FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] 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
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(Exact name of registrant as specified in its charter)
Delaware 86-0736091
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(State of incorporation) (I.R.S. Employer
Identification No.)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 585-4500
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value New York Stock Exchange
$.01 per share
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of February 18, 1999 was $1,244,447,270.
The number of shares of the Registrant's $.01 par value common stock as
of February 18, 1999 was 55,773,547.
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 10, 11, 12 and 13 are incorporated by reference to the
definitive proxy statement for the Registrant's Annual Meeting of Shareholders
to be held on May 12, 1999, to be filed pursuant to Regulation 14A.
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PART I
ITEM 1. BUSINESS.
BACKGROUND
Franchise Finance Corporation of America ("FFCA") is a
self-administered real estate investment trust ("REIT") which provides real
estate financing to multi-unit operators of chain restaurants, convenience
stores and automotive services and parts outlets. FFCA offers financing through
various products, including long-term real estate leases, mortgage loans,
equipment loans and construction financing. FFCA was incorporated in the state
of Delaware in 1993 and is successor to Franchise Finance Corporation of America
I ("FFCA I"), a Delaware corporation, and eleven public limited partnerships
which were merged into FFCA on June 1, 1994. FFCA, together with its
predecessors, has been engaged in the financing of chain restaurant real estate
since 1980 and began financing convenience stores and automotive services and
parts stores in 1997. At December 31, 1998, FFCA had interests in approximately
3,600 properties operated by over 450 operators in approximately 100 chains
located in 48 states and in Canada (though investments in Canada are not
significant). The common stock of FFCA began trading on the New York Stock
Exchange on June 29, 1994 under the symbol "FFA".
During 1998, FFCA originated $928 million in new sale-leaseback and
mortgage loan investments. This surpassed FFCA's 1997 investment level of $504
million by 84%. Aside from the growth generated by new restaurant financings,
recent investment growth is also attributable to FFCA's expansion into the
convenience store and automotive services and parts industries, which together
accounted for over $426 million, or 46% of the new investments in 1998. FFCA
invested in over 1,200 properties during 1998, and cumulative investment
activity now totals over $2 billion since the formation of the REIT in June
1994.
To continue the growth rate achieved in 1998, FFCA increased its
capital by completing various equity and debt transactions and expanded its line
of credit. During 1998, FFCA raised a total of $83 million through the sale of
3.1 million shares of common stock to three separate unit investment trusts. On
March 13, 1998, FFCA sold approximately 3.8 million shares of common stock for
$100 million to a real estate-related investment firm. Subsequent to yearend
1998, FFCA increased its financial flexibility further by completing an equity
offering in January 1999, raising net proceeds of approximately $146 million
through the issuance of 6.7 million shares of FFCA common stock. As 1998
progressed, turbulence in the capital markets began impacting FFCA's cost of
borrowings, which rose despite prevailing lower long-term home mortgage and
government borrowing rates. In the first half of 1998, FFCA issued $17 million
in unsecured notes due in 2007, bearing interest at a rate of 6.86% and $30.5
million in unsecured notes due in 2008, bearing interest at a rate of 7.07%. In
October 1998, FFCA issued $150 million in senior unsecured notes due 2003 at a
rate of 8.25%. Proceeds from the unsecured notes were used to pay down FFCA's
bank line of credit. In addition, FFCA entered into a separate $75 million
revolving loan facility in February 1999 expiring in December 2000.
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In May 1998, FFCA completed its third securitization transaction.
Certain mortgage loans originated by FFCA totaling $335 million were securitized
and Secured Franchise Loan Trust Certificates were sold to investors. The
servicing rights on these mortgage loans were retained by FFCA. 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.
In August 1998, FFCA entered into a $600 million loan sale facility
with a third party, who initially committed to purchase up to $300 million of
loans from FFCA. Because changes in the asset-backed securities markets could
impact FFCA's ability to originate and sell mortgage loans on an advantageous or
timely basis, FFCA obtained the commitment of all $600 million on the loan sale
facility to increase its financial flexibility. This loan sale facility permits
FFCA to sell loans on a regular basis to a trust for an agreed-upon advance
rate. Upon the sale of such loans, FFCA acts as servicer for the loans.
In September 1998, Duff & Phelps Credit Rating Co. upgraded the senior
unsecured debt of FFCA from BBB- to BBB. The rating upgrade was based on FFCA's
continued strong financial performance, general reduction in operator and
concept concentrations and improved financial flexibility.
FFCA successfully implemented its new accounting and servicing
information system in January 1998 and its new property management system was
deployed in July 1998. The design and implementation of these new systems,
including related upgrades in computer hardware, was necessary to develop a more
efficient portfolio servicing system that would permit a high level of growth in
the FFCA portfolio while containing operating costs. FFCA invested $1.7 million
during 1998 towards the development and installation of these systems. The new
systems are also "Year 2000" compliant which means that the systems will
appropriately address any dates that refer to the 21st century.
Other events occurring in 1998 include an increase of 4% in FFCA's
quarterly dividend to $0.49 from $0.47 for the fourth quarter of 1998.
As of December 31, 1998, FFCA had 134 full-time employees and 4
part-time employees.
FACTORS AFFECTING FUTURE OPERATING RESULTS
FFCA's Annual Report on Form 10-K includes "forward looking statements"
within the meaning of the provisions of the Private Securities Litigation Reform
Act including in particular the statements about FFCA's plans, strategies and
prospects. Although FFCA believes that its plans, intentions and expectations
reflected in or suggested by the forward looking statements are reasonable, FFCA
can give no assurance that these plans, intentions or expectations will be
achieved. FFCA has set forth below important factors that could cause actual
results to differ materially from the forward looking statements included in
this Annual Report on Form 10-K. FFCA qualifies these forward looking statements
by the cautionary statements set forth below.
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Certain risks and uncertainties including the following may affect
FFCA's future results:
+ Investment in real estate in the chain restaurant industry as well as the
convenience store and automotive services and parts industries is subject
to general economic market conditions and conditions unique to each
industry.
+ Industry risks include a decrease in demand for products, increased labor
costs, increased number of competing properties offering similar products,
and dependence on local management for the profitable operation of the
properties. The chain restaurant industry is subject to the risk of
changing consumer demand and food preferences and contaminated food
products. The convenience store industry is subject to competition from new
retail facilities offering similar products in the immediate vicinity of
each particular store and, to the extent applicable, the margins available
from the sale of gasoline and availability of gasoline supplies. The
automotive services and parts industry is subject to technological changes
in the production and maintenance of automobiles and changing consumer
preferences in transportation options.
+ FFCA invests primarily in chain restaurant properties and convenience and
automotive services and parts retail facilities. FFCA's success is
dependent upon the success of these industries in general and the specific
chains and retail facilities which FFCA finances.
+ FFCA intends to continue to originate and securitize mortgage loans and to
have responsibility for mortgage servicing. FFCA may also own subordinated
interests in these securitized loans. To the extent of such ownership, FFCA
is in a "first loss" position with respect to third parties that purchase
senior securities in the securitization and has a greater risk with respect
to its investment in the nonpayment of the mortgage loans.
+ Several factors affect FFCA's ability to complete securitizations of its
loans, including conditions in the securities markets generally, conditions
in the asset-backed securities market specifically, the credit quality of
FFCA's loans, compliance of FFCA's loans with the eligibility requirements
established by the securitization documents and the absence of any material
downgrading or withdrawal of ratings given to certificates issued in FFCA's
previous securitizations.
+ FFCA invests in derivative financial securities and instruments for the
sole purpose of providing protection against fluctuations in interest
rates. These investments do not protect FFCA from all risks associated with
changing market conditions; therefore, the financial performance of FFCA
could be adversely affected.
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+ FFCA has issued senior notes and medium term notes that are not subject to
amortization requirements or periodic redemption and intends to issue
similar debt securities in the future. FFCA will be subject to risks
associated with debt financing and refinancing, including the ability to
sell debt in the future.
+ FFCA is subject to all of the general risks associated with investment in
real estate such as adverse changes in general or local economic
conditions, changes in supply of or demand for similar or competing
properties in an area, changes in interest rates and operating expenses,
changes in market rental rates, inability to lease properties upon the
termination or expiration of existing leases, the renewal of existing
leases and inability to collect payments from operators.
+ FFCA faces competition from banks, insurance companies, finance companies,
leasing companies and other real estate investment trusts in the
acquisition, financing and leasing of properties, which could adversely
affect its growth.
+ Even though the chain store and retail facility operators financed by FFCA
are generally required to carry comprehensive liability, fire, flood,
extended coverage and business interruption insurance, there are certain
losses that are uninsurable.
+ Under various federal, state and local environmental laws, ordinances, and
regulations, FFCA could be liable for the costs of removal or remediation
of hazardous or toxic substances on, under, in or near a chain store
property. Additionally, FFCA did not perform environmental investigations
on certain properties acquired from its predecessors. While FFCA has
purchased environmental insurance for some of the properties, the insurance
may not cover all the costs associated with any environmental liabilities.
