "Securities"). The Securities will evidence the entire beneficial interest
in a trust (the "Grantor Trust Fund") to be formed pursuant to a Grantor Trust
Agreement (the "Grantor Trust Agreement") dated as of April 1, 1998, between
LaSalle National Bank, as grantor trust trustee (in such capacity, the "Grantor
Trust Trustee") and the Company. The Grantor Trust Fund will consist primarily
of the FFCA Secured Franchise Loan Trust 1998-1 Secured Franchise Loan-Backed
Bonds (the "Bonds") designated as Class A-1a, Class A-1b, Class A-2a, Class
A-2b, Class B-1, Class B-2, Class C-1, Class C-2, Class D-1 and Class D-2 (the
"Underlying Bonds"). The Bonds will be issued by FFCA Secured Franchise Loan
Trust 1998-1 (the "Owner Trust"), a Delaware business trust to be established by
the Company pursuant to an Owner Trust Agreement, dated as of April 1, 1998 (the
"Owner Trust Agreement"), between the Company and Wilmington Trust Company, as
owner trustee (the "Owner Trustee").
The Bonds will be issued pursuant to an Indenture, dated as of April 1,
1998 (the "Indenture"), between the Owner Trust and LaSalle National Bank, as
indenture trustee (in such capacity, the "Indenture Trustee" and, in either the
capacity as Grantor Trust Trustee or as Indenture Trustee, the "Trustee"). The
Bonds will be secured by a first priority security interest in, and will be
payable solely from, the assets of the Owner Trust (the "Owner Trust Estate"),
which will consist primarily of a pool (the "Loan Pool") of (i) 502 fixed and
adjustable rate, monthly pay, first
2
<PAGE>
lien, commercial loans (the "Mortgage Loans"), each of which is secured by real
estate and other property used in the operation of a single chain restaurant,
convenience store, convenience and gasoline store, gasoline station or
automotive service facility (collectively, the "Chain Store Facilities"), (ii)
50 fixed and adjustable rate, monthly pay, first lien, commercial loans (the
"Equipment Loans"), each of which is secured by equipment used in the operation
of a single Chain Store Facility and (iii) six fixed and adjustable rate,
monthly pay, first lien, commercial loans, underwritten on the basis of the
creditworthiness of the related borrower and the value of the related collateral
and secured by real estate, equipment or other property used in the operation of
multiple Chain Store Facilities (the "Corporate Secured Loans" and, together
with the Mortgage Loans and the Equipment Loans, the "Secured Loans"). As of
April 1, 1998, the Secured Loans had an aggregate principal amount of
approximately $335,333,359. Unless otherwise specified herein, references herein
to the Secured Loans will be deemed not to include any Retained Interest (as
defined in the Memorandum (as defined below)).
The Secured Loans were originated by certain affiliates (the
"Originators") of Franchise Finance Corporation of America, a Delaware
corporation ("FFCA"). On the Closing Date (as defined herein), FFCA Acquisition
Corporation (the "Seller") will transfer all of the Secured Loans to the Company
pursuant to a Loan Sale Agreement (the "Loan Sale Agreement"), dated as of April
1, 1998, among FFCA, the Seller and the Company. The Company will in turn assign
the Secured Loans to the Owner Trust, which will simultaneously grant a first
priority security interest in the Secured Loans to secure the Bonds. The Secured
Loans will be serviced and specially serviced on behalf of the Owner Trust by
FFCA, as master servicer and special servicer (in such capacity, the
"Servicer"), pursuant to a Servicing Agreement, dated as of April 1, 1998 (the
"Servicing Agreement"), among the Owner Trust, the Servicer, the Indenture
Trustee and ABN AMRO Bank N.V., as fiscal agent (the "Fiscal Agent").
The Securities will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), (i) to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act and (ii) in offshore transactions in
reliance on Regulation S under the Securities Act ("Regulation S").
In connection with the sale of the Securities, the Company has prepared
a preliminary private placement memorandum (the "Preliminary Memorandum") and
will prepare a final private placement memorandum (the "Final Memorandum"
3
<PAGE>
and with the Preliminary Memorandum, each a "Memorandum") including a
description of the terms of the Securities, the terms of the offering and a
description of the Company, the Bonds, the Servicer, the Secured Loans, the Loan
Pool, applicable federal income tax consequences to purchasers and other
relevant information. As used herein, the term "Memorandum" shall include in
each case any documents incorporated by reference therein.
1. Representations and Warranties. The Company and FFCA represent and
warrant to, and agree with, you that:
(a) The Preliminary Memorandum does not contain and the Final
Memorandum, in the form used by the Initial Purchasers to confirm sales
and on the Closing Date (as defined in Section 4), will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph do not
apply to statements or omissions in either Memorandum based upon
information relating to any Initial Purchaser furnished to the Company
in writing by such Initial Purchaser through you expressly for use
therein.
(b) As of the date hereof, FFCA is, and, as of the Closing
Date, will be, duly incorporated and validly existing as a corporation
in good standing under the laws of the State of Delaware, with full
power and authority (corporate and other) to own its properties and
conduct its business as described in the Memorandum and to enter into
and perform its obligations under the Loan Sale Agreement, the
Servicing Agreement, this Agreement and the Management Agreement, dated
as of April 1, 1998 (the "Management Agreement"), among the Owner
Trust, the Owner Trustee and FFCA, as manager (except where the failure
to have such power and authority would not have a material adverse
effect on its ability to own its properties or to conduct its business
or to enter into or perform its obligations under the Loan Sale
Agreement, the Servicing Agreement, this Agreement and the Management
Agreement).
(c) As of the Closing Date, no material adverse change in the
condition (financial or otherwise) or the earnings, business affairs or
business prospects (a "Material Adverse Change") of FFCA will have
occurred since the date hereof.
4
<PAGE>
(d) As of the date of the Final Memorandum and as of the
Closing Date, the Company will have been duly incorporated and will be
validly existing as a corporation in good standing under the laws of
the State of Delaware, with full power and authority (corporate and
other) to own its properties and conduct its business as described in
the Memorandum and to enter into and perform its obligations under the
Owner Trust Agreement, the Grantor Trust Agreement, the Loan Sale
Agreement, this Agreement and the Management Agreement (except where
the failure to have such power and authority would not have a material
adverse effect on its ability to own its properties or to conduct its
business or to enter into or perform its obligations under the Owner
Trust Agreement, the Grantor Trust Agreement, the Loan Sale Agreement,
the Servicing Agreement, this Agreement and the Management Agreement).
(e) As of the date of the Final Memorandum and as of the
Closing Date, the Owner Trust will have been duly organized and will be
validly existing as a business trust in good standing under the laws of
the State of Delaware, with full power and authority to own its
properties and conduct its business as described in the Memorandum, to
issue the Bonds and to enter into and perform its obligations under the
Servicing Agreement, the Indenture and the Bonds (except where the
failure to have such power and authority would not have a material
adverse effect on its ability to own its properties or to conduct its
business or to enter into or perform its obligations under the
Servicing Agreement, the Indenture and the Bonds).
(f) As of the date of the Final Memorandum and as of the
Closing Date, the Seller will have been duly incorporated and will be
validly existing as a corporation in good standing under the laws of
the State of Delaware, with full power and authority (corporate and
other) to own its properties and conduct its business as described in
the Memorandum and to enter into and perform its obligations under the
Loan Sale Agreement (except where the failure to have such power and
authority would not have a material adverse effect on its ability to
own its properties or to conduct its business or to enter into or
perform its obligations under the Loan Sale Agreement).
(g) This Agreement has been duly authorized, executed and
delivered by FFCA and the Company.
5
<PAGE>
(h) As of the Closing Date, the Owner Trust Agreement and the
Grantor Trust Agreement will have been duly authorized, executed and
delivered by the Company and will constitute valid and binding
agreements of the Company, enforceable against the Company in
accordance with their respective terms.
(i) As of the Closing Date, the Securities, when duly and
validly authenticated and delivered pursuant to the Grantor Trust
Agreement, will have been duly and validly issued and will be entitled
to the benefits of the Grantor Trust Agreement.
(j) As of the Closing Date, the Indenture, the Servicing
Agreement and the Management Agreement, when duly and validly executed
and delivered by the Owner Trustee, will have been duly authorized,
executed and delivered by the Owner Trust and will constitute valid and
binding agreements of the Owner Trust, enforceable against the Owner
Trust in accordance with their respective terms.
(k) As of the Closing Date, the Bonds, when duly and validly
executed by the Owner Trustee and authenticated and delivered by the
Trustee pursuant to the Indenture, will have been duly executed,
authenticated, issued and delivered by the Owner Trust, will constitute
valid and binding obligations of the Owner Trust, enforceable against
the Owner Trust in accordance with their terms and will be entitled to
the benefits of the Indenture.
(l) As of the Closing Date, the Owner Trust Agreement will
have been duly authorized, executed and delivered by the Company and
will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(m) As of the Closing Date, the Loan Sale Agreement will have
been duly authorized, executed and delivered by FFCA, the Company and
the Seller and will constitute a valid and binding agreement of FFCA,
the Company and the Seller, enforceable against FFCA, the Company and
the Seller in accordance with its terms.
(n) As of the Closing Date, the Servicing Agreement will have
been duly authorized, executed and delivered by the Servicer and the
Owner Trust, when duly and validly executed and delivered by Servicer
and the Owner
6
<PAGE>
Trustee, and will constitute a valid and binding agreement of the
Servicer and the Owner Trust, enforceable against the Servicer and the
Owner Trust in accordance with its terms.
(o) As of the Closing Date, the Management Agreement will have
been duly authorized, executed and delivered by FFCA and will
constitute a valid and binding agreement of FFCA, enforceable against
FFCA in accordance with its terms.
(p) As of the Closing Date, the Grantor Trust Agreement, the
Securities, the Indenture, the Bonds, the Servicing Agreement, the
Owner Trust Agreement, the Loan Sale Agreement and the Management
Agreement will conform in all material respects to the descriptions
thereof contained in the Memorandum.
(q) As of the date hereof, there is, and, as of the Closing
Date, there will be, no action, suit or proceeding, inquiry or
investigation pending against or, to the knowledge of FFCA or the
Company, threatened against or affecting, FFCA, the Owner Trust or the
Company before any court or arbitrator or any governmental body, agency
or official which could reasonably be expected to result in a Material
Adverse Change in respect of FFCA, the Owner Trust or the Company, or
which in any manner challenges the validity of the Grantor Trust
Agreement, the Loan Sale Agreement, the Securities, the Indenture, the
Bonds, the Owner Trust Agreement, the Servicing Agreement, the
Management Agreement or this Agreement.
(r) As of the Closing Date, the execution and delivery of, and
the performance by FFCA of all of its obligations under, the Loan Sale
Agreement, the Management Agreement, the Servicing Agreement and this
Agreement and the consummation of the transactions herein and therein
contemplated will not contravene or conflict with the certificate of
incorporation or by-laws of FFCA and will not conflict with or result
in a breach of any terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound
or to which any of its property or assets is subject, or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over it or its properties or assets, except where such
conflicts, breaches and defaults in the aggregate would not result in a
Material Adverse Change in respect of FFCA.