+ FFCA elected to be taxed as a REIT under the Internal Revenue Code of 1986,
which entitles FFCA to a deduction for dividends paid to its shareholders
when calculating its taxable income. Although FFCA intends to operate so
that it will continue to qualify as a REIT, the complex nature of the rules
governing REITs, the ongoing importance of factual determinations and the
possibility of future changes in FFCA's circumstances preclude any
assurance that FFCA will qualify in any given year.
+ Income tax treatment of REITs may be modified, prospectively or
retroactively, by legislative, judicial or administrative action at any
time, which, in addition to the direct effects such changes might have,
might also affect the ability of FFCA to realize its investment objectives.
+ There can be no assurance that FFCA will be able to raise sufficient
capital through borrowings, or the issuance of debt and equity securities,
to achieve its investment objectives.
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+ FFCA invests in certain financial instruments that are subject to various
forms of market risk such as interest rate fluctuations, credit risk and
prepayment risk. FFCA's primary exposure is the risk of loss that may
result from the potential change in the value of its mortgage loans and
investments held for sale as a result of changes in interest rates.
+ FFCA is dependent on the efforts of its directors, officers and key
personnel and has no employment agreements with such persons. There can be
no assurance that FFCA would be able to recruit additional personnel with
equivalent experience in the event of their resignation.
BUSINESS STRATEGY
FFCA's primary strategy is to provide real estate financing to
multi-unit operators of chain restaurants, convenience stores and automotive
services and parts outlets through various products including long-term real
estate leases, mortgage loans, equipment loans and construction financing. FFCA
seeks to have the properties which it finances operated by experienced
multi-unit operators conducting business under nationally or regionally
recognized brand names. As a result, FFCA believes it is able to achieve a
better risk-adjusted return for its shareholders. Multi-unit operators that
include both chain store franchisors and franchisees generally operate the
properties financed by FFCA. Approximately 91% of FFCA's portfolio revenues in
1998 were derived from fast food or full service restaurants in chains such as
Burger King, Hardee's, Arby's, Jack in the Box, Wendy's, KFC, Pizza Hut, Taco
Bell, Applebee's, Black-eyed Pea and Fuddruckers. Convenience stores accounted
for approximately 7% of the 1998 revenues and include 7-Eleven, Circle K and E-Z
Serve, and automotive services and parts outlets accounted for 2% of 1998
revenues and include Econo Lube, Midas Muffler Shops and Valvoline Instant Oil
Change.
Since 1980, members of FFCA's management group have gained extensive
experience in the development and refinement of systems of operation, management
and research which have enhanced FFCA's ability to identify, evaluate and
structure new investments. FFCA's experience in the real estate industry results
in efficient in-house performance of virtually every aspect of real estate
acquisition and management and is reflected in FFCA's eight departments, which
include Accounting, Asset Management, Corporate Communications, Corporate
Finance, Information Systems, Legal Services, Property Management and Research
and Underwriting.
FFCA's principal business objective is to maximize shareholder wealth.
FFCA intends to increase cash flow per share (i) through continued investment
activity, (ii) by controlling expenses through greater economies of scale, (iii)
through the receipt of contractual lease escalations and (iv) by increasing its
use of internally-generated cash flow for investments. Management seeks to
achieve growth in cash flow, while maintaining low portfolio investment risk,
through diligent adherence to its tested underwriting criteria, investment
diversification and conservative capital structure.
FFCA intends to provide financing to large, multi-unit operating
companies principally through sale-leaseback transaction and mortgage loans.
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FFCA also provides financing for equipment located at the chain store properties
for which it provides real estate financing. In addition, FFCA may provide
construction financing for qualified operators. Chain store properties financed
by FFCA are anticipated to be primarily existing locations that are either being
refinanced or financed in connection with acquisitions by operating companies.
FFCA also provides financing for new development which is typically in, or
adjacent to, established markets where the chain brand is recognized. FFCA, in
the course of its business, from time to time evaluates other investment
opportunities in the chain store industry. FFCA may consider appropriate new
investment opportunities in the future.
FFCA structures its investments to enhance the stability of its cash
flows. FFCA's sale-leaseback transactions are generally 20-year, triple-net
leases which provide that the lessees are responsible for the payment of all
property operating expenses, including property taxes, maintenance and insurance
costs. Therefore, FFCA is generally not required to make significant capital
expenditures in the properties that it owns and leases to chain store operators.
Both FFCA's sale-leaseback and mortgage financings are generally for twenty-year
terms and mortgage products are generally fully amortizing over the term of the
loans. The sale-leaseback transactions entered into by FFCA are retained in its
portfolio and generally provide for base rentals plus additional payments based
upon a participation in the gross sales from the properties or specified
contractual increases. In addition, FFCA will purchase existing properties that
are subject to leases already in place. The mortgage loans originated by FFCA
will generally be pooled and sold in securitized offerings, with FFCA generally
retaining or acquiring interests in the pool in the form of subordinated
securities and mortgage servicing rights.
FFCA continually monitors and administers its investments to enhance
the stability of its cash flows. Financial data is regularly collected on the
properties financed by FFCA to determine their profitability. Lease and mortgage
payments are generally collected by electronic account debits on the first day
of each month. An in-house appraisal staff regularly inspects FFCA's properties
to monitor asset condition. In-house property management and legal services
personnel administer underperforming and non-performing leases and loans and
also supervise the in-house administration of property dispositions and tenant
substitutions. FFCA has an established record of resolving underperforming and
non-performing leased assets, with an average time of approximately nine months
to relet such properties.
FFCA's investments are diversified by industry, geographic region,
chain and operator. FFCA's future investments are anticipated to be funded
through a combination of debt and equity issuances, internally generated cash
and the securitization of mortgage loans.
INVESTMENT CRITERIA
Real estate investment opportunities undergo an underwriting process
designed to maintain a conservative investment profile. The process includes a
review of the following factors:
+ CHAIN STORE PROFITABILITY. FFCA seeks to invest in chain store real
estate where the unit level economics from operations provide adequate
cash flow to support lease or mortgage payments related to the site.
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+ CHAIN STORE INVESTMENT AMOUNT. FFCA seeks to invest in properties for
amounts that do not exceed the sum of the fair market value of the
land and the replacement cost of the building and improvements.
+ SITE CONSIDERATIONS. FFCA seeks to invest in high profile, high
traffic real estate which it believes exhibits strong retail property
fundamentals.
+ MARKET CONSIDERATIONS. FFCA seeks to emphasize investments in
properties used by chains having significant area market penetration.
+ OPERATING EXPERIENCE. FFCA seeks to invest in properties of multi-unit
chain store operators with strong operating and industry backgrounds.
+ CREDIT CONSIDERATIONS. FFCA seeks to invest in properties owned and
operated by multi-unit operators with strong overall corporate
profitability. FFCA's investments generally have full tenant or
borrower recourse. Many of FFCA's leases and mortgages also have
recourse to guarantors who are owners or affiliates of the tenant or
borrower. FFCA reviews tenant, borrower and guarantor financial
strength to assess the availability of alternate sources of payment in
the event that cash flow from operations might be insufficient to
provide the funds necessary to make lease or mortgage payments. In
general, FFCA requires all properties that are leased to the same
multi-unit chain store operator or its affiliates to be
cross-defaulted and requires all mortgage loans that are made to the
same multi-unit operator or its affiliates to be both
cross-collateralized and cross-defaulted.
+ PHYSICAL CONDITION. FFCA seeks to invest in well-maintained existing
properties or in newly constructed properties. FFCA has a staff of
appraisal professionals who conduct physical site inspections of each
property financed by FFCA.
+ CHAIN STORE SUITABILITY. FFCA seeks to primarily invest in real estate
used by large national and regional chain store systems having annual
system-wide sales of more than $250 million.
+ ENVIRONMENTAL CONSIDERATIONS. For each property in which it invests,
FFCA either obtains a Phase I environmental assessment (and a Phase II
environmental assessment or other environmental tests, if recommended
by the related Phase I) or an environmental insurance policy from a
third-party insurance carrier.
CHAIN STORE PROPERTIES
Although an individual chain store's sales may vary by season, FFCA
does not believe that any aspect of its business is significantly seasonal in
nature. FFCA's portfolio is generally diversified by chain; however, FFCA may be
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dependent to a certain extent upon one or more of the franchisors or operating
chains since a failure of any of the franchisors or chain systems to support
their franchisees or chain properties could result in financial difficulty for
such franchisees and affect the ability of the franchisees to make payments to
FFCA. FFCA is not affiliated with any of the franchisors or franchisees.
FFCA's revenue is generated by a real estate investment portfolio that
is diversified by industry, by concept, by geographical area and by operator.