7
<PAGE>
(s) As of the Closing Date, the execution and delivery of, and
the performance by the Company of all of its obligations under the
Grantor Trust Agreement, the Loan Sale Agreement, the Owner Trust
Agreement and this Agreement and the consummation of the transactions
herein and therein contemplated will not contravene or conflict with
the certificate of incorporation or by-laws of the Company and will not
conflict with or result in a breach of any terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which it is a party
or by which it is bound or to which any of its property or assets,
including the Secured Loans, is subject, or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over it or its properties or assets, except where such
conflicts, breaches and defaults in the aggregate would not result in a
Material Adverse Change in respect of the Company.
(t) As of the Closing Date, the execution and delivery of, and
the performance by the Owner Trust of, all of its obligations under the
Bonds, the Indenture, the Servicing Agreement and the Management
Agreement and the consummation of the transactions herein and therein
contemplated will not contravene or conflict with the Owner Trust
Agreement and will not conflict with or result in a breach of any terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which
any of its property or assets, including the Secured Loans, is subject,
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over it or its properties or assets, except
where such conflicts, breaches and defaults in the aggregate would not
result in a Material Adverse Change in respect of the Owner Trust.
(u) Neither FFCA nor any affiliate (as defined in Rule 501(b)
of Regulation D under the Securities Act, an "Affiliate") of FFCA has
directly, or through any agent, (i) sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any security (as
defined in the Securities Act) which is or will be integrated with the
sale of the Securities in a manner that would require the registration
under the Securities Act of the Securities or (ii) engaged in any form
of general solicitation or general advertising in connection with the
offering of the Securities, (as those terms are used in Regulation D
under the Securities Act) or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act.
8
<PAGE>
(v) None of FFCA, its Affiliates or any person acting on its
or their behalf has engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the
Securities, and FFCA and its Affiliates and any person acting on its or
their behalf have complied and will comply with the offering
restrictions requirement of Regulation S.
(w) Neither the Grantor Trust Fund created by the Grantor
Trust Agreement nor the Owner Trust is an "investment company" or an
entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(x) It is not necessary in connection with the offer, sale and
delivery of the Securities in the manner contemplated by this Agreement
and the Memorandum to register the Securities under the Securities Act.
(y) No qualification of the Indenture or the Grantor Trust
Agreement under the Trust Indenture Act of 1939, as amended (the "1939
Act"), is required.
(z) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(aa) As of the Closing Date, Coopers & Lybrand L.L.P., which
will deliver the letters required by Section 5(a)(ix) of this
Agreement, are independent public accountants with respect to the
Company and FFCA as required by the Securities Act and the rules and
regulations promulgated thereunder.
(bb) At the time of execution and delivery of the Loan Sale
Agreement, the Seller will be the sole owner and holder of the Secured
Loans free and clear of all monetary liens, pledges, charges or
security interests of any nature encumbering its right, title and
interest therein, except as otherwise described in the Memorandum
("Liens"), the Seller will have the power and authority to enter into
the Loan Sale Agreement and to transfer the Secured Loans to the
Company and the Loan Sale Agreement will be effective to transfer the
Secured Loans to the Company free and clear of all Liens.
(cc) Immediately prior to the sale and assignment of the
Secured Loans to the Owner Trust by the Company, the Company will own
each of the Secured Loans free and clear of all Liens and will have the
power and au-
9
<PAGE>
thority to transfer the Secured Loans to the Owner Trust in exchange
for the Bonds and the Owner Trust Certificates, and the Owner Trust
Agreement will be effective to transfer the Secured Loans and the
rights of the Company in the Loan Sale Agreement to the Owner Trust
free and clear of all Liens.
(dd) At the time of the execution and delivery of the Grantor
Trust Agreement, the Company will own each of the Underlying Bonds free
and clear of all Liens and will have the power and authority to
transfer the Underlying Bonds to the Grantor Trust Fund, and the
Grantor Trust Agreement will be effective to transfer the Underlying
Bonds to the Grantor Trust Fund free and clear of all Liens.
(ee) Upon the execution and delivery of the Grantor Trust
Agreement, payment by the purchasers for the Securities and delivery to
such purchasers of the Securities, the Grantor Trust Fund will own the
Underlying Bonds and the purchasers will acquire title to the
Securities, in each case free of Liens except such Liens as may be
created or granted by the purchasers of the Securities.
(ff) All consents, approvals and authorizations of any
governmental body, subdivision, agency, board or authority
(collectively, "Governmental Authorities"), if any, required on the
part of the Company in connection with the execution and delivery by it
of the Grantor Trust Agreement, the Owner Trust Agreement, the Loan
Sale Agreement and this Agreement or the carrying out by it of the
transactions contemplated hereby or thereby have been obtained and are
in full force and effect except such as may be required in connection
with the documents to be recorded or filed, as the case may be, with
respect to the transfer of the Secured Loans and such as may be
required under state securities or blue sky laws.
(gg) All consents, approvals and authorizations of any
Governmental Authority, if any, required on the part of FFCA in
connection with the execution and delivery by it of the Loan Sale
Agreement, the Servicing Agreement, the Management Agreement and this
Agreement or the carrying out by it of the transactions contemplated
hereby or thereby have been obtained and are in full force and effect
except such as may be required in connection with the documents to be
recorded or filed, as the case may be, with respect to the transfer of
the Secured Loans and such as may be required under state securities or
blue sky laws.
10
<PAGE>
(hh) All consents, approvals and authorizations of any
Governmental Authority, if any, required on the part of the Owner Trust
in connection with the execution and delivery by it of the Bonds, the
Indenture, the Servicing Agreement and the Management Agreement or the
carrying out by it of the transactions contemplated thereby have been
obtained and are in full force and effect except such as may be
required in connection with the documents to be recorded or filed, as
the case may be, with respect to the transfer of the Secured Loans and
such as may be required under state securities or blue sky laws.
(ii) All consents, approvals and authorizations of any
Governmental Authority, if any, required on the part of the Seller in
connection with the execution and delivery by it of the Loan Sale
Agreement or the carrying out by it of the transactions contemplated
thereby have been obtained and are in full force and effect except such
as have been obtained, such as may be required in connection with the
documents to be recorded or filed, as the case may be, with respect to
the transfer of the Secured Loans and such as may be required under
state securities or blue sky laws.
(jj) At the date thereof and as of Closing Date, the
description of the Secured Loans appearing in the Final Memorandum will
be true and correct in all material respects.
(kk) As of the Closing Date, each of the representations and
warranties of FFCA set forth in the Loan Sale Agreement will be true
and correct in all material respects.
(ll) As of the Closing Date, each of the representations and
warranties of the Company set forth in the Grantor Trust Agreement will
be true and correct in all material respects.
(mm) Any taxes, fees and other governmental charges in
connection with the execution, delivery and issuance of this Agreement,
the Grantor Trust Agreement, the Loan Sale Agreement, the Owner Trust
Agreement, the Underlying Bonds and the Securities have been or will be
paid by the Company or FFCA prior to the Closing Date.
(nn) As of the Closing Date, the Servicer (or a Sub-Servicer)
will be licensed, qualified and in good standing in each state in which
a Site (as de-
11
<PAGE>
fined in the Memorandum) is located if the laws of such state require
licensing or qualification in order to perform its obligations as
Servicer under the Servicing Agreement.
(oo) Each Originator was licensed, qualified and in good
standing in each state in which a Site is located if the laws of such
state require licensing or qualification in order to originate the
Secured Loans originated by it, except where the failure of an
Originator to be so licensed would not have a material adverse effect
on the enforceability or validity of a Secured Loan.
(pp) With respect to each Mortgage Loan and, to the extent
applicable, Corporate Secured Loans, either (A) such Secured Loan is
insured under the Environmental Policy (as defined in the Loan Sale
Agreement) or (B) (x) a Phase I environmental assessment was conducted
with respect to the related Mortgaged Property (as defined in the Loan
Sale Agreement) that concluded that no further investigation of the
related Mortgaged Property was necessary or (y) if such Phase I
environmental assessment concluded that further investigation of such
Mortgaged Property was necessary, a Phase II environmental assessment
was conducted with respect to the related Mortgaged Property, and such
Phase II environmental assessment concluded that no remediation or
further action was required with respect to the related Mortgaged
Property.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
to the several Initial Purchasers, and each Initial Purchaser, upon the basis of
the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Company the respective principal or notional amounts of Securities set
forth in Schedule I hereto opposite its name at the purchase prices set forth in
Schedule II (the "Purchase Prices") plus accrued interest, if any, to the
Closing Date.
FFCA and the Company hereby agree that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Initial
Purchasers, it will not, during the period beginning on the date hereof and
continuing to and including the Closing Date, offer, sell, contract to sell or
otherwise dispose of any certificates or other securities substantially similar
to the Securities (other than the sale of the Securities under this Agreement).
12
<PAGE>
3. Terms of Offering. You have advised the Company that the Initial
Purchasers will make an offering of the Securities purchased by the Initial
Purchasers hereunder on the terms to be set forth in the Final Memorandum, as
soon as practicable after this Agreement is entered into as in your judgment is
advisable.
4. Payment and Delivery. Payment for the Securities shall be made to
the Company in federal or other funds immediately available in New York City
against delivery of such Securities for the respective accounts of the several
Initial Purchasers at 10:00 a.m., New York City time, on May 14, 1998, or at
such other time on the same or such other date, not later than May 28, 1998, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date."
Certificates for the Securities shall be in definitive form or global
form, as specified by you, and registered in such names and in such
denominations as you shall request in writing not later than one full business
day prior to the Closing Date. The certificates evidencing the Securities shall
be delivered to you on the Closing Date for the respective accounts of the
several Initial Purchasers, with any transfer taxes payable in connection with
the transfer of the Securities to the Initial Purchasers duly paid, against
payment of the Purchase Price therefor plus accrued interest, if any, to the
date of payment and delivery.
5. Conditions to the Initial Purchasers' Obligations. The several
obligations of the Initial Purchasers to purchase and pay for the Securities on
the Closing Date are subject to the following conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded FFCA or any of FFCA's securities or in
the rating outlook for FFCA, or in the rating accorded any
securities for which the Company has acted as depositor, by
any "nationally recognized statistical rating organization,"
as such term is defined for purposes of Rule 436(g)(2) under
the Securities Act; and
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(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, of any of the Secured Loans from that
set forth in the Final Memorandum (exclusive of any amendments
or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Securities on the terms and in the manner contemplated in the
Final Memorandum.
(b) The Initial Purchasers shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in Section 5(a)(i) and
to the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Initial Purchasers shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive
officer of FFCA, to the effect set forth in Section 5(a)(i) and to the
effect that the representations and warranties of FFCA contained in
this Agreement are true and correct as of the Closing Date and that
FFCA has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or
before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(d) The Initial Purchasers shall have received on the Closing
Date an opinion of Kutak Rock, outside counsel for FFCA, the Company
and the Seller, dated the Closing Date, to the effect set forth in
Exhibit A. Such opinion shall be rendered to the Initial Purchasers at
the request of FFCA and the Company and shall so state therein.
(e) The Initial Purchasers shall have received on the Closing
Date an opinion of Thacher Proffitt & Wood, outside counsel for FFCA,
the
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<PAGE>
Company and the Seller, dated the Closing Date, to the effect set forth
in Exhibit B. Such opinion shall be rendered to the Initial Purchasers
at the request of FFCA and the Company and shall so state therein.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion of Sidley & Austin, outside counsel for Owner Trust,
dated the Closing Date, to the effect set forth in Exhibit C. Such
opinion shall be rendered to the Initial Purchasers at the request of
FFCA and the Company and shall so state therein.