FFCA finances chain store real estate in three industries, representing nearly
3,600 locations throughout the United States and Canada (though investments in
Canada are not significant). During the year ended December 31, 1998, 91% of the
revenues generated by the portfolio reflect restaurant investments, 7% reflect
convenience store investments and 2% reflect automotive services and parts
investments. With the addition of the convenience store and automotive services
and parts industries in 1997, FFCA's portfolio has expanded to include over 100
different chains. The following table sets forth FFCA's revenues generated from
its portfolio of chain store properties during the year ended December 31, 1998.
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CHAIN DIVERSIFICATION BY REVENUE
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
PERCENTAGE
OF
CHAIN TOTAL REVENUES* TOTAL
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Burger King $24,835 15%
Arby's 17,539 11%
Hardee's 12,758 8%
Jack in the Box 12,610 8%
Wendy's 12,012 7%
Taco Bell 5,684 4%
Quincy's 5,650 3%
Pizza Hut 5,458 3%
KFC 5,419 3%
Applebee's 4,575 3%
Black-eyed Pea 3,672 2%
Fuddrucker's 3,418 2%
Perkins 3,322 2%
E-Z Serve 2,779 2%
7-Eleven 2,453 2%
Lee's Famous Recipe 2,240 1%
Mrs. Winner's 1,944 1%
Max & Ermas 1,753 1%
Whataburger 1,693 1%
Circle K 1,580 1%
All other chains 32,640 20%
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TOTALS $164,034 100%
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* Includes rental revenue, mortgage loan interest income, real estate
investment securities revenue and other miscellaneous revenue from FFCA's chain
store portfolio.
The chain diversification shown above does not represent concentration
of specific operators under lease or mortgage loan agreements. The lease or
mortgage loan agreements are with over 450 operators represented within FFCA's
investment portfolio. Most of these are multi-unit operators, though no single
operator represented 10% or more of FFCA's total portfolio revenues during 1998
and 1997. In 1996, one restaurant operator, Foodmaker, Inc. ("Foodmaker"),
accounted for approximately 10.9% of FFCA's total rental and mortgage loan
interest revenues. Foodmaker operates and franchises Jack in the Box
restaurants. The relative decrease in the percentage of FFCA's revenue from
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Foodmaker since 1996 is due to the fact that FFCA's portfolio is growing and, as
a result, Foodmaker is becoming a relatively smaller portion of the entire
portfolio. As FFCA continues to grow, management expects the portfolio to
continue to become more diversified.
INFORMATION SYSTEMS
To enhance its investment evaluation and origination, FFCA has invested
extensively in information systems that are specific to the chain restaurant
industry. FFCA has also recently developed a competitive database, similar to
the restaurant industry database, for the convenience store industry and the
automotive services and parts industry. FFCA's databases include specific chain
restaurant location data for over 112,000 locations in the United States, and
demographic information, traffic volumes and information regarding surrounding
retail and other commercial development that generate customer traffic. FFCA
also maintains a database of approximately 7,000 chain restaurant industry
participants, as well as databases of restaurant-level financial performance for
existing and prospective clients. FFCA has the ability to integrate the
information in its locations, participants and restaurant-level financial
databases in a geographic information system that contains demographic, retail
space, traffic count and street information for every significant market in the
United States. FFCA has also collected extensive data regarding management
practices within the chain restaurant industry, franchisor practices and
industry trends.
The information collected by FFCA is actively used to assess investment
opportunities, measure prospective investment risk, evaluate portfolio
performance and manage underperforming and non-performing assets. FFCA publishes
research on the chain restaurant industry that includes observations of industry
issues and trends, areas of growth, and the economics of chain restaurant
operation. During 1998, FFCA first published its research on convenience store
industry observations and trends and is in the process of creating a similar
report for the automotive services and parts industry. FFCA employs its client
and collections data, gathered over a fifteen year period, to develop
statistical models that aid in the evaluation of potential investments. FFCA
intends to continually develop, improve and use its real estate industry
knowledge through research and broader application of information technology to
lower portfolio risk, improve performance and improve its competitive advantage.
FFCA successfully implemented its new accounting and servicing
information system in January 1998 and its new property management system was
deployed in July 1998. The design and implementation of these new systems,
including related upgrades in computer hardware, was necessary to develop a more
efficient portfolio servicing system that would permit a high level of growth in
the FFCA portfolio while containing operating costs. As a result of the
development by FFCA of its automated systems technology, FFCA can monitor large
diversified portfolios by exception, including lease and mortgage payments made
through automated bank account debits, property taxes, property insurance
coverage and property financial performance.
The new systems are also "Year 2000" compliant which means that the
systems will appropriately address any dates that refer to the 21st century.
FFCA has taken a proactive approach in dealing with the issues associated with
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the Year 2000 and a five-phase process to address this challenge was approved by
FFCA's computer steering committee. This plan includes: (1) an inventory and
assessment of the systems and electronic devices that may be at risk; (2) the
identification of potential solutions; (3) the implementation of upgrades or
replacements to affected systems or devices; (4) the verification of compliance
and testing of the revised systems; and (5) the training of users on the new
systems. To date, FFCA has completed a review of its software and hardware and
determined, through a combination of internal testing and vendor representations
that their products have been tested and are compliant, that all
mission-critical systems (those systems that are necessary to conduct FFCA's
business activities) are Year 2000 compliant. Non-mission critical software and
hardware have also been reviewed and FFCA has identified a few third-party
products that are scheduled for upgrades or replacement in the first half of
1999 as part of FFCA's ongoing maintenance of its information system technology.
COMPETITIVE CONDITIONS
The financing of chain store real estate for multi-unit chain store
operating companies is both competitive and fragmented. Competition exists in
every geographic market in which FFCA seeks to invest. Competing participants
include banks, insurance companies, finance companies, leasing companies and
other real estate investment trusts. FFCA believes that it has several
competitive advantages that enable it to be selective with respect to its real
estate investments. The large market capitalization of FFCA permits it to make
both large and small real estate investments and to obtain capital from numerous
sources at competitive rates. FFCA's real estate investments are comprised of
properties that are diversified by industry, chain store operator, chain and
geographic location. Diversification reduces risk and has a favorable impact
upon FFCA's access to, and cost of, capital. FFCA's "Preferred Client Program"
is designed to offer forward financing commitments and a streamlined financing
process for leading chain store operators in order to build on long-term
business relationships instead of the historic industry practice of financing
real estate on an inefficient, transaction-by-transaction basis. FFCA believes
it offers superior client service resulting from continuity of its management
and industry specialization and knowledge. FFCA, with the ability to provide
both sale-leaseback financing and mortgage loans, improves the chain store
operators' financing flexibility and provides a competitive advantage to FFCA in
providing financing opportunities.
THE FOOD SERVICE INDUSTRY
The food service industry, as defined by the U.S. Department of
Commerce, is one of the largest sectors of the nation's economy. During 1998,
the industry generated an estimated $338 billion of revenue, representing just
under 4% of the Gross Domestic Product ("GDP") of the United States. The food
service industry grew at an estimated inflation-adjusted rate of 2.6% during
1998 representing the seventh consecutive year of real sales growth for the
industry.
The food service industry is composed of three major food segments:
commercial, institutional and military. The commercial food service sector
includes full service and fast food restaurants, cafeterias/buffet restaurants,
social caterers and ice cream/yogurt retail stores. Within the restaurant
industry, the fast food group is typically defined as those restaurants
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perceived by consumers as fast food or take-out establishments without table
service, specializing in pizza, chicken, hamburgers and similar food items. Full
service includes those restaurants in the family, steak and casual dining
sectors that do not meet the criteria for fast food. Although these segments can
be further differentiated by price, it is consumer perception, as well as
average meal price, that influence how individual restaurant chains are
categorized. Research indicates that an average fast food meal price
approximates $3.40, while the cost of a full service meal averages between $6
and $23.
Restaurant industry sales increased by $27 billion from 1995 to 1997,
while expenditures on food at home increased only $15 billion. This implies that
full service and fast food restaurants have actually taken business away from
grocery and other retail outlets.
FFCA believes that the restaurant industry will continue to experience
consolidation, as the largest chains become increasingly dominant in an industry
where cost control and economies of scale are critical. During the past decade,
restaurant chains have increased market position in comparison to independent
restaurant companies by achieving economies of scale and by developing strong
brand equity. Much of the chains' market share gains in the past came at the
expense of small, independent operators, who tended to be less sophisticated and
less focused on new restaurant development. The top chains may face greater
chain-versus-chain competition, however, rather than chain-versus-independent
competition.
During 1998, the fast food segment in the top 100 restaurant chains
accounted for an estimated 70.8% of total sales and 84.6% of total units. As a
result, FFCA's restaurant portfolio consists primarily of fast food concepts.
Successful fast food operators have developed a low-cost structure, through a
focus on efficient meal preparation processes and a strong retail distribution
network that provides convenient, quality meals at affordable prices. Successful
fast food operators have relatively simple operations, which contribute to their
success as low-cost providers. Fast food operators can differentiate themselves
from the competition through marketing efforts, increasing productivity by
training employees and upgrading technology, and simplifying in-store processes.