(g) The Initial Purchasers shall have received on the Closing
Date an opinion of Richards Layton & Finger, outside counsel for the
Owner Trustee, dated the Closing Date, to the effect set forth in
Exhibit D. Such opinion shall be rendered to the Initial Purchasers at
the request of FFCA and the Company and shall so state therein.
(h) The Initial Purchasers shall have received on the Closing
Date an opinion of Sidley & Austin, outside federal and Illinois tax
counsel for FFCA, the Company and the Seller, dated the Closing Date,
to the effect set forth in Exhibit E. Such opinion shall be rendered to
the Initial Purchasers at the request of FFCA and the Company and shall
so state therein.
(i) The Initial Purchasers shall have received on the Closing
Date an opinion of Kutak Rock, outside Arizona tax counsel for FFCA,
dated the Closing Date, to the effect set forth in Exhibit F. Such
opinion shall be rendered to the Initial Purchasers at the request of
FFCA and the Company and shall so state therein.
(j) The Initial Purchasers shall have received on the Closing
Date an opinion of Thomas A. Rosiello, Esq., in-house counsel for the
Trustee and the Fiscal Agent, dated the Closing Date, to the effect set
forth in Exhibit G. Such opinion shall be rendered to the Initial
Purchasers at the request of FFCA and the Company and shall so state
therein.
(k) The Initial Purchasers shall have received on the Closing
Date an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel
for the Initial Purchasers, dated the Closing Date, to the effect set
forth in Exhibit H.
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<PAGE>
(l) If any counsel named in this Section 5 is required to
deliver an opinion to Duff & Phelps Credit Rating Co. ("DCR"), Fitch
IBCA, Inc. ("Fitch") or Moody's Investors Service, Inc. ("Moody's") in
connection with their ratings of the Securities, such opinion, dated
the Closing Date and addressed to the Initial Purchasers, or a letter,
dated the Closing Date, from each counsel delivering such opinions
stating that the Initial Purchasers are authorized to rely on such
opinions as though they were addressed to the Initial Purchasers.
(m) Copies of letters dated the Closing Date from DCR, Fitch
and Moody's to the Company to the effect that the Securities have been
definitively assigned the ratings set forth below the name of such
rating agency on the cover page of the Preliminary Memorandum.
(n) The Initial Purchasers shall have received on the date
hereof a letter, dated the date hereof, in form and substance
satisfactory to the Initial Purchasers, from Coopers & Lybrand L.L.P.,
independent public accountants, to the effect that they have performed
certain specified procedures as a result of which they have determined
that such information as the Initial Purchasers may reasonably request
of an accounting, financial or statistical nature contained in the
Final Memorandum agrees with the accounting records of FFCA, the
Company and the Seller and the files of FFCA, the Company and the
Seller relating to the Secured Loans.
6. Covenants of the Company. In further consideration of the agreements
of the Initial Purchasers contained in this Agreement, the Company covenants
with each Initial Purchaser as follows:
(a) To furnish to you in New York City, without charge, prior
to 10:00 a.m. New York City time on the business day next succeeding
the date of this Agreement and during the period mentioned in Section
6(c), as many copies of the Final Memorandum, any documents
incorporated by reference therein and any supplements and amendments
thereto as you may reasonably request.
(b) Before amending or supplementing either Memorandum, to
furnish to you a copy of each such proposed amendment or supplement and
not to use any such proposed amendment or supplement to which you
reasonably object.
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<PAGE>
(c) If, during such period after the date hereof and prior to
the date on which all of the Securities shall have been sold by the
Initial Purchasers, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Final
Memorandum in order to make the statements therein, in the light of the
circumstances when the Final Memorandum is delivered to a purchaser,
not misleading, or if, in the opinion of counsel for the Initial
Purchasers, it is necessary to amend or supplement the Final Memorandum
to comply with applicable law, forthwith to prepare and furnish, at its
own expense, to the Initial Purchasers, either amendments or
supplements to the Final Memorandum so that the statements in the Final
Memorandum as so amended or supplemented will not, in the light of the
circumstances when the Final Memorandum is delivered to a purchaser, be
misleading or so that the Final Memorandum, as amended or supplemented,
will comply with applicable law.
(d) To endeavor to qualify the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request; provided, however, that the Company shall not
be required to qualify to do business in any jurisdiction in which it
is not now qualified or to take any action which would subject it to
general or unlimited service of process in any jurisdiction where it is
not now so subject.
(e) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's, FFCA's, the Owner Trust's
and the Seller's counsel and the Company's accountants in connection
with the issuance and sale of the Securities and all other fees or
expenses in connection with the preparation of each Memorandum and all
amendments and supplements thereto, including all printing costs
associated therewith, and the delivering of copies thereof to the
Initial Purchasers, in the quantities herein above specified, (ii) all
costs and expenses related to the transfer and delivery of the
Securities to the Initial Purchasers, including any transfer or other
taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or legal investment memorandum in connection with the offer and
sale of the Securities under state securities laws and all expenses in
connection with the qualification of the Securities for offer and sale
under state securities laws as provided in Section 6(d) hereof,
including filing fees and the reasonable fees and disbursements of
counsel for the Initial
17
<PAGE>
Purchasers in connection with such qualification and in connection with
the Blue Sky or legal investment memorandum, (iv) any fees charged by
rating agencies for the rating of the Securities, (v) all document
production charges and expenses of counsel to the Initial Purchasers in
connection with the preparation of this Agreement, (vi) the fees and
expenses, if any, incurred in connection with the admission of the
Securities for trading in PORTAL or any appropriate market system,
(vii) the costs and charges of the Trustee and the Owner Trustee and
any transfer agent, registrar or depositary, (viii) the cost of the
preparation, issuance and delivery of the Securities, (ix) the costs
and expenses of the Company and FFCA relating to investor presentations
on any "road show" undertaken in connection with the marketing of the
offering of the Securities, including, without limitation, expenses
associated with the production of road show slides and graphics, fees
and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of FFCA, travel and lodging
expenses of the representatives and officers of the Company and FFCA
and any such consultants, and the cost of any aircraft chartered in
connection with the road show, and (x) all other cost and expenses
incident to the performance of the obligations of the Company and FFCA
hereunder for which provision is not otherwise made in this Section. It
is understood, however, that except as provided in this Section,
Section 8, and the last paragraph of Section 10, the Initial Purchasers
will pay all of their costs and expenses (other than reasonable fees
and disbursements of their counsel), including transfer taxes payable
on resale of any of the Securities by them and any advertising expenses
connected with any offers they may make.
(f) Neither the Company, FFCA nor any Affiliate will sell,
offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) which could
be integrated with the sale of the Securities in a manner which would
require the registration under the Securities Act of the Securities.
(g) Not to solicit any offer to buy or offer or sell the
Securities by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
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<PAGE>
(h) While any of the Securities remain "restricted securities"
within the meaning of the Securities Act, to make available, upon
request, to any seller of such Securities the information specified in
Rule 144A(d)(4) under the Securities Act, unless the Company or the
Owner Trust is then subject to Section 13 or 15(d) of the Exchange Act.
(i) If requested by you, to use its best efforts to permit the
Securities to be designated PORTAL securities in accordance with the
rules and regulations adopted by the National Association of Securities
Dealers, Inc. relating to trading in the PORTAL Market.
(j) None of FFCA, its Affiliates or any person acting on its
or their behalf (other than the Initial Purchasers) will engage in any
directed selling efforts (as that term is defined in Regulation S) with
respect to the Securities, and FFCA and its Affiliates and each person
acting on its or their behalf (other than the Initial Purchasers) will
comply with the offering restrictions requirement of Regulation S.
(k) During the period of two years after the Closing Date,
neither FFCA nor the Company will, or will permit any of their
respective affiliates (as defined in Rule 144A under the Securities
Act) to resell any of the Securities which constitute "restricted
securities" under Rule 144A that have been reacquired by any of them.
(7) Offering of Securities; Restrictions on Transfer. Each Initial
Purchaser, severally and not jointly, represents and warrants that such Initial
Purchaser is a qualified institutional buyer as defined in Rule 144A under the
Securities Act (a "QIB"). Each Initial Purchaser, severally and not jointly,
agrees with the Company and FFCA that (i) it will not solicit offers for, or
offer or sell, such Securities by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act and (ii) it will solicit offers for such Securities only
from, and will offer such Securities only to, persons that it reasonably
believes to be (A) in the case of offers inside the United States, QIBs, and (B)
in the case of offers outside the United States, to persons other than U.S.
persons ("foreign purchasers," which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners (other than an estate or trust)) in reliance upon
Regulation S under the Securities Act that, in the case of (A) or (B), in
purchasing such Securi-
19
<PAGE>
ties, are deemed to have represented and agreed as provided in the Final
Memorandum under the caption "Notice to Investors".
(b) Each Initial Purchaser, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales
outside the United States that:
(i) such Initial Purchaser understands that no action
has been or will be taken in any jurisdiction by FFCA or the
Company that would permit a public offering of the Securities,
or possession or distribution of either Memorandum or any
other offering or publicity material relating to the
Securities, in any country or jurisdiction where action for
that purpose is required;
(ii) such Initial Purchaser will comply with all
applicable laws and regulations in each jurisdiction in which
it acquires, offers, sells or delivers Securities or has in
its possession or distributes either Memorandum or any such
other material, in all cases at its own expense;
(iii) the Securities have not been registered under
the Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S.
persons except in accordance with Rule 144A or Regulation S
under the Securities Act or pursuant to another exemption from
the registration requirements of the Securities Act;
(iv) such Initial Purchaser has offered the
Securities and will offer and sell the Securities (A) as part
of their distribution at any time and (B) otherwise until 40
days after the later of the commencement of the offering and
the Closing Date, only in accordance with Rule 903 of
Regulation S or as otherwise permitted in Section 7(a);
accordingly, neither such Initial Purchaser, its Affiliates
nor any persons acting on its or their behalf have engaged or
will engage in any directed selling efforts (within the
meaning of Regulation S) with respect to the Securities, and
any such Initial Purchaser, its Affiliates and any such
persons have complied and will comply with the offering
restrictions requirement of Regulation S;
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<PAGE>
(v) such Initial Purchaser has (A) not offered or
sold and, prior to the date six months after the Closing Date,
will not offer or sell any Securities to persons in the United
Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (B) complied and will comply with
all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the
Securities in, from or otherwise involving the United Kingdom,
and (C) only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in
connection with the issue of the Securities to a person who is
of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom such document may otherwise lawfully be
issued or passed on;
(vi) such Initial Purchaser understands that the
Securities have not been and will not be registered under the
Securities and Exchange Law of Japan, and represents that it
has not offered or sold, and agrees not to offer or sell,
directly or indirectly, any Securities in Japan or for the
account of any resident thereof except pursuant to any
exemption from the registration requirements of the Securities
and Exchange Law of Japan and otherwise in compliance with
applicable provisions of Japanese law; and
(vii) such Initial Purchaser agrees that, at or prior
to confirmation of sales of the Securities, it will have sent
to each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases
Securities from it during the restricted period a confirmation
or notice to substantially the following effect:
"The Securities covered hereby have not been
registered under the U.S. Securities Act of 1933 (the
"Securities Act") and may not be offered and sold within the
United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution at any time or (ii)
otherwise until 40 days
21
<PAGE>
after the later of the commencement of the offering and the
Closing Date, except in either case in accordance with
Regulation S (or Rule 144A if available) under the Securities
Act. Terms used above have the meaning given to them by
Regulation S."