During 1998, new store development in the top 100 restaurant chains
accounted for 2.7% of their average annual system-wide growth. The top 100
chains added 2,250 net new properties during 1998 compared to 4,879 in 1997.
Restaurant industry maturing has resulted in a slower pace of new store
development. As a result, FFCA principally finances existing properties rather
than new construction. In recent years, investments in newly constructed
restaurants have been a small percentage of new business for FFCA. In 1998, 1997
and 1996, the percentage of FFCA's new business related to existing restaurants
(as compared to new restaurant construction) was 90%, 93% and 85%, respectively.
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RESTAURANT CHAINS
According to NPD ReCount, a national consulting group which specializes
in the restaurant industry, restaurant chains having three or more properties
accounted for approximately 46% of all restaurants in the United States in 1998.
The majority of these properties are fast food restaurants, with others
generally in the full service segment. Of the 213,000 chain restaurants having
an identified restaurant concept as of December 31, 1998, approximately 117,500
were within the 100 largest restaurant chains. Each of these restaurant chains
had 1998 projected total system-wide sales exceeding $195 million.
FFCA believes that the largest national restaurant chains, along with
prominent regional chains, are best positioned to compete effectively and retain
or increase market share in the food service industry. These chains have strong
regional or national presence, which provide them with a brand equity that
translates into resilience within a mature and competitive industry.
Accordingly, FFCA believes that a diversified portfolio of real estate
investments primarily centered in major restaurant chains will lower investment
risk. Restaurant chains with numerous corporate locations and extensive
franchisee networks have effectively become significant food distribution
systems with distinct competitive advantages over smaller chains and many
independent restaurant operators. The establishment of such food distribution
networks requires significant time and effort which results in certain
restaurant chains having longer-term track records and more predictable
performance patterns. This has resulted in the larger restaurant chains gaining
greater dominance in the industry and growth in market share. However, the chain
restaurant industry is a regional market type of business and nationally
prominent restaurant chains often have definitive regional areas of strength and
weakness. Therefore, FFCA's investment policy emphasizes strong restaurant
operators who can successfully manage known restaurant chains in their markets
and also takes into account the strength of specific restaurant chains.
THE CONVENIENCE STORE INDUSTRY
The convenience store industry is a subset of two major industries: the
food industry and the oil and gas industry. The convenience store portion of the
sector evolved primarily out of neighborhood grocery stores, while the retail
gas portion is a relatively small part of the large oil and gas industry, which
also includes exploration and production of both oil and gas, refining, and
transportation as well as retail sales.
Convenience store sales have increased every year since the National
Association of Convenience Stores started tracking industry sales in 1971.
Industry sales in 1997 were $156 billion, 46% in merchandise sales and 54% in
gasoline sales. Because of gasoline margin volatility and more strict tobacco
legislation, many petroleum marketers have added or are adding convenience
stores and other ancillary services to their businesses, such as car washes,
lube shops, and fast food stores to contribute more consistent margins.
Gasoline retailers have been closing older and underperforming
locations because of three factors: (i) costs associated with underground
storage tank upgrades to comply with a December 1998 regulatory deadline; (ii)
increased costs of doing business; and (iii) low margins. The net effect on the
industry is a decrease in the number of gasoline stations and an increase in
both the number of convenience stores with gasoline and the number of gasoline
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<PAGE>
dispensers available per location, reflecting the increase in both the gasoline
demand and average station size. The number of convenience stores increased 1.6%
in 1997 to 95,700, while the number of gasoline stations declined 1.2% between
mid-1996 and mid-1997.
Gasoline prices have decreased in recent months and retail margins have
tightened. Over the past twelve months, price decreases have been attributable
to a warm winter, lower demand in Asia, and increased output from OPEC and
non-OPEC producers. However, lower gasoline prices have caused some drivers to
use better grades of gasoline, providing higher margins. The Energy Information
Agency forecasts a 1.7% increase in gasoline demand in 1999 and that retail
prices should remain depressed as well.
Increased competition, margin volatility, and the increased cost of
doing business are expected to promote further consolidation in the industry. To
improve profitability, several major oil companies have announced mergers or
have merged their refining, transportation and marketing operations. In
addition, mergers and acquisitions are occurring among traditional convenience
store chains. Many chains are closing unprofitable locations and refocusing on
core markets, divesting locations outside their core area. The largest North
American convenience store chains are adding more units, with the top 10 adding
1,452 convenience stores in 1997 and the top 50 adding 781 convenience stores in
1997. Nine of the top 10 chains are petroleum marketers, which also dominate the
top 50, operating approximately 60% of all outlets held by the top 50 companies.
THE AUTOMOTIVE SERVICES AND PARTS INDUSTRY
The automotive services and parts industry refers to companies engaged
in the service, repair, maintenance and sale of products for motor vehicles
after their sales to the public. The services sector includes fluids, under the
car, under the hood, tires, autobody, and various combinations of these
services, while the parts sector is comprised of accessories and replacement
parts. Competitors in the automotive services and parts industry include
automotive dealerships, parts stores, full service gasoline stations, general
repair garages, tire outlets, discounters and mass merchandisers, and specialty
shops (mufflers, tune-ups, transmissions, paint and bodywork, fast lube oil
changes and auto glass). While some companies adopt a single service/product
line approach, others have expanded to multiple lines.
The 1997 automotive services and parts industry reached $137 billion in
sales, a 3.3% increase over 1996 according to the Lang Marketing Resources, an
acknowledged industry expert. Purchased services, i.e. all labor costs (not
including parts) paid by end users, totaled $36 billion, or 26.3% of the
automotive services and parts industry, a 4% increase over 1996. Car products
accounted for 30.4% of the automotive services and parts industry, down from
31.6% in 1996; truck products exceeded car products for the second year at 35.5%
and other products accounted for 7.8% of the automotive services and parts
industry. Products do not include autobody parts, crash parts, audio equipment,
sound accessories, fuel, tires, wheels, and other miscellaneous accessories.
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<PAGE>
Do-it-yourselfers ("DIY") purchased $19 billion in car and truck
products in 1997, a 6% increase over 1990. Meanwhile, purchased or do-it-for-me
("DIFM") services have increased nearly 80% between 1987 and 1997, totaling $36
billion in 1997. The implication is that DIFM services is a growth area and DIY
product sales (sold at automotive parts stores) is mature.
The growth in the DIFM sector is attributed to two-income families with
increased time pressures, a general increase in consumer demand for convenience,
an increase in the number of foreign vehicles, emissions testing requirements,
increased vehicle sophistication, decreasing blue collar jobs, and most
importantly, aging baby boomers with disposable income. The last trend, aging
baby boomers, is expected to continue to drive growth in this sector into the
next century. In recent years, DIFM shops began to franchise and rapidly expand.
This trend is expected to continue.
Many of these chains are growing through the acquisition of smaller,
independent operators. Lube chains have been pursuing franchisees of other
brands to join with them. The industry growth rate for fast lube services was
7.5% between 1996 and 1997. The top 10 fast lube chains account for over 33.4%
of all fast lube outlets and an estimated 12.4% of all stores that change oil.
The anticipated 1998 growth rate for the top ten lube chains is 20.5%.
The specialty repair shop share of the car and light truck service
market grew from 12.6% in 1986 to 20.5% in 1997. Between 1993 and 1997, product
sales growth for specialty repair shops was 47%. Specialty repair shops captured
an 18% share of service bays in 1997, increasing their number of bays 18.5%
between 1987 and 1997, while the number of bays operated by service
stations/garages and vehicle dealers decreased significantly, 20.1% and 10.4%
respectively, during the same period. Service bays are handling more vehicles,
approximately 160 vehicles per service bay in 1997 (up from 126 vehicles per bay
in 1987), and this ratio is estimated to grow to 175 vehicles per bay by the
year 2002.
Automotive parts retail chains, servicing the DIY customer, have
experienced rapid consolidation as small regional chains sell stores to larger
chains. A positive factor for this sector is that the average age of vehicles is
increasing, while new car prices continue to climb. Aiding the overall industry
is an increase in the average number of miles driven annually, an increase in
the number of drivers, and closure of full service gas stations. However, with
the advent of vehicles that can drive 100,000 miles before a tune-up and
generally improved product quality, product sales are not likely to see major
increases in the next few years. Retail automotive parts stores sell 38% of DIY
customer purchased products. The number of retail automotive parts stores
increased 22% between 1990 and 1997 to 13,320, and is expected to increase to
nearly 16,000 stores by the year 2000, a 20% increase over the 1997 count. The
top 10 parts retailers accounted for over 42% of automotive parts stores and
experienced a 9.3% increase in outlets between early 1996 and year-end 1997.