Terms used in this Section 7(b) have the meanings given to them by
Regulation S.
8. Indemnity and Contribution. (a) The Company and FFCA agree to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in either Memorandum (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in the light of
the circumstances under which they were made not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Initial Purchaser furnished to the Company in
writing by such Initial Purchaser through you expressly for use therein (it
being understood that the only information relating to any Initial Purchaser
furnished to the Company in writing by such Initial Purchaser through you
expressly for use therein is (x) the last two paragraphs on the cover of each of
the Preliminary Memorandum and the Final Memorandum, (y) the second sentence of
the last paragraph on page (iv) of each of the Preliminary Memorandum and the
Final Memorandum, and (z) the first, second, fourth and seventh paragraphs, and
the second sentence in the sixth paragraph, under "Plan of Distribution" in each
of the Preliminary Memorandum and the Final Memorandum).
(b) Each Initial Purchaser agrees, severally and not jointly, to
indemnify and hold harmless the Company and FFCA, their respective directors,
their respective officers and each person, if any, who controls the Company or
FFCA within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from the
Company and FFCA to such
22
<PAGE>
Initial Purchaser, but only with reference to information relating to such
Initial Purchaser furnished to the Company in writing by such Initial Purchaser
through you expressly for use in either Memorandum or any amendments or
supplements thereto (it being understood that the only information relating to
any Initial Purchaser furnished to the Company in writing by such Initial
Purchaser through you expressly for use therein is (x) the last two paragraphs
on the cover of each of the Preliminary Memorandum and the Final Memorandum, (y)
the second sentence of the last paragraph on page (iv) of each of the
Preliminary Memorandum and the Final Memorandum, and (z) the first, second,
fourth and seventh paragraphs, and the second sentence in the sixth paragraph,
under "Plan of Distribution" in each of the Preliminary Memorandum and the Final
Memorandum).
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 8(a) or 8(b), such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 8(a), and by FFCA, in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
23
<PAGE>
judgment. Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) To the extent the indemnification provided for in Section
8(a) or 8(b) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Initial Purchasers on the other hand from the
offering of the Securities or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause 8(d)(i) above but also the relative fault of the Company on the
one hand and of the Initial Purchasers on the other hand in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and FFCA
on the one hand and the Initial Purchasers on the other hand in
connection with the offering of the Securities shall be deemed to be in
the same respective proportions as the net proceeds from the offering
of the Securities (before deducting expenses) received by the Company
and the total discounts and commissions received by the Initial
Purchasers bear to the aggregate offering price of the Securities. The
relative fault of the Company and FFCA on the one hand and of the
Initial Purchasers on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or
24
<PAGE>
alleged omission to state a material fact relates to information
supplied by the Company and FFCA or by the Initial Purchasers and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Initial Purchasers' respective obligations to contribute pursuant to
this Section 8 are several in proportion to the respective principal
amount of Securities they have purchased hereunder, and not joint.
(e) The Company and the Initial Purchasers agree that it would
not be just or equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Initial Purchasers
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 8(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in Section 8(d) shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8, no Initial Purchaser shall be
required to contribute any amount in excess of the amount by which the
total price at which the Securities resold by it in the initial
placement of such Securities were offered to investors exceeds the
amount of any damages that such Initial Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in
this Section 8 and the representations, warranties and other statements
of the Company contained in this Agreement shall remain operative and
in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Initial
Purchaser or any person controlling any Initial Purchaser or by or on
behalf of the Company or FFCA, their respective officers or directors
or any person controlling the Company or FFCA and (iii) acceptance of
and payment for any of the Securities.
25
<PAGE>
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company and FFCA, if (a) after the execution and
delivery of this Agreement and prior to the Closing Date (i) trading generally
shall have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of
any securities of FFCA shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Securities on the terms and in the manner contemplated in the Final
Memorandum.
10. Effectiveness; Defaulting Initial Purchasers. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date, any one or more of the Initial Purchasers
shall fail or refuse to purchase Securities that it or they have agreed to
purchase hereunder on such date, and the aggregate principal amount of
Securities which such defaulting Initial Purchaser or Initial Purchasers agreed
but failed or refused to purchase is not more than one-tenth of the aggregate
principal amount of Securities to be purchased on such date, the other Initial
Purchasers shall be obligated severally in the proportions that the principal
amount of Securities set forth opposite their respective names in Schedule I
bears to the aggregate principal amount of Securities set forth opposite the
names of all such non-defaulting Initial Purchasers, or in such other
proportions as you may specify, to purchase the Securities which such defaulting
Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase
on such date; provided that in no event shall the principal amount of Securities
that any Initial Purchaser has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such principal amount of Securities without the written consent of such Initial
Purchaser. If, on the Closing Date any Initial Purchaser or Initial Purchasers
shall fail or refuse to purchase Securities which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of Securities
with respect to which such default occurs is more than one-tenth of the
aggregate principal amount of Securities to be purchased
26
<PAGE>
on such date, and arrangements satisfactory to you and the Company for the
purchase of such Securities are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser or of the Company or FFCA. In any such case
either you or the Company shall have the right to postpone the Closing Date, but
in no event for longer than seven days, in order that the required changes, if
any, in the Final Memorandum or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Initial Purchaser from liability in respect of any default of such Initial
Purchaser under this Agreement.
If this Agreement shall be terminated by the Initial Purchasers, or any
of them, because of any failure or refusal on the part of the Company or FFCA to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company or FFCA shall be unable to perform their
respective obligations under this Agreement, the Company and FFCA will reimburse
the Initial Purchasers or such Initial Purchasers as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such Initial Purchasers in connection with this Agreement or the offering
contemplated hereunder.
11. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
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13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
FFCA SECURED LENDING
CORPORATION
By: /s/ Dennis L. Ruben
----------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
FRANCHISE FINANCE
CORPORATION OF
AMERICA
By: /s/ Dennis L. Ruben
----------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Acting severally on behalf of themselves and
the several Initial Purchasers named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By: /s/ Robert Hoffman
---------------------------------------
Name: Robert Hoffman
Title: Vice President
28
<PAGE>
SCHEDULE I
Principal Amount
or Notional Amount
of Securities to be
Initial Purchaser Purchased
- ----------------- -------------------
Class A-1a
----------
Morgan Stanley & Co. Incorporated $ 25,500,000
Salomon Brothers Inc 20,400,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 5,100,000
------------
Total: $ 51,000,000
============
Class A-1b
----------
Morgan Stanley & Co. Incorporated $ 75,948,000
Salomon Brothers Inc 60,758,400
Merrill Lynch, Pierce, Fenner & Smith Incorporated 15,189,600
------------
Total: $151,896,000
============
Class A-2a
----------
Morgan Stanley & Co. Incorporated $ 16,000,000
Salomon Brothers Inc 12,800,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 3,200,000
------------
Total: $ 32,000,000
============
Class A-2b
----------
Morgan Stanley & Co. Incorporated $ 9,978,500
Salomon Brothers Inc 7,982,800
Merrill Lynch, Pierce, Fenner & Smith Incorporated 1,995,700
------------
Total: $ 19,957,000
============
29
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Class B-1
---------
Morgan Stanley & Co. Incorporated $ 8,009,000
Salomon Brothers Inc 6,407,200
Merrill Lynch, Pierce, Fenner & Smith Incorporated 1,601,800
------------
Total: $ 16,018,000
============
Class B-2
---------
Morgan Stanley & Co. Incorporated $ 2,051,000
Salomon Brothers Inc 1,640,800
Merrill Lynch, Pierce, Fenner & Smith Incorporated 410,200
------------
Total: $ 4,102,000
============
Class C-1
---------
Morgan Stanley & Co. Incorporated $ 4,672,000
Salomon Brothers Inc 3,737,600
Merrill Lynch, Pierce, Fenner & Smith Incorporated 934,400
------------
Total: $ 9,344,000
============
Class C-2
---------
Morgan Stanley & Co. Incorporated $ 1,196,000
Salomon Brothers Inc 956,800
Merrill Lynch, Pierce, Fenner & Smith Incorporated 239,200
------------
Total: $ 2,392,000
============
Class D-1
---------
Morgan Stanley & Co. Incorporated $ 7,341,500
Salomon Brothers Inc 5,873,200
Merrill Lynch, Pierce, Fenner & Smith Incorporated 1,468,300
------------
Total: $ 14,683,000
============
30
<PAGE>
Class D-2
---------
Morgan Stanley & Co. Incorporated $ 1,880,000
Salomon Brothers Inc 1,504,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 376,000
------------
Total: $ 3,760,000
============
Class IO
--------
Morgan Stanley & Co. Incorporated $ 10,869,666
Salomon Brothers Inc 8,695,733
Merrill Lynch, Pierce, Fenner & Smith Incorporated 2,173,933
------------
Total: $ 21,739,332
============
31
<PAGE>
SCHEDULE I
Purchase Price
as a Percentage of
Principal Amount
or Notional Amount
Class of Securities
- ----- ------------------
Class A-1a 99.4788%
Class A-1b 99.4321%
Class A-2a 99.1679%
Class A-2b 99.1762%
Class B-1 99.2420%
Class B-2 98.9046%
Class C-1 98.9360%
Class C-2 98.6504%
Class D-1 98.6788%
Class D-2 98.3983%
Class IO 5.57837%
32
<PAGE>
EXHIBIT A
OPINION OF KUTAK ROCK, AS COUNSEL
FOR THE COMPANY, FFCA AND THE SELLER
The opinion of Kutak Rock, as counsel for the Company, FFCA and the
Seller, to be delivered pursuant to Section 5(d) of the Purchase Agreement shall
be to the effect that:
(a) The Company has been duly incorporated and is validly
existing and in good standing as a corporation under the laws of the
State of Delaware with corporate power and authority to own its
properties, including the Secured Loans, to conduct its business as
described in the Memorandum, to enter into and perform all of its
obligations under this Agreement, the Owner Trust Agreement and the
Loan Sale Agreement, to purchase the Secured Loans from the Seller and
to transfer such Secured Loans to the Owner Trust in exchange for the
Bonds and the Owner Trust Certificates and to transfer the Underlying
Bonds to the Grantor Trust Fund in exchange for the Securities.
(b) FFCA has been duly incorporated and is validly existing
and in good standing as a corporation under the laws of the State of
Delaware with corporate power and authority to own its properties,
including the Secured Loans, to enter into and perform all of its
obligations under this Agreement, the Loan Sale Agreement, the
Servicing Agreement and the Management Agreement, to act as Servicer in
respect of the Secured Loans and to conduct its business as described
in the Memorandum.
(c) The Seller has been duly incorporated and is validly
existing and in good standing as a corporation under the laws of the
State of Delaware with corporate power and authority to own its
properties, including the Secured Loans, to conduct its business as
described in the Memorandum, to enter into and perform all of its
obligations under the Loan Sale Agreement, to originate or acquire the
Secured Loans and to sell and transfer the Secured Loans to the
Company.
(d) Except as set forth or contemplated in the Memorandum,
there
33
<PAGE>
is no action, suit or proceeding pending against, or to the best of
such counsel's knowledge, threatened against or affecting, the Company,
FFCA or the Seller before any court or arbitrator or any governmental
body, agency or official, with respect to which there is a reasonable
possibility of a Material Adverse Change as to the Company, FFCA or the
Seller, as the case may be, or which in any manner challenges the
validity of the Indenture, the Bonds, the Owner Trust Agreement, the
Servicing Agreement, the Management Agreement, the Grantor Trust
Agreement, the Loan Sale Agreement, the Securities or this Agreement.
(e) Neither the execution or delivery by the Company of, nor
the performance by the Company of all of its obligations under, the
Grantor Trust Agreement, the Owner Trust Agreement, the Loan Sale
Agreement and this Agreement and the consummation of the transactions
herein and therein contemplated will violate or conflict with any
provision of the certificate of incorporation or by-laws of the Company
or conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under any of the following of
which such counsel has knowledge: any indenture, mortgage, deed of
trust, loan agreement or other agreement to which the Company is a
party or by which it is bound or to which any of its property or
assets, including the Secured Loans, is subject, or any applicable law
or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over it or any of its
properties or assets, except where such conflicts, breaches and
defaults in the aggregate would not have a material adverse effect on
the Company or the ability of the Company to perform its obligations
hereunder or under the Grantor Trust Agreement, the Owner Trust
Agreement or the Loan Sale Agreement.
(f) Neither the execution or delivery by FFCA of, nor the
performance by FFCA of all of its obligations under, the Servicing
Agreement, the Management Agreement, the Loan Sale Agreement and this
Agreement and the consummation of the transactions herein and therein
contemplated will violate or conflict with any provision of the
certificate of incorporation or by-laws of FFCA or conflict with or
result in a breach of any of the terms or provisions of, or constitute
a default under any of the following of which such counsel has
knowledge: any indenture, mortgage, deed of trust, loan agreement or
other agreement to which FFCA is a party or by which it is bound or to
which any of its property or assets is subject, or any applicable law
or statute or any order, rule or regulation of any court or
governmental agency or
34
<PAGE>
body having jurisdiction over it or any of its properties or assets,
except where such conflicts, breaches and defaults in the aggregate
would not have a material adverse effect on FFCA or the ability of FFCA
to perform its obligations hereunder or under the Servicing Agreement,
the Management Agreement or the Loan Sale Agreement.
(g) Neither the execution or delivery by the Seller of, or the
performance by the Seller of all of its obligations under, the Loan
Sale Agreement and the consummation of the transactions therein
contemplated will violate or conflict with any provision of their
respective certificates of incorporation or by-laws or conflict with or
result in a breach of any of the terms or provisions of, or constitute
a default under any of the following of which such counsel has
knowledge: any indenture, mortgage, deed of trust, loan agreement or
other agreement to which the Seller is a party or by which it is bound
or to which any of its property or assets, including the Secured Loans,
is subject, or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over them or any of their respective properties or assets,
except where such conflicts breaches and defaults in the aggregate
would not have a material adverse effect on the Seller or the ability
of the Seller to perform its obligations under the Loan Sale Agreement.
(h) Neither the execution or delivery by the Owner Trustee on
behalf of the Owner Trust of , nor the performance by the Owner Trust
of all of its obligations under, the Indenture, the Bonds, the
Servicing Agreement and the Management Agreement and the consummation
of the transactions therein contemplated will violate or conflict with
any provision of the Owner Trust Agreement or conflict with or result
in a breach of any of the terms or provisions of, or constitute a
default under any of the following of which such counsel has knowledge:
any indenture, mortgage, deed of trust, loan agreement or other
agreement to which the Owner Trust is a party or by which it is bound
or to which any of its property or assets, including the Secured Loans,
is subject, or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over it or any of its properties or assets, except where
such conflicts, breaches and defaults in the aggregate would not have a
material adverse effect on the Owner Trust or the ability of the Owner
Trust to perform its obligations under the Indenture, the Bonds, the
Servicing Agreement or the Management Agreement.
35
<PAGE>
(i) This Agreement has been duly authorized, executed and
delivered by the Company and FFCA.
(j) The Grantor Trust Agreement has been duly authorized,
executed and delivered by the Company.
(k) The Loan Sale Agreement has been duly authorized, executed
and delivered by the Company, the Seller and FFCA.
(l) The Owner Trust Agreement has been duly authorized,
executed and delivered by the Company.
(m) The Servicing Agreement has been duly authorized, executed
and delivered by FFCA.
(n) The Management Agreement has been duly authorized,
executed and delivered by FFCA.
(o) No consent, approval, order, qualification or
authorization of or registration, declaration or filing with any court
or governmental agency or body is required by the Company for the
performance of the Grantor Trust Agreement, the Loan Sale Agreement,
the Owner Trust Agreement or this Agreement or the consummation of the
other transactions contemplated by the Grantor Trust Agreement, the
Loan Sale Agreement, the Owner Trust Agreement, this Agreement except
such as have been obtained, such as may be required in connection with
the documents to be recorded or filed, as the case may be, with respect
to the transfer of the Secured Loans and such as may be required under
state securities or blue sky laws (as to which such counsel need
express no opinion).
(p) No consent, approval, order, qualification or
authorization of or registration, declaration or filing with any court
or governmental agency or body is required by FFCA for the performance
of the Servicing Agreement, the Loan Sale Agreement, the Management
Agreement, this Agreement or the consummation of the other transactions
contemplated by the Servicing Agreement, the Loan Sale Agreement, the
Management Agreement, this Agreement except such as have been obtained,
such as may be required in connection with the documents to be recorded
or filed, as the case may be, with respect to the transfer of the
Secured Loans and such as may be required
36
<PAGE>
under state securities or blue sky laws (as to which such counsel need
express no opinion).
(q) No consent, approval, order, qualification or
authorization of or registration; declaration or filing with any court
or governmental agency or body is required by the Seller for the
performance of the Loan Sale Agreement or the consummation of the other
transactions contemplated by the Loan Sale Agreement except such as
have been obtained, such as may be required in connection with the
documents to be recorded or filed, as the case may be, with respect to
the transfer of the Secured Loans and such as may be required under
state securities or blue sky laws (as to which such counsel need
express no opinion).
Such counsel may rely with respect to matters of law of any state other
than the States of Delaware and Arizona upon opinions of local counsel.
37
<PAGE>
EXHIBIT B
OPINION OF THACHER PROFFITT & WOOD, AS COUNSEL
FOR THE COMPANY, FFCA AND THE SELLER
The opinion of Thacher Proffitt & Wood, as counsel for the Company,
FFCA and the Seller, to be delivered pursuant to Section 5(e) of the Purchase
Agreement shall be to the effect that:
(a) The Securities, when duly and validly executed by the
Grantor Trust Trustee pursuant to the Grantor Trust Agreement and
authenticated by the Grantor Trust Trustee in the manner contemplated
by the Grantor Trust Agreement and delivered to and paid for by the
Initial Purchasers pursuant to this Agreement, will be validly issued
and outstanding and entitled to the benefits of the Grantor Trust
Agreement.
(b) Assuming the due authorization, execution and delivery
thereof by the Company and the Grantor Trust Trustee, the Grantor Trust
Agreement constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms,
subject to (1) applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance and other similar laws relating to and affecting
creditors' rights generally and court decisions with respect thereto,
and (2) the understanding that such counsel need express no opinion
with respect to the application of equitable principles in any
proceeding, whether at law or in equity.
(c) Assuming the due authorization, execution and delivery
thereof by the Company, the Seller and FFCA, the Loan Sale Agreement
constitutes a legal, valid and binding agreement of the Company, the
Seller and FFCA enforceable against the Company, the Seller and FFCA in
accordance with its terms, subject to (1) applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance and other similar laws
relating to and affecting creditors' rights generally and court
decisions with respect thereto and (2) the understanding that such
counsel need express no opinion with respect to the application of
equitable principles in any proceeding, whether at law or in equity.
38
<PAGE>
(d) Assuming the due authorization, execution and delivery
thereof by the Company and the Owner Trust Trustee, the Owner Trust
Agreement constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms,
subject to (1) applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance and other similar laws relating to and affecting
creditors' rights generally and court decisions with respect thereto,
and (2) the understanding that such counsel need express no opinion
with respect to the application of equitable principles in any
proceeding, whether at law or in equity.
(e) Assuming the due authorization, execution and delivery
thereof by FFCA and the other parties thereto, the Servicing Agreement
constitutes a legal, valid and binding agreement of FFCA enforceable
against FFCA in accordance with its terms, subject to (1) applicable
bankruptcy, insolvency, moratorium, fraudulent conveyance and other
similar laws relating to and affecting creditors' rights generally and
court decisions with respect thereto and (2) the understanding that
such counsel need express no opinion with respect to the application of
equitable principles in any proceeding, whether at law or in equity.
(f) Assuming the due authorization, execution and delivery
thereof by FFCA and the other parties thereto, the Management Agreement
constitutes a legal, valid and binding agreement of FFCA enforceable
against FFCA in accordance with its terms, subject to (1) applicable
bankruptcy, insolvency, moratorium, fraudulent conveyance and other
similar laws relating to and affecting creditors' rights generally and
court decisions with respect thereto and (2) the understanding that
such counsel need express no opinion with respect to the application of
equitable principles in any proceeding, whether at law or in equity.
(g) Assuming the due execution and delivery thereof by the
Owner Trustee on behalf of the Owner Trust in accordance with the Owner
Trust Agreement, the Indenture, the Management Agreement and the
Servicing Agreement constitute legal, valid and binding agreements of
the Owner Trust enforceable against the Owner Trust in accordance with
their respective terms, subject to (1) applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance and other similar laws
relating to and affecting creditors' rights generally and court
decisions with respect thereto and (2) the understanding that such
counsel need express no opinion with respect to the
39
<PAGE>
application of equitable principles in any proceeding, whether at law
or in equity.
(h) Assuming the due execution and delivery thereof by the
Owner Trustee on behalf of the Owner Trust in accordance with the Owner
Trust Agreement and the due authentication thereof by the Indenture
Trustee in accordance with the Indenture, the Bonds will have been duly
issued and are entitled to the benefits of the Indenture and will
constitute valid and binding obligations of the Owner Trust enforceable
against the Owner Trust in accordance with their respective terms,
subject to (1) applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance and other similar laws relating to and affecting
creditors' rights generally and court decisions with respect thereto
and (2) the understanding that such counsel need express no opinion
with respect to the application of equitable principles in any
proceeding, whether at law or in equity.
(i) The statements in the Memorandum under "Summary - ERISA
Considerations", "Summary - Legal Investment Status", in the second,
third and fourth paragraphs under "Special Considerations - The Secured
Loans - Environmental Risks", in the first sentence of the second
paragraph under "Special Considerations - The Secured Loans -
Limitations on Enforceability of Cross-Collateralization", "Special
Considerations - The Grantor Trust Certificates - Bankruptcy or
Insolvency of the Owner Trust", "ERISA Considerations", "Certain Legal
Aspects of Secured Loans" and "Legal Investment", to the extent they
constitute matters of law or legal conclusions with respect thereto,
while not purporting to discuss all ramifications of the issuance of
the Securities, have been prepared or reviewed by such counsel and in
all material respects fairly and accurately summarize those legal
matters which are discussed.