REGULATION
FFCA, through its ownership and financing of real estate, is subject to
a variety of environmental, health, land-use, fire and safety, and other
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regulation by federal, state and local governments that affects the development
and regulation of chain store properties. FFCA's leases and mortgage loans
impose the primary obligation for regulatory compliance on the operators of the
chain store properties. Subject to the environmental discussion included in Item
2 "Properties", in most instances, FFCA does not have primary responsibility for
regulatory compliance and any obligation of FFCA would be based upon the failure
of chain store operators to comply with applicable laws and regulations.
No portion of FFCA's business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the United States
Government. FFCA does not manufacture any products and therefore does not
require any raw materials in order to conduct its business.
RECENT LEGISLATION
FFCA, as the owner or lender with respect to chain store real estate,
was not materially or directly affected by recent legislation in 1998; however,
chain store operators under lease and loan agreements with FFCA may be affected
by recent legislation. Although federal law to increase the minimum wage was
defeated in 1998, a number of states initiated legislation to increase their
minimum wage. Eight states currently have minimum wages that exceed the federal
minimum wage. To the extent that chain store operators are unable to increase
prices to reflect higher labor costs or to more efficiently use existing labor,
the profitability and cash flow of a chain store may decrease. The effect of
increases in minimum wages may be minimal for those chain store operators who
are required to pay higher wages because of market conditions.
ITEM 2. PROPERTIES.
FFCA provides real estate financing to multi-unit operators of chain
restaurants, convenience stores and automotive services and parts outlets,
primarily through long-term real estate leases and mortgage loan financing. At
December 31, 1998, FFCA had interests in 3,592 properties consisting of
investments in 2,722 chain restaurants, 710 convenience stores, 150 automotive
outlets and 10 other retail properties.
FFCA's portfolio included 2,109 chain store properties represented by
investments in real estate mortgage loans and properties subject to leases and
1,483 properties represented by securitized mortgage loans in which FFCA holds a
residual interest. Of the 2,109 properties included in FFCA's investment
portfolio at December 31, 1998, FFCA has an ownership interest in 1,933
properties on a fee-simple basis in which FFCA holds title to the property (the
"owned" properties). The real estate owned by FFCA consists of the land and
buildings comprising each chain property, except for approximately 19 properties
at December 31, 1998 on which FFCA holds title to the land only and made
mortgage loans for the related buildings (the "hybrid mortgages"). The
properties owned by FFCA and the land related to the hybrid mortgages are leased
to the chain operators under long-term net leases. The remaining properties
represent mortgage loan financing transactions in which FFCA generally holds a
first mortgage on the land and buildings comprising the properties (the
"financed properties"). On approximately 150 of the financed properties, FFCA
made mortgage loans for the buildings and improvements and the borrowers lease
the land from third parties under ground leases.
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FFCA's chain store properties are typically located on commercial
corridors with significant automobile traffic and are characterized by high
visibility and easy access required for retail property. Locations generally
fall into five categories, including shopping center and mall pad or outparcel
sites, interstate highway locations, central business district locations,
residential neighborhood locations and retail and commercial corridor locations.
Generally, all properties owned or financed by FFCA are freestanding and
surrounded by paved parking areas. A chain store is located on each of the
properties except ten, which were converted to other uses, such as a bank and an
optical retail outlet.
The land size for a typical fast food restaurant generally ranges from
30,000 to 45,000 square feet, with original acquisition costs generally ranging
from $300,000 to $450,000. Full service restaurant land averages range from
40,000 to 80,000 square feet and from $500,000 to $900,000 in land acquisition
costs. The buildings are principally of the current design of the restaurant
concept and are rectangular buildings constructed from various combinations of
stucco, steel, wood, brick and tile. Fast food restaurant buildings generally
range from 1,500 to 4,000 square feet in size, with the larger stores having a
greater seating capacity and equipment area. Site preparation varies depending
upon the area in which the fast food restaurant is located and on the size of
the building and site. Building and site preparation costs generally range from
$250,000 to $650,000 for each property. Full service restaurant building
averages range from 5,000 to 9,000 square feet and from $950,000 to $1.7 million
in building costs.
Convenience store sizes range from 800 square feet for a gas station
with a store that sells only the fast moving items found in a traditional
convenience store (tobacco, beverages and snacks) to 5,000 square feet for a
store that has a bakery, a sit down restaurant area or a pharmacy (many of these
locations also sell gasoline). The typical convenience stores generally range in
size from 2,000 to 3,000 square feet. The original investment per new store
averages $850,000 for a rural convenience store (approximately 30% land, 40%
building and 30% equipment) and $1.1 million for an urban convenience store
(approximately 35% land, 40% building 25% equipment).
Automotive services and parts outlets range in size depending on the
type of store. Automotive parts outlet buildings generally range from 6,000 to
9,000 square feet with total original acquisition costs ranging from $800,000 to
$1.8 million. Quick lube buildings are typically 2,500 square feet and are on
17,000 to 25,000 square feet of land. Most are located within shopping centers
and have 2-6 bays, with total acquisition costs ranging between $500,000 and
$700,000. Combination specialty stores (offering brakes, mufflers, lube, etc.)
are typically free standing, drive-through buildings generally ranging from
2,200 to 3,400 square feet on a lot or shopping center pad of approximately
15,000 to 25,000 square feet. Total acquisition costs range from $550,000 to
$900,000.
Management believes that its chain store properties are covered by
adequate comprehensive liability, fire, flood and extended loss insurance
provided by reputable companies, with commercially reasonable and customary
deductibles and limits. The financing agreements with FFCA require each chain
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store operator to carry certain types and amounts of insurance. There are,
however, certain types of losses (such as from wars or earthquakes) that may be
either uninsurable or not economically insurable in some or all locations.
The properties, which FFCA either purchases or finances, are subject to
certain requirements and potential liabilities under federal, state and local
environmental laws and regulations. Certain environmental laws impose liability
on property owners for the presence of hazardous substances on their properties
regardless of whether the owner was responsible for the release of such
substances. Under some environmental laws, a lender may, under certain limited
circumstances, be deemed to be an "owner" or "operator" of a property, thereby
imposing liability upon such lender for the cost of responding to a release or
threat of a release of hazardous substances on or from a borrower's property,
regardless of whether a previous owner caused the environmental damage. Federal
and state environmental laws have established a regulatory program for the
detection, prevention and clean-up of leaking underground storage tanks.
FFCA's policy with respect to environmental risks, which has been in
effect since mid-1994, is that all properties which are to be either acquired or
financed shall have been the subject of (a) a Phase I environmental assessment
which concludes that no further investigation is necessary (if the Phase I
assessment recommends further investigation, a Phase II environmental assessment
which concludes that no remediation or further action is required) or, (b) an
environmental insurance policy from a third-party insurance carrier. Properties
acquired from FFCA's predecessors did not have environmental investigations
performed either at the time FFCA acquired the properties from its predecessors
or when such properties were acquired by the predecessor entities. FFCA is not
currently a party to any litigation or administrative proceeding with respect to
any property's compliance with environmental standards. Furthermore, FFCA does
not anticipate the need to expend any of its funds in the foreseeable future in
connection with its operations or ownership of existing properties relating to
environmental considerations which would have a material adverse effect upon
FFCA.
In the case of properties to be acquired or financed in which
underground storage tanks are present and gasoline or other petroleum products
are being dispensed, FFCA has adopted a policy that environmental insurance must
be obtained for the benefit of FFCA. Such insurance provides coverage for
certain environmental remediation, compliance and clean-up costs incurred in
connection with the presence at, or migration from, the insured property of
hazardous materials and other pollutants, as well as liability to third parties.
In the case of properties financed by FFCA through mortgage loans, the
environmental insurance policy term equals the full term of the related mortgage
loan. In the event of a loss (as defined in the policy), the insurer must pay
the lesser of (a) the cost of remediation and other clean-up costs and expenses,
and (b) the outstanding principal balance due under the applicable mortgage
loan, less a deductible amount. In the case of properties acquired by FFCA in
sale-leaseback or similar transactions, title is acquired in the name of a
special purpose subsidiary of FFCA formed solely for the purpose of holding
title to such properties. The environmental insurance policy that is issued
where FFCA purchases the property is for a term of 20 years, subject to renewals
for ten-year periods. In assessing the environmental risk associated with the
ownership of potentially contaminated real property, FFCA obtains from its
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insurer an environmental risk assessment upon which it bases its decision
whether to purchase a given property and the amount of coverage to obtain. In
all instances, it is FFCA's policy to purchase coverage in an amount equal to
100% of the worst-case estimate of the cost of remediation as determined by the
environmental insurer, less the deductible amount. In certain circumstances FFCA
may permit a chain store operator to self-insure for certain types of losses. An
uninsured loss could result in a loss to FFCA of both its capital investment and
anticipated revenue from the affected property.
FFCA's lease and mortgage loan financing documents require each chain
store operator to make any expenditure necessary to comply with applicable laws
and as may be required under any applicable franchise agreement; therefore, FFCA
is generally not required to make significant capital expenditures in connection
with any property it financed. Capital expenditures amounted to approximately
$120,000 in 1998 and $16,000 in 1996. There were no capital expenditures on
properties in 1997.