(j) The statements in the Memorandum under the heading
"Assignment of the Secured Loans", "Servicing of the Secured Loans",
"The Depositor", "The Owner Trust" and "Description of the Grantor
Trust Certificates", insofar as such statements purport to summarize
certain provisions of the Securities, the Bonds, the Loan Sale
Agreement, the Indenture, the Servicing Agreement, the Management
Agreement, the Owner Trust Agreement and the Grantor Trust Agreement,
constitute a fair summary of such provisions.
(k) Registration of the Securities under the Securities Act is
not re-
40
<PAGE>
quired in connection with the offer, sale and delivery of the
Securities by the Initial Purchasers in the manner contemplated by the
Memorandum and this Agreement to "qualified institutional buyers" as
such term is defined in Rule 144A of the Securities Act, it being
understood that in rendering this opinion such counsel may assume that
the offer, sale and delivery of the Securities have been made as
contemplated by the Memorandum and this Agreement. Furthermore, such
counsel may express no opinion on the question whether, in the context
of any particular transfer of the Securities, registration of the
Securities under the Securities Act will be required.
(l) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(m) Neither the Grantor Trust Fund created by the Grantor
Trust Agreement nor the Owner Trust is an "investment company" or an
entity "controlled" by an "investment company" within the meaning of
such terms set forth in the 1940 Act.
(n) Neither the Grantor Trust Agreement nor the Indenture is
required to be qualified under the 1939 Act.
In addition, such counsel shall state that they have participated in
conferences with representatives of the Depositor, the Seller and FFCA, the
accountants of and other counsel to FFCA, the Seller and the Depositor and
representatives of the Trustee, the Initial Purchasers and their respective
counsel at which the contents of the Memorandum and related matters were
discussed and, although such counsel need not pass upon, or assume
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Final Memorandum (except those portions of the Final Memorandum
specified in clauses (i) and (j) above), such counsel shall state that, on the
basis of the foregoing (relying as to materiality upon the statements and
opinions of officers and other representatives of the Seller, FFCA and the
Depositor), no facts have come to their attention that have led them to believe
that the Final Memorandum (except for the financial statements and schedules and
other financial, statistical or tabular data included in the Final Memorandum,
as to which such counsel need express no view), as of its date or as of the
Closing Date, contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
41
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Such counsel may rely with respect to matters of law of any state other
than the State of New York upon opinions of local counsel.
42
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EXHIBIT C
OPINION OF SIDLEY & AUSTIN, AS COUNSEL
FOR THE OWNER TRUST
The opinion of Sidley & Austin, as counsel for the Owner Trust, to be
delivered pursuant to Section 5(f) of the Purchase Agreement shall be to the
effect that the security interest of the Indenture Trustee in the Secured Loans
and proceeds thereof was perfected in each applicable jurisdiction and will
constitute a first perfected security interest therein.
43
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EXHIBIT D
OPINION OF RICHARDS LAYTON & FINGER,
AS COUNSEL FOR THE OWNER TRUSTEE
The opinion of Richards Layton & Finger, as counsel for the Owner
Trustee, to be delivered pursuant to Section 5(g) of the Purchase Agreement
shall be to the effect that:
(a) The Owner Trust Agreement has been duly authorized,
executed and delivered by Wilmington Trust Company ("WTC") and is a
valid and binding agreement of WTC.
(b) The Indenture, the Servicing Agreement and the Management
Agreement have been duly authorized, executed and delivered by the
Owner Trustee on behalf of the Owner Trust and are the valid and
binding agreements of the Owner Trust acting through the Owner Trustee.
(c) The Owner Trust has been duly organized and is validly
existing and in good standing as a business trust under the laws of the
State of Delaware and has the power and authority to issue the Bonds,
to pledge the Secured Loans as collateral for the Bonds and to conduct
its business as contemplated by the Indenture, the Owner Trust
Agreement, the Servicing Agreement and the Management Agreement.
(d) The Bonds have been duly authorized and executed by the
Owner Trust acting through the Owner Trustee.
(e) The Owner Trustee and WTC, as the case may be, have full
power, authority and legal right to execute and deliver and to perform
and observe the provisions of the Indenture, the Servicing Agreement,
the Management Agreement and the Owner Trust Agreement, and the Owner
Trustee has full power, authority and legal right to acquire, hold and
pledge the Secured Loans as collateral for the Bonds and to carry out
the transactions contemplated in the Indenture and the Owner Trust
Agreement.
(f) To the best of the knowledge of such counsel, there are no
actions, proceedings or investigations pending or threatened against or
affect-
44
<PAGE>
ing WTC before or by any court, arbitrator, administrative agency or
other governmental authority which, if adversely decided, would
materially and adversely affect the ability of the Owner Trustee or
WTC, as the case may be, to carry out the transactions contemplated in
the Bonds, the Indenture, the Servicing Agreement and the Management
Agreement.
(g) The execution, delivery and performance of the Bonds, the
Indenture, the Servicing Agreement, the Management Agreement and the
Owner Trust Agreement by the Owner Trustee or WTC, as the case may be,
will not conflict with or constitute a breach of or default under the
certificate of incorporation or by-laws of WTC or, to the best of the
knowledge of such counsel, any agreement, indenture or other instrument
to which WTC is a party or by which it or any of its properties may be
bound, or any law, administrative regulation or court decree applicable
to WTC.
(h) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of
the State of Delaware is required for the execution, delivery or
performance by WTC or the Owner Trustee, as the case may be, of the
Bonds, the Indenture, the Servicing Agreement, the Management Agreement
or the Owner Trust Agreement, except such as have been obtained, such
as may be required in connection with the documents to be recorded or
filed, as the case may be, with respect to the transfer of the Secured
Loans and such as may be required under state securities or blue sky
laws (as to which such counsel need express no opinion).
(i) The holders of the Owner Trust Certificates issued
pursuant to the Owner Trust Agreement have no legal or equitable right
to obtain possession of the Secured Loans and other collateral for the
Bonds prior to the payment of all principal of and interest on the
Bonds and the termination of the Indenture. A creditor of any such
holder would have no greater rights to reach the Secured Loans and
other collateral for the Bonds to satisfy the debts of such holder than
the holder itself.
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EXHIBIT E
OPINION OF SIDLEY & AUSTIN, AS FEDERAL
AND ILLINOIS TAX COUNSEL
FOR THE COMPANY, FFCA AND THE SELLER
The opinion of Sidley & Austin, as federal and Illinois tax counsel for
the Company, FFCA and the Seller, to be delivered pursuant to Section 5(h) of
the Purchase Agreement shall be to the effect that:
(a) The Underlying Bonds will be characterized as debt
instruments for federal income tax purposes.
(b) For federal income tax purposes, the Grantor Trust Fund
will be characterized as a grantor trust under subpart E of subchapter
J of the Code.
(c) For federal income tax purposes, the Securities will be
treated as evidencing the ownership of "stripped bonds" (or, in the
case of the Class IO Securities, "stripped coupons") within the meaning
of Section 1286 of the Code.
(d) The Owner Trust will be treated as a qualified REIT
subsidiary as described in Section 856(i) of the Code for federal
income tax purposes.
(e) The statements in the Memorandum under the headings
"Summary of Memorandum--Certain Federal Income Tax Consequences" and
"Certain Federal Income Tax Consequences", to the extent they
constitute matters of law or legal conclusions with respect thereto
have been prepared or reviewed by such counsel and in all material
respects fairly and accurately summarize those legal matters which are
discussed.
(f) The performance by the Trustee of its duties under the
Indenture and the Grantor Trust Agreement, and the holding of the
Grantor Trust Fund and the Secured Loans that secure the Bonds, in the
State of Illinois will not result in the imposition of an Illinois
state tax imposed on or measured by the net taxable income or the gross
receipts of the Grantor Trust Fund.
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EXHIBIT F
OPINION OF KUTAK ROCK, AS ARIZONA
TAX COUNSEL FOR FFCA
The opinion of Kutak Rock, as Arizona tax counsel for FFCA, to be
delivered pursuant to Section 5(i) of the Purchase Agreement shall be to the
effect that the servicing of the Secured Loans by FFCA pursuant to the Servicing
Agreement will not result in the imposition of an Arizona state tax imposed on
or measured by the net taxable income or the gross receipts of the Grantor Trust
Fund or the Owner Trust.
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EXHIBIT G
OPINION OF THOMAS A. ROSIELLO, ESQ., AS COUNSEL
FOR THE TRUSTEE AND THE FISCAL AGENT
The opinion of Thomas A. Rosiello, Esq., as counsel for the Trustee and
the Fiscal Agent, to be delivered pursuant to Section 5(j) of the Purchase
Agreement shall be to the effect that:
(a) The Trustee has been duly incorporated and is validly
existing as a national banking association in good standing under the
laws of the United States and the Fiscal Agent is a foreign banking
organization authorized by the Commissioner of Banks and Trust
Companies, State of Illinois, to do business in Illinois and the Fiscal
Agent is in good standing in Illinois.
(b) The Trustee has the requisite power and authority to enter
into the Grantor Trust Agreement, the Indenture and the Servicing
Agreement (the "Trustee Agreements").
(c) The Fiscal Agent has requisite power and authority to
enter into the Servicing Agreement.
(d) No action, corporate or otherwise, is necessary on the
part of the Trustee or the Fiscal Agent to authorize the performance by
the Trustee or the Fiscal Agent of their respective obligations under
such Trustee Agreements or to authorize the execution and delivery of
such Trustee Agreements, other than such action as has been taken and
is in full force and effect.
(e) The execution, delivery and performance by the Trustee and
the Fiscal Agent of their respective obligations and duties under the
Trustee Agreements to which they are parties, and as enumerated above,
do not in any materially adverse manner (i) breach or conflict with or
violate the express provisions of the charter or by-laws or other
organizational documents of the Trustee or the Fiscal Agent, (ii)
violate any applicable laws, rule or regulation of the United States,
the State of Illinois or any of their agencies, (iii) violate any
order, writ, injunction or decree of any court or governmental
authority or agency of the United States or the State of Illinois or
any arbitral award of
48
<PAGE>
which such counsel has knowledge or (iv) result in a breach of,
conflict with or constitute a default under, require any consent under,
or result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any agreement or instrument of
which such counsel has knowledge to which the Trustee or the Fiscal
Agent is party or by which it is bound or to which it is subject.
(f) No authorizations, consents, approvals, licenses, filings,
or registration with any governmental or regulatory authority or agency
of the United States or the State of Illinois, except for those that
have been obtained and are in full force and effect or those that would
not have a materially adverse effect on either the Trustee's or Fiscal
Agent's ability to perform each of their obligations under such Trustee
Agreements, are required in connection with the execution, delivery or
performance by the Trustee or the Fiscal Agent of the Trustee
Agreements to which they are a party or in connection with the
consummation of the transactions contemplated by such Trustee
Agreements.
(g) When executed, authenticated and delivered on behalf of
the Trustee in accordance with the Grantor Trust Agreement by the
person named in such opinion on behalf of the Trustee the Securities
will have been duly executed, authenticated and delivered by the
Trustee.