As of February 18, 1999, FFCA owned or had financed 3,652 properties in
48 states and Canada and all but 20 of the properties were being leased or were
performing under a mortgage loan agreement. Of the nonperforming properties, two
are being actively remarketed for lease and 18 are currently held for sale after
extensive efforts to remarket these properties did not produce suitable lessees.
Vacant properties held for sale represent less than one percent of FFCA's total
real estate investment portfolio.
FFCA invests in chain store real estate throughout the United States.
No one property is a principal property of FFCA, because each property
represents less than one half of one percent of FFCA's total assets. Reference
is made to the Schedule of Real Estate and Accumulated Depreciation (Schedule
III) filed with this Report for a summary of the geographic diversity of the
properties owned by FFCA as of December 31, 1998. In addition, FFCA has
financed, through mortgage loans, certain chain store properties located
throughout the United States and in Canada (though investments in Canada are not
significant). Reference is made to the Schedule of Mortgage Loans on Real Estate
(Schedule IV) filed with this Report for a summary of properties financed
through mortgages in FFCA's held-to-maturity portfolio. FFCA has also originated
mortgage loans held for sale which total $163 million at December 31, 1998.
Generally, these loans are first mortgage loans on the land, buildings and/or
equipment of restaurants, convenience stores or automotive services and parts
outlets. The properties financed through these mortgage loans are geographically
diverse, ranging from 8.5% located in the West North Central region of the
United States to 15% located in the East North Central region.
During 1998, approximately 72% of FFCA's revenues were derived from
real estate investments leased to chain store operators. The leases are
generally 15 to 20 years in length with two or four five-year renewal options.
The expiration schedule of the initial term of FFCA's leases extends through
2018, with a weighted term of such investments of 13 years as of December 31,
1998. Twelve percent of FFCA's investments in properties subject to operating
leases have terms that expire in the year 2005 and 13% expire in the year 2018.
In all other years, expiring leases represent less than 10% of total lease
investments. With expected continued investment activity, FFCA anticipates that
its exposure to annual lease expirations will become more diversified.
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FFCA also owns its corporate headquarters located at The Perimeter
Center in Scottsdale, Arizona, consisting of approximately 60,000 square feet of
building on approximately five acres of land. The land and building comprising
FFCA's corporate headquarters serve as collateral on the related mortgage note
payable. Beginning in December 1998, FFCA also rents approximately 3,300 square
feet of office space in an office building adjacent to its corporate
headquarters. The office space is under a three-year lease at approximately
$75,000 per year plus common area expenses.
ITEM 3. LEGAL PROCEEDINGS.
FFCA is not presently involved in any material litigation nor, to its
knowledge, is any material litigation threatened against FFCA or its properties,
other than routine litigation arising in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of FFCA's security holders during
the fourth quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
FFCA's common stock is currently traded on the New York Stock Exchange
("NYSE") under the symbol FFA. FFCA began trading on the NYSE on June 29, 1994.
The following table sets forth the high and low sales prices per share as quoted
by the NYSE for the following quarters of the fiscal years indicated:
SALES PRICES DIVIDENDS
FISCAL 1998 HIGH LOW DECLARED
----------- ---- --- --------
Fourth Quarter $27.813 $21.750 $ .49
Third Quarter 28.000 22.500 .47
Second Quarter 28.250 24.813 .47
First Quarter 28.625 26.188 .47
-----
$1.90
=====
FISCAL 1997
Fourth Quarter $27.875 $24.250 $ .47
Third Quarter 27.563 24.188 .45
Second Quarter 27.000 22.750 .45
First Quarter 27.500 23.750 .45
-----
$1.82
=====
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Future distributions will be dependent upon cash flow from operations,
financial position and cash requirements of FFCA. Management of FFCA anticipates
that cash generated from operations will be sufficient to meet operating
requirements and provide the level of shareholder distributions required to
maintain its status as a REIT.
HOLDERS
There were 17,120 holders of record of FFCA's shares of common stock as
of February 18, 1999; however, FFCA believes the total number of shareholders of
FFCA to be in excess of 69,000 since nominees hold certain shares.
DIVIDEND REINVESTMENT PLAN
FFCA has a dividend reinvestment plan (the "Plan") which allows
shareholders to acquire additional shares of FFCA common stock by automatically
reinvesting dividends. Shares are acquired pursuant to the Plan at a price equal
to 98% of the market price of such shares on the dividend payment date, without
payment of any brokerage commission or service charge. Shareholders who do not
participate in the Plan continue to receive dividends, as declared. As of
February 18, 1999, shareholders owning approximately 7% of the outstanding
shares participate in the Plan.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented in the table below summarizes
certain consolidated financial information of FFCA and its wholly-owned
subsidiaries, as well as that of its predecessor companies, for the five years
in the period ended December 31, 1998. The merger of FFCA with its predecessors
occurred on June 1, 1994 and was accounted for as a reorganization of affiliated
companies under common control in a manner similar to a pooling of interests.
Under this method, the assets and liabilities of the predecessor companies were
carried over at their historical book values and their operations have been
recorded on a combined historical basis.
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SELECTED FINANCIAL DATA
Operations data presented below for periods prior to June 1, 1994
represent the operations of the predecessor companies. This data has been
restated on a combined basis to provide comparative information; however, it
does not necessarily represent results of operations as they would have been had
FFCA operated as a REIT for all periods presented. The predecessor companies
were primarily public real estate limited partnerships with a declining number
of properties in their investment portfolios and no opportunity for growth
through acquisitions; therefore, the investment objectives of FFCA are different
than the objectives of its predecessor companies.
<TABLE>
<CAPTION>
1994
(restated on
a combined
In thousands, except per share data 1998 1997 1996 1995 basis)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA (a)
Total revenues $ 169,568 $ 134,988 $ 121,166 $ 102,583 $ 91,062
Income before gain (loss) on sale
of property and other 85,182 65,707 60,036 52,816 51,319
Gain (loss) on sale of property (c) 10,535 5,471 9,899 977 2,784
Income before extraordinary item (d) 95,717 72,897 68,539 53,793 25,905(b)
Net income (b) 95,717 72,897 68,539 51,329 25,905(b)
Dividends/Distributions declared 93,004 75,004 72,846 72,471 75,913
Earnings Per share, assuming dilution:
Income before gain (loss) on sale of
property
and other costs $ 1.78 $ 1.59 $ 1.48 $ 1.31 $ 1.27
Income before extraordinary item (d) $ 2.00 $ 1.76 $ 1.69 $ 1.33 $ 0.64
Net income $ 2.00 $ 1.76 $ 1.69 $ 1.27 $ 0.64
Dividends/Distributions declared $ 1.90 $ 1.82 $ 1.80 $ 1.80 $ 1.82
Weighted average common and common
equivalent shares outstanding 47,908 41,333 40,603 40,294 40,251
- ----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (a)
Real estate owned, at cost $1,274,600 $ 951,305 $ 868,215 $ 794,580 $ 681,126
Mortgage loans receivable 43,343 35,184 57,808 199,486 65,980
Mortgage loans held for sale 163,172 251,622 -- -- --
Note receivable from affiliate (e) -- -- 147,616 -- --
Other investments 113,692 55,185 37,836 -- --
Total assets 1,460,429 1,179,198 988,776 843,504 612,228
Notes payable 500,168 309,360 298,956 198,702 --
Borrowings under line of credit 188,000 302,000 150,500 110,000 59,000
Other debt 8,500 8,500 8,500 8,500 8,500
Shareholders' equity $ 716,434 $ 522,996 $ 495,370 $ 493,817 $ 514,107
</TABLE>
- ----------
(a) The information for periods prior to June 1, 1994 is, in effect, a
restatement of the historical operating results of FFCA I and the public limited
partnerships as if they had been consolidated since January 1, 1994. The per
share amounts for the same periods were computed as if 40.251 million shares of
FFCA stock were outstanding.
(b) Net income for the year ended December 31, 1994 was impacted by REIT
transaction costs recognized upon consummation of the merger of FFCA and its
predecessor entities.
(c) Results of operations may be largely impacted by gains or losses on the sale
of properties or as a result of securitization transactions. Of the 1998, 1997
and 1996 gain on the sale of property, $6.2 million, $430,000 and $7.1 million,
respectively, relates to the securitization transaction completed in that year.
(d) Income before extraordinary item excludes debt extinguishment charges of
$2.5 million in 1995.
(e) Note receivable from FFCA's former affiliate, FFCA Mortgage Corporation,
which was dissolved in 1997, represents mortgage loans held for sale by the
affiliate.