(h) When authenticated and delivered on behalf of the Trustee
in accordance with the Indenture by the person named in such opinion on
behalf of the Trustee the Bonds will have been duly executed,
authenticated and delivered by the Trustee.
(i) The Grantor Trust Agreement, the Indenture and the
Servicing Agreement, in the case of the Trustee, and the Servicing
Agreement, in the case of the Fiscal Agent, have been duly authorized,
executed and delivered by the Trustee or the Fiscal Agent, as the case
may be, and constitute the valid and binding obligations of the Trustee
and the Fiscal Agent, as the case may be, enforceable against the
Trustee and the Fiscal Agent, as the case may be, in accordance with
their respective terms, except to the extent that enforceability
thereof may be subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
or affecting the rights or remedies of creditors; (b) general
principles of equity, whether enforcement is considered in a proceeding
in equity or at law,
49
<PAGE>
and the discretion of the court before which any proceeding therefor
may be brought; (c) the unenforceability under certain circumstances
under law or court decisions of provisions providing for the
indemnification of or contribution to a party with respect to a
liability where such indemnification or contribution is contrary to
public policy; and (d) possible limitations arising from applicable
laws other than those referred to in the preceding clause (a) upon the
remedial provisions contained in the Agreements, but such limitations
do not in the opinion of such counsel in and of themselves make the
remedies afforded inadequate for the practical realization of the
benefits purported to be provided thereby.
50
<PAGE>
EXHIBIT H
OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP,
AS COUNSEL FOR THE INITIAL PURCHASERS
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP, as counsel for
the Initial Purchasers, to be delivered pursuant to Section 5(k) of the Purchase
Agreement shall be to the effect that:
(a) This Agreement has been duly authorized, executed and
delivered by the Company and FFCA.
(b) The Company is validly existing and in good standing as a
corporation under the General Corporation Law of the State of Delaware.
(c) FFCA is validly existing and in good standing as a
corporation under the General Corporation Law of the State of Delaware.
(d) The Grantor Trust Agreement has been duly authorized,
executed and delivered by the Company and, assuming due authorization,
execution and delivery thereof by the Trustee and the Fiscal Agent,
constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization moratorium or other similar laws now or hereafter in
effect relating to creditor's rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in equity or at law).
(e) When executed, authenticated and delivered by the Trustee
in accordance with the terms of the Grantor Trust Agreement and upon
payment and delivery thereof in accordance with the Purchase Agreement,
the Securities will be validly issued and outstanding and entitled to
the benefits of the Grantor Trust Agreement.
(f) The Grantor Trust Fund created by the Grantor Trust
Agreement is not an "investment company" or an entity "controlled" by
an "investment company" within the meaning of such terms set forth in
the 1940 Act.
51
<PAGE>
(g) Registration of the Securities under the Securities Act is
not required in connection with the offer, sale and delivery of the
Securities by the Initial Purchasers in the manner contemplated by the
Memorandum and this Agreement to "qualified institutional buyers" as
such term is defined in Rule 144A of the Securities Act and the Grantor
Trust Agreement is not required to be qualified under the Trust
Indenture Act of 1939, as amended, it being understood that in
rendering this opinion such counsel may assume that the offer, sale and
delivery of the Securities have been made as contemplated by the
Memorandum and this Agreement. Furthermore, such counsel need express
no opinion on the question whether, in the context of any particular
transfer of the Securities, registration of the Securities under the
Securities Act will be required.
We have participated in conferences with your representatives and with
representatives of the Company, FFCA, the Owner Trustee and the Trustee
concerning the Final Memorandum and have considered the matters required to be
stated therein and the statements contained therein, although we have not
independently verified the accuracy, completeness or fairness of such
statements. Based upon and subject to the foregoing, nothing has come to our
attention that would lead us to believe that the Final Memorandum, except for
the financial statements, financial schedules, and other financial and
statistical data included therein, as to which such counsel need express no
opinion, contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
52
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "First Amendment"), dated as of June 30, 1998, 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,
N.A. (successor by merger to NationsBank of Texas, N.A.) in its capacity as
administrative agent for the Lenders (the "Administrative Lender").
A. Company, Lenders, certain Co-Agents, and Administrative Lender are
parties to that certain Second Amended and Restated Credit Agreement, dated as
of December 29, 1997, as amended by that certain waiver letter, dated February
17, 1998, (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 make certain 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 definition of "Applicable Law" set forth in Section 1.1 of the
Credit Agreement is hereby amended to read as follows:
<PAGE>
"`Applicable Law' means, (a) in respect of any Person, all
provisions of constitutions, statutes, rules, regulations and orders of
governmental bodies or regulatory agencies applicable to such Person
and its properties, including, without limiting the foregoing, all
orders and decrees of all courts and arbitrators in proceedings or
actions to which the Person in question is a party, and (b) in respect
of contracts relating to interest or finance charges that are made or
performed in the State of Texas, `Applicable Law' means the laws of the
United States of America, including without limitation 12 USC ss.ss. 85
and 86, as amended from time to time, and any other statute of the
United States of America now or at any time hereafter prescribing the
maximum rates of interest on loans and extensions of credit, and the
laws of the State of Texas, including, without limitation, Art. 1H, if
applicable, and if Art. 1H is not applicable, Art. 1D, and any other
statute of the State of Texas now or at any time hereafter prescribing
maximum rates of interest on loans and extensions of credit; provided
that the parties hereto agree that the provisions of Chapter 346 of the
Texas Finance Code, as amended, shall not apply to Advances, this
Agreement, the Notes or any other Loan Papers."
(b) The definition of "Highest Lawful Rate" set forth in Section 1.1 of
the Credit Agreement is hereby amended to read as follows:
"`Highest Lawful Rate' shall mean at the particular time in
question the maximum rate of interest which, under Applicable Law, the
Lenders are then permitted to charge on the Obligation. If the maximum
rate of interest which, under Applicable Law, the Lenders are permitted
to charge on the Obligation shall change after the date hereof, the
Highest Lawful Rate shall be automatically increased or decreased, as
the case may be, from time to time as of the effective time of each
change in the Highest Lawful Rate without notice to the Borrower. For
purposes of determining the Highest Lawful Rate under the Applicable
Law of the State of Texas, the applicable rate ceiling shall be (a) the
weekly rate ceiling described in and computed in accordance with the
provisions of Art. ID.003, or (b) if the parties subsequently contract
as allowed by Applicable Law, the quarterly ceiling or the annualized
ceiling computed pursuant to Art. ID.008; provided, however, that at
any time the weekly rate ceiling, the quarterly ceiling or the
annualized ceiling shall be less than 18% per annum or more than 24%
per annum, the provisions of Art. ID.009(a) and (b) shall control for
purposes of such determination, as applicable."
(c) Article 4 of the Credit Agreement is hereby amended by adding a new
Section 4.21 thereto to read as follows:
"4.21 Year 2000 Compliance. The Borrower has (a) initiated a
review and assessment of all areas within its and each of its
Subsidiaries' business and operations (including those affected by its
suppliers and vendors) that could be adversely affected by the "Year
2000 Problem" (that is, the risk that computer applications used by the
Borrower or any of its Subsidiaries (or its suppliers and vendors) may
be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999),
(b) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (c) to date, implemented that plan in accordance
with that timetable. The Borrower reasonably believes that all computer
applications (including those of its suppliers and vendors) that are
material to its or any of its Subsidiaries' business and operations
will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is, be
"Year 2000 Compliant"), except to the extent that a failure to do so
could not reasonably be expected to have a Material Adverse Effect".
(d) Article 5 of the Credit Agreement is hereby amended by adding a new
Section 5.15 thereto to read as follows:
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<PAGE>
"5.15 Year 2000 Compliance. The Borrower will promptly notify
the Administrative Agent in the event the Borrower discovers or
determines that any computer application (including those of its
suppliers and vendors) that is material to its or any of its
Subsidiaries' business and operations will not be Year 2000 Compliant,
except to the extent that such failure could not reasonably be expected
to have a Material Adverse Effect."
(e) Section 6.6 of the Credit Agreement is hereby amended to read as
follows:
"6.6 Dispositions of Assets. Company shall not, and shall not
permit any of its Subsidiaries to, sell, lease, assign, or otherwise
dispose of any assets of Company or any of its Subsidiaries in an Asset
Sale, or otherwise consummate any Asset Sale, except so long as there
exists no Default or Event of Default, and no Default or Event of
Default would be caused thereby, Company and its Subsidiaries may
consummate Asset Sales for fair market value in an aggregate amount not
to exceed during any period of four consecutive fiscal quarters 25% of
Total Assets (calculated as an amount equal to the result of (a) the
sum of Total Assets as of the first day of each fiscal quarter during
such four quarter period (b) divided by four), provided that the Asset
Sale Proceeds in excess of $3,000,000 of each Asset Sale (including in
respect of an Asset Securitization) which occurs after the Closing Date
are applied as provided in Section 2.5(b) hereof; provided that,
notwithstanding anything herein to the contrary, (i) Company will not
dispose of any assets at any time in an amount that would impair or
jeopardize the status of Company as a Real Estate Investment Trust and
(ii) the market value of any assets sold in an Asset Securitization
shall be excluded from the calculation of assets disposed of in Asset
Sales for purposes of the 25% limitation set forth in this Section 6.6.
On the day of any Asset Sale by Company or its Subsidiaries in which
the Asset Sale Proceeds thereof exceed $3,000,000, Company shall
deliver to Administrative Agent a certificate of an Authorized Officer
certifying as to the amount of gross proceeds thereof and costs and
expenses payable thereof which were deducted in determining the Asset
Sale Proceeds."
(f) Section 6.10 of the Credit Agreement is hereby amended to read as
follows:
"6.10 Loans and Investments. Company shall not, and shall not
permit any of its Subsidiaries to, make any Investment to, or make or
have any Investment in, any Person, or make any commitment to make any
such Investment, or make any acquisition, except (a) Investments
existing on the date hereof as shown on Section 4.13 hereto, (b)
Investments in Cash Equivalents, (c) Investments in travel advances in
the ordinary course of business to officers and employees, (d)
Investments in accounts receivable arising in the ordinary course of
business, (e) Investments in Subsidiaries of Company in compliance with
Section 6.17 hereof, and (f) Investments in the form of subordinated
investment securities and other similar instruments obtained by Company
or any of its Subsidiaries in connection with an Asset Securitization;
provided that the aggregate amount of such Investments pursuant to
clause (f) (including the Secured Franchise Loan Pass-Through
Certificates shown on Schedule 4.13 hereto) shall not exceed 20% of
Total Assets at any time."
-3-
<PAGE>
(g) The Compliance Certificate in the form of Exhibit C to the Credit
Agreement is hereby amended to be in the form of Exhibit C to this First
Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, Company represents and warrants that, as of the
date hereof and after giving effect to the amendments provided in the foregoing
Section 1:
(a) the representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as if made on and as
of such date;
(b) no event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) Company has full power and authority to execute, deliver and
perform this First Amendment and the Credit Agreement, as amended by this First
Amendment, the execution, delivery and performance of this First Amendment and
the Credit Agreement, as amended by this First Amendment, have been duly
authorized by all corporate action of Company, and this First Amendment and the
Credit Agreement, as amended hereby, constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable debtor relief laws
and by general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law) and except as rights to indemnity may be
limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this First
Amendment or the Credit Agreement, as amended by this First 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 First Amendment and the Credit Agreement, as amended by this First
Amendment, or (ii) acknowledgment of this First Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of June 30, 1998, subject to the following:
(a) Administrative Lender shall receive counterparts of this First
Amendment executed by Lenders comprising the Majority Lenders;
(b) Administrative Lender shall receive counterparts of this First
Amendment executed by Company and acknowledged by each Guarantor;
-4-
<PAGE>
(c) the representations and warranties set forth in Section 2 of this
First Amendment shall be true and correct; and
(d) Administrative Lender and Lenders shall receive in form and
substance satisfactory to Administrative Lender and Lenders, such other
documents, certificates and instruments as Lenders shall require.
4. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each Guarantor (i)
acknowledges, consents and agrees to the execution, delivery and performance by
Company of this First 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 First 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.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First 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 First
Amendment.
(b) The Credit Agreement, as amended by this First Amendment, and all
other Loan Papers shall remain in full force and effect and are hereby ratified
and confirmed.
6. COSTS, EXPENSES AND TAXES. Company agrees to pay on demand all costs
and expenses of Administrative Lender in connection with the preparation,
reproduction, execution and delivery of the First Amendment and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of Special Counsel).
7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument.
8. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
(without giving effect to conflict of laws) and the United States of America,
and shall be binding upon Company, each Guarantor and each Lender and their
respective successors and assigns.
9. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
-5-
<PAGE>
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
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
================================================================================
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
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
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<PAGE>
LENDERS:
NATIONSBANK, N.A., individually and as
Administrative Agent
By: /s/ Frank M. Johnson
---------------------------------------------
Frank M. Johnson
Senior Vice President
-8-
<PAGE>
BANK OF MONTREAL, CHICAGO BRANCH,
individually and as Co-Agent
By: /s/ Catherine Sahagian Mousseau
---------------------------------------------
Name: Catherine Sahagian Mousseau
Title: Director
-9-
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT, LOS
ANGELES BRANCH, individually and as Co-Agent
By: /s/ Steven F. Larsen
---------------------------------------------
Name: Steven F. Larsen
Title: Vice President
By: /s/ Werner Schmidbauer
---------------------------------------------
Name: Werner Schmidbauer
Title: Vice President
-10-
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., individually and as Co-Agent
By: /s/ Noboru Akahane
---------------------------------------------
Name: Noboru Akahane
Title: Deputy General Manager
By: /s/ Bryan Read
---------------------------------------------
Name: Bryan Read
Title: Vice President
-11-
<PAGE>
UBS AG (NEW YORK BRANCH), individually and
as Co-Agent
By: /s/ Jeffrey W. Waid
---------------------------------------------
Name: Jeffrey W. Waid
Title: Director
By: /s/ David M. Goldman
---------------------------------------------
Name: David M. Goldman
Title: Assistant Vice President
-12-
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH
By: /s/ W. Jeffrey Vollack
---------------------------------------------
Name: W. Jeffrey Vollack
Title: Senior Credit Officer
Senior Vice President
By: /s/ M. Christina Debler
---------------------------------------------
Name: M. Christina Debler
Title: Vice President
-13-
<PAGE>
AMSOUTH BANK (f/k/a AMSOUTH BANK OF
ALABAMA)
By: /s/ Steven R. Chester
---------------------------------------------
Name: Steven R. Chester
Title: Assistant Vice-President
-14-
<PAGE>
DRESDNER BANK AG, NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By: /s/ John W. Sweeney
---------------------------------------------
Name: John W. Sweeney
Title: Assistant Vice President
By: /s/ Beverly G. Cason
---------------------------------------------
Name: Beverly G. Cason
Title: Vice President
-15-
<PAGE>
BANK HAPOALIM, B.M., SAN FRANCISCO BRANCH
By: /s/ Dan Jozefov
---------------------------------------------
Name: Dan Jozefov
Title: Vice President
By: /s/ John Rice
---------------------------------------------
Name: John Rice
Title: Vice President
-16-
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY
By: /s/ Takeshi Kubo
---------------------------------------------
Name: Takeshi Kubo
Title: Vice President
-17-
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ John A. Schissel
---------------------------------------------
Name: John A. Schissel
Title: Director
-18-
<PAGE>
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION
By: /s/ Jaclyn Noel
---------------------------------------------
Name: Jaclyn Noel
Title: Vice President
-19-
<PAGE>
ACKNOWLEDGED:
FFCA ACQUISITION CORPORATION
By: /s/ John R. Barravecchia
-----------------------------------
Name: John R. Barravecchia
Title: Executive Vice President
and Chief Financial Officer
FFCA INSTITUTIONAL ADVISORS, INC.
By: /s/ John R. Barravecchia
-----------------------------------
Name: John R. Barravecchia
Title: Executive Vice President
and Chief Financial Officer
-20-
<PAGE>
EXHIBIT C
QUARTERLY COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he/she is a duly elected
Authorized Officer of Franchise Finance Corporation of America, a Delaware
corporation ("Borrower"), and that he/she is authorized to execute this
Certificate on behalf of Borrower in connection with that certain Second Amended
and Restated Credit Agreement dated as of December 29, 1997 ("Credit
Agreement"), among Borrower, NationsBank of Texas, N.A., individually and as
Administrative Agent, Bank of Montreal, Chicago Branch, Commerzbank
Akiengesellschaft, Los Angeles Branch, The Long Term Credit Bank of Japan, Ltd.
and Union Bank of Switzerland (New York Branch), as Co-Agents, and each Lender a
party thereto. All terms used but not defined herein shall have the meanings set
forth in the Credit Agreement. This Certificate is submitted concurrently with
quarterly financial statements of Borrower for the period ended _____________,
____. The undersigned hereby further certifies to the following as of the date
set forth below:
1. The representations and warranties of Borrower under the
Credit Agreement are true and complete in all material
respects, before and after giving effect to any Advances.
2. No event has occurred which constitutes a Default or Event of
Default.
3. Company continues to qualify as a Real Estate Investment Trust
under the Code.
4. The following calculations are true, accurate and complete,
and are made in accordance with the terms and provisions of
the Credit Agreement:
1. Applicable Margin.
The Index Debt Rating is _________. The Applicable Margin with respect
to Base Rate Advances is _____%.
The Applicable Margin with respect to LIBOR Advances is _____%.
2. Section 6.1 (a). Minimum Net Worth.
(a) Minimum Net Worth
(i) $425,000,000 $425,000,000
(ii) 75% of aggregate Net Cash Proceeds $__________
received by Borrower and its Consolidated
Subsidiaries after April 15, 1997, from
disposition of Capital Stock
(iii) amount equal to Net Worth of any Person $__________
acquired (via asset or stock purchase) by
Borrower or any Subsidiary to the extent
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<PAGE>
<TABLE>
<S> <C>
purchase price is paid for in Capital Stock
of Borrower or such Subsidiary
(iv) Minimum Net Worth [(i) + (ii) + (iii)] $__________
(b) Actual Net Worth (determined in accordance with $__________
GAAP)
3. Section 6.1 (b). Total Indebtedness to Adjusted Net Worth Ratio.
(a) Maximum Ratio 0.90 to 1
(b) Actual Ratio
(i) Indebtedness of Company and
Consolidated Subsidiaries
a. Debt for Borrowed Money $__________
b. Capital Lease obligations $__________
c. Reimbursement obligations relating $__________
to letters of credit
d. Contingent Liabilities relating to $__________
(a), (b) and (c) above
e. Withdrawal Liability $__________
f. indebtedness associated with $__________
Interest Hedge Agreements
g. payments due for the deferred $__________
purchase price of property and
services (excluding trade payables
less than 90 days old)
h. obligations (contingent or otherwise $__________
to purchase, retire or redeem any
Capital Stock)
i. [a. + b. + c. + d. + e. + f. + $__________
g. + h.]
(ii) Indebtedness evidenced by Intercompany $__________
</TABLE>
-22-
<PAGE>
<TABLE>
<S> <C>
Notes and which is subject to a
Subordination Agreement
(iii) Total Indebtedness [(i) - (ii)] $__________
(iv) Adjusted Net Worth
a. Actual Net Worth (determined in $__________
accordance with GAAP)
b. Accumulated Depreciation (determined $__________
in accordance with GAAP)
c. Adjusted Net Worth [a. + b.] $__________
(v) Total Indebtedness to Adjusted Net Worth _____ to 1
[(iii)/(iv)]
4. Section 6.1 (c). Fixed Charge Coverage Ratio.
(a) Minimum Ratio 2.0 to 1
(b) Actual Ratio
(i) Cash Flow From Operations for twelve- $_________
calendar month period ending on or most
recently ended prior to date of determination
(ii) cash interest payable on all Indebtedness $_________
(including interest on Capitalized Leases)
(iii) [(i) + (ii)] $_________
(iv) cash interest payable on all Indebtedness $_________
(including interest on Capitalized Leases)
(v) regularly scheduled principal amounts on $_________
Indebtedness (including rentals under
Lease Obligations but excluding any
payment which pays Indebtedness in full
to the extent such payment exceeds the
immediately preceding scheduled principal
payment)
(vi) principal amounts of all Indebtedness $_________
(including under Lease Obligations)
required to be prepaid or purchased during
such period
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(vii) [(iv) + (v) + (vi)] $_________
(viii) Fixed Charge Coverage Ratio [(iii)/(vii)] _____ to 1
5. Section 6.1 (d). Maximum Total Secured Indebtedness.
(a) Maximum Total Secured Indebtedness (10% of $_________
Total Assets)
(b) Actual Total Secured Indebtedness
Indebtedness of Borrower and its Consolidated $_________
Subsidiaries (from Section 3(b) (I) above that is
secured by a Consensual Lien)
6. Section 6.1 (e). Ratio of Total Unencumbered Assets to Total Unsecured
Indebtedness.
(a) Minimum Ratio 1.75 to 1
(b) Actual Ratio
(i) Total Assets not subject to a Lien other $__________
than Liens of the type described in clause (a) through
(f) of the definition of Permitted Liens
(ii) Aggregate amount of Indebtedness of $__________
Company and its Consolidated Subsidiaries
that is not secured by a Lien other than Liens
of the type described in clause (a) through
(f) of the definition of Permitted Liens
(iii) [(i)/(ii)] _____ to 1
7. Section 6.3. Contingent Liabilities.
(a) Maximum $5,000,000
(b) Actual $_________
8. Section 6.6. Disposition of Assets.
(a) Maximum during any four consecutive fiscal
quarters
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(i) Total Assets as of the first day of $_________
preceding four consecutive fiscal quarters
divided by four
(ii) 25% times 8(a)(i) above $_________
(b) Actual (excluding Assets disposed of in an Asset $_________
Securitization)
9. Section 6.7. Permitted Distributions.
(a) Maximum
(i) Cash Flow From Operations (from $_________
Section 4(b)(i) above)
(ii) 95% times 9(a)(i) above $_________
(b) Actual $_________
10. Section 6.10 Asset Securitization Investments.
(a) Maximum - 20% of Total Assets $_________
(b) Actual $_________
</TABLE>
IN WITNESS WHEREOF, I have executed this Certificate as of the _____ day of
___________, 19__.
FRANCHISE FINANCE CORPORATION
OF AMERICA
By: _________________________________
Name:__________________________
Title: ________________________
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