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ITEM 7. 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 multi-unit operators of chain restaurants, convenience
stores and automotive services and parts outlets. FFCA offers financing through
various products, including long-term real estate leases, mortgage loans,
equipment loans and construction financing. At December 31, 1998, FFCA had
interests in 3,592 properties representing over $1.6 billion in gross
investments in chain store properties located throughout the United States and
in Canada. In addition to this geographic diversification, the portfolio is also
represented by more than 450 different operators in approximately 100 retail
chains. FFCA's portfolio included 2,109 chain store properties represented by
investments in real estate mortgage loans and properties subject to leases and
1,483 properties represented by securitized mortgage loans in which FFCA holds a
residual interest.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, FFCA originated $928 million in new sale-leaseback and
mortgage loan investments. This surpassed FFCA's 1997 investment level of $504
million by 84%, while the 1997 investment level represented an increase of
nearly 50% over 1996's investments of $340 million. With over 1,200 properties
financed during 1998, FFCA's portfolio represents nearly 3,600 locations
throughout the United States and in Canada and cumulative investment activity
now totals over $2 billion since the formation of the REIT in June 1994. FFCA's
rate of investment growth has increased beginning with the introduction of its
mortgage loan financing products in 1995 and 1996. By 1998, mortgage loans had
grown to represent nearly 60% of new investments as compared to 48% in 1995.
Aside from growth generated by new restaurant financings, recent investment
growth is also attributable to FFCA's expansion into the convenience store and
automotive services and parts industries that accounted for 46% (over $426
million) of the investments made during 1998 as compared to 18% ($93 million) in
1997. These industries were targeted by FFCA because they meet FFCA's existing
investment criteria and the real estate they require is similar in many respects
to the locations chosen by chain restaurants.
FFCA initially funds its investments in chain store properties with
cash generated from operations and draws on its unsecured credit facility. This
revolving credit facility bears interest at a spread above the one-month LIBOR
rate for a weighted average interest rate of 6.57% in 1998 as compared to a
weighted average interest rate of 6.63% in 1997 and 7.12% in 1996. The revolving
credit facility is used as a warehousing line for properties pending the
issuance of additional debt or equity securities of FFCA. This facility is also
used to warehouse mortgage loans until a sufficiently large and diverse pool is
accumulated to warrant the sale of the mortgage loans through a securitization
transaction or other loan sale arrangement. Borrowings under the revolving
credit facility totaled $738 million in 1998 (as compared to $503 million in
1997 and $254 million in 1996). During 1998, borrowings were repaid through a
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combination of cash proceeds from the issuance of common stock ($191 million)
and unsecured notes ($190 million) and from securitization transactions ($540
million) including the use of a new loan sale facility. Cash proceeds from the
sale of property, the collection of mortgage loan and note principal payments
and the receipt of mortgage loan and note payoffs, aggregating approximately
$101 million in 1998 (as compared to $64 million in 1997 and $52 million in
1996), were also available to fund new investments.
To accommodate FFCA's portfolio growth, FFCA increased its capital in
1998 by entering into various equity transactions. During the first half of
1998, FFCA raised a total of $83 million through the sale of 3.1 million shares
of common stock to three separate unit investment trusts (as compared to $23
million raised in 1997 from the sale of nearly one million shares to a unit
investment trust). In March 1998, FFCA sold approximately 3.8 million shares of
common stock to an affiliate of Colony Capital, Inc. ("Colony"), a Los Angeles
based real estate-related investment firm. Colony made the $100 million equity
investment in newly issued shares of FFCA common stock, making Colony the
largest shareholder of FFCA and adding to FFCA's financial flexibility and
capabilities. In addition, Colony has warrants to purchase an additional
1,476,908 shares of FFCA's common stock and has the right to designate for
nomination a member to FFCA's Board of Directors. FFCA used the cash proceeds
from the sale of stock to reduce amounts outstanding on its revolving credit
facility.
As 1998 progressed, turbulence in the capital markets began impacting
FFCA's cost of borrowings, which rose despite prevailing lower long-term home
mortgage and government borrowing rates. In the first half of 1998, FFCA issued
$17 million in unsecured notes due in 2007, bearing interest at a rate of 6.86%
and $30.5 million in unsecured notes due in 2008, bearing interest at a rate of
7.07%. In October 1998, in the midst of the turbulent conditions, FFCA issued
$150 million in senior unsecured notes due 2003 at a rate of 8.25%.
In August 1998, FFCA entered into a $600 million loan sale facility
with a third party, who initially committed to purchase up to $300 million of
loans from FFCA. Then conditions in the securities markets, specifically the
asset-backed securities markets, became less favorable than they were in the
first half of 1998. These changes in market conditions could impact FFCA's
ability to originate and sell mortgage loans on an advantageous or timely basis.
Accordingly, to increase its financial flexibility, FFCA obtained the commitment
of all $600 million on the loan sale facility. This loan sale facility permits
FFCA to sell loans on a regular basis to a trust for an agreed-upon advance
rate. Upon the sale of such loans, FFCA acts as servicer for the loans. The loan
sale facility is available through October 1999. In the first five months of
this facility, FFCA sold mortgage loans with an aggregate principal balance of
$264 million and received $225 million in cash proceeds plus trust certificates
representing the remaining 15% of the loan sale price. The trust certificates
are held until the loans are sold by the trust at which time FFCA will receive
subordinated certificates of the subsequent securitization and any excess
proceeds received by the trust from the loan sale.
In September 1998, Duff & Phelps Credit Rating Co. upgraded FFCA's
senior unsecured debt from BBB- to BBB. The rating upgrade was based on FFCA's
continued strong financial performance, general reduction in operator and
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concept concentrations and improved financial flexibility. This financial
flexibility gave FFCA the ability to efficiently access capital at a time when
some of its competitors were unable to do so.
Subsequent to 1998, FFCA increased its liquidity to ensure the
availability of capital for the funding of new investments. FFCA successfully
completed an equity offering in January 1999, raising net proceeds of
approximately $146 million through the issuance of 6.7 million shares of FFCA
common stock. Then in February 1999, FFCA entered into a new $75 million
revolving loan facility with a bank on substantially the same terms and
conditions as the existing $350 million revolving loan facility. As of February
18, 1999, FFCA had $393 million available on $425 million of bank revolving loan
facilities and $327 million available on its $600 million loan sale facility.
FFCA's anticipated investments include commitments totaling
approximately $625 million at December 31, 1998. These commitments were made to
several large operators who operate chain restaurants, convenience stores and
automotive services and parts outlets, to acquire or finance (subject to FFCA's
customary underwriting procedures) approximately 545 chain store properties over
the next year. Due to the increase in FFCA's borrowing costs caused by the
turbulence in the capital markets in mid 1998, FFCA renegotiated its commitments
at more favorable rates. FFCA anticipates funding these specific commitments,
and other investments in chain store properties, through amounts available on
its revolving credit and loan sale facilities, issuance of additional unsecured
debt, issuance of mortgage-backed securities through securitization or issuance
of additional equity securities of FFCA.
FFCA has a dividend reinvestment plan that allows shareholders to
acquire additional shares of FFCA stock by automatically reinvesting their
quarterly dividends. As of February 18, 1999, shareholders owning approximately
7% of the outstanding shares of FFCA common stock participate in the dividend
reinvestment plan and dividends reinvested during 1998 totaled $6 million as
compared to $5.8 million in 1997 and $4.9 million in 1996. For the fourth
quarter, the Board of Directors approved raising FFCA's quarterly dividend to
$0.49 from $0.47. This dividend is payable on February 19, 1999 to shareholders
of record on February 10, 1999. Management anticipates that cash generated from
operations will be sufficient to meet operating requirements and provide the
level of shareholder dividends required in maintaining FFCA's status as a REIT.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FFCA invests in certain financial instruments that are subject to
various forms of market risk such as interest rate fluctuations, credit risk and
prepayment risk. FFCA's primary exposure is the risk of loss that may result
from the potential change in the value of its mortgage loans and investments
held for sale as a result of changes in interest rates.
FFCA manages its exposure to changes in interest rates through the use
of interest rate agreements (primarily interest rate swap contracts) and by
optimizing the use of variable-rate and fixed-rate debt. FFCA initially funds
its investments in chain store properties with borrowings on its variable-rate
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credit facility. Investments in fixed-rate leases are then match-funded through
the issuance of fixed-rate debt. The credit facility is also used to warehouse
mortgage loans until a sufficiently large and diverse pool is accumulated to
warrant the sale of the mortgage loans through a securitization transaction or
other loan sale arrangement. Generally, from the time 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. FFCA does not hold or issue derivative
financial instruments for speculative trading purposes. The instruments used are
interest rate agreements that are non-leveraged and involve little complexity.
FFCA is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate contracts. FFCA minimizes its credit risk on
these transactions by only dealing with leading, credit-worthy financial
institutions and, therefore, does not anticipate nonperformance.
At December 31, 1998, FFCA had interest rate swap contracts outstanding
with a notional amount aggregating $28 million. Under the interest rate swap
contracts, two parties agree to swap payments over a specified period where one
party agrees to make payments at a specified fixed rate and the other party to
the contract agrees to make payments based on a floating rate. The notional
amount serves solely as a basis for the calculation of payments to be exchanged
and is not a measure of the exposure of FFCA through its use of derivatives.
FFCA intends to terminate these contracts upon securitization of the fixed-rate
mortgage loans in 1999, 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 fixed rate set at the beginning of the interest rate swap
contract and the then-current market fixed rate at the time of termination. 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
agreements will be measured and recognized in the statement of operations.
FFCA estimates that a hypothetical one percentage point increase or
decrease in long-term interest rates at December 31, 1998 would impact the
financial instruments described above and result in a change to net income of
approximately 2%. This sensitivity analysis contains certain simplifying
assumptions (for example, it does not consider the impact of prepayment risk or
credit spread risk). Therefore, although it gives an indication of FFCA's
exposure to interest rate changes at December 31, 1998, it is not intended to
predict future results and FFCA's actual results will likely vary.
FFCA is subject to credit risk on its portfolio of mortgage loans and
real estate investment securities held to maturity. FFCA addresses its exposure
to credit risk by maintaining diversity in its portfolio by industry, geographic
area, chain and operator. In addition, FFCA maintains disciplined underwriting
standards and actively manages its portfolio.
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YEAR 2000 READINESS
FFCA'S STATE OF READINESS. FFCA successfully implemented its new
accounting and servicing information system in January 1998 and its new property
management system was deployed in July 1998. The design and implementation of
these new systems, including related upgrades in computer hardware, was
necessary to develop a more efficient portfolio servicing system that would
permit a high level of growth in the FFCA portfolio while containing operating
costs. FFCA invested $1.7 million during 1998, $1.6 million during 1997 and
$70,000 during 1996 towards the development and installation of these systems.
The new systems are also "Year 2000" compliant which means that the systems will
appropriately address any dates that refer to the 21st century. FFCA has taken a
proactive approach in dealing with the issues associated with the Year 2000 and
a five-phase process to address this challenge was approved by FFCA's computer
steering committee. This plan includes: (1) an inventory and assessment of the
systems and electronic devices that may be at risk; (2) the identification of
potential solutions; (3) the implementation of upgrades or replacements to
affected systems or devices; (4) the verification of compliance and testing of
the revised systems; and (5) the training of users on the new systems. To date,
FFCA has completed a review of its software and hardware and determined, through
a combination of internal testing and vendor representations that their products
have been tested and are compliant, that all mission-critical systems (those
systems that are necessary to conduct FFCA's business activities) are Year 2000
compliant. Non-mission critical software and hardware have also been reviewed
and FFCA has identified a few third-party products that are scheduled for
upgrades or replacement in the first half of 1999 as part of FFCA's ongoing
maintenance of its information system technology.
THE COSTS TO ADDRESS FFCA'S YEAR 2000 ISSUES. Based on current
estimates and plans, FFCA believes the costs of addressing Year 2000 issues will
not be material.
THE RISKS OF FFCA'S YEAR 2000 ISSUES. FFCA believes the most reasonably
likely worst case scenario will be indirect in nature involving third parties
such as clients, vendors and suppliers which may not have successfully dealt
with their Year 2000 issues. FFCA continues to assess the key third parties that
it relies upon; however, FFCA has not yet been assured that all of the computer
systems of its clients, vendors and suppliers will be Year 2000 compliant. For
example, if suppliers of FFCA's energy or telecommunications fail to become Year
2000 compliant, such failure possibly could have an adverse effect on FFCA's
ability to conduct daily operations or to communicate with its clients and
vendors. While FFCA continues to analyze these risks, it is possible that
information relevant to such analysis will not be made available to FFCA, or
that potential solutions will not be within FFCA's control. In addition, there
can be no guarantee that FFCA's efforts will prevent a material adverse impact
on its results of operations, financial condition and cash flows. FFCA believes
that its readiness program, including the contingency plans discussed below,
should significantly reduce the adverse effect any disruptions may have.
FFCA'S CONTINGENCY PLANS. FFCA will continue to monitor and evaluate
its key clients, vendors and suppliers to determine the extent that FFCA is
vulnerable to those third parties' possible failure to become Year 2000
compliant. FFCA expects to develop contingency plans throughout 1999, on an as
needed basis to address these concerns, where reasonable to do so. These plans
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may include identifying and securing alternate suppliers of services and other
measures considered appropriate by management. Once developed, the contingency
plans will be continually refined, as additional information becomes available.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEARS ENDED DECEMBER 31, 1997 AND 1996
FFCA had net income of $95.7 million ($2.00 per share, assuming
dilution) in 1998 as compared to $72.9 million ($1.76 per share) in 1997 and
$68.5 million ($1.69 per share) in 1996. The increases in net income each year
resulted from increased revenues due to the continued growth in FFCA's real
estate investment portfolio. Revenues rose to $170 million in 1998 from $135
million in 1997 and $121 million in 1996.
FFCA's primary source of revenues continues to be rental revenues
generated by its portfolio of chain store properties that are leased to
operators on a triple-net basis. Rental revenues represented 72% of total
revenues in 1998 as compared to 75% in 1997 and 79% in 1996. With the
introduction of FFCA's mortgage financing products in 1995, the proportion of
total revenues generated by lease financing has decreased, though lease revenues
generated each year continue to be higher than in the previous year. Most of the
increases in rental revenues each year resulted from new investment activity.
New investments in property subject to operating leases totaled $365 million in
1998, $140 million in 1997 and $129 million in 1996. Generally, property
purchases occur throughout the year, resulting in weighted average balances for
these new investments of $145 million in 1998, $43 million in 1997 and $60
million in 1996. Weighted average base lease rates on the new investments were
9.9% in 1998 as compared to 9.3% in 1997 and 10.5% in 1996. Partially offsetting
the revenue increases generated by the new investments were decreases in rent
revenues related to properties sold.
A large number of the leases in FFCA's portfolio provide for a base
rental plus contingent rentals based on a percentage of the gross sales of the
related chain stores. Such contingent rentals totaled $7.6 million in 1998 as
compared to $6.4 million in 1997 and $5 million in 1996. The increases relate
primarily to increases in individual store-level sales volumes and to lessees
whose sales levels have, for the first time, exceeded the threshold where
contingent rentals are due. Generally, the remaining leases provide for rent
increases during the lease term based on increases in the consumer price index
or other rent escalation features.
A portion of FFCA's revenues relates to the origination and subsequent
sale of mortgage loans through securitization transactions. In 1997, mortgage
investment activity was split between FFCA and an unconsolidated taxable
affiliate, FFCA Mortgage Corporation (Mortgage Corp.). 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 Mortgage Corp.) totaled 15% of revenues in 1998, 1997 and 1996. FFCA
originated $534 million in mortgage loans in 1998, $362 million in 1997 and $180
million in 1996. Rates achieved on the loans originated during 1998 averaged
8.9% as compared to 9.2% achieved during 1997 and 9.4% in 1996. This decrease in
rates is reflective of the overall decrease in the interest rate environment
over the years. The amount of mortgage interest income generated each year has
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been, and will continue to be, impacted by the amount of loans originated for
sale each year 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 1996, 1997 and 1998, it retains certain interests
through the purchase of subordinated investment securities that FFCA intends to
hold to maturity. These securities generate revenues that are included in "Real
Estate Investment Securities Income" in the accompanying financial statements
and represented 8% of total revenues in 1998 as compared to 6% in 1997 and 2% in
1996.
FFCA's revenue is generated by a real estate investment portfolio that
is diversified by industry, by concept, by geographical area and by operator.
FFCA finances chain store real estate in three industries, representing nearly
3,600 locations throughout the United States and Canada (though investments in
Canada are not significant). During the year ended December 31, 1998, 91% of the
revenues generated by the portfolio reflect restaurant investments, 7% reflect
convenience store investments and 2% reflect automotive services and parts
investments. With the addition of the convenience store and automotive services
and parts industries in 1997, FFCA's portfolio has expanded to include over 100
different chains, including such well-known chains as Applebee's, Arby's, Burger
King, Checker Auto Parts, Chevron, Circle K, Citgo, Hardee's, Jack in the Box,
Midas Muffler Shops, Pizza Hut, 7-Eleven, Taco Bell, Texaco, Valvoline Instant
Oil Change and Wendy's. The lease or mortgage loan agreements are with
approximately 450 operators represented within FFCA's investment portfolio. Most
of these are multi-unit operators, though no single operator represented 10% or
more of FFCA's total portfolio revenues during 1998 and 1997. In 1996, one
restaurant operator, Foodmaker, Inc. ("Foodmaker"), accounted for approximately
10.9% of FFCA's total rental and mortgage loan interest revenues. Foodmaker
operates and franchises Jack in the Box restaurants. The relative decrease in
the percentage of FFCA's revenue from Foodmaker since 1996 is due to the fact
that FFCA's portfolio is growing and, as a result, Foodmaker is becoming a
relatively smaller portion of the entire portfolio. As FFCA continues to grow,
management expects the portfolio to continue to become more diversified.
With the growth achieved in FFCA's real estate investment portfolio,
expenses grew to $84.4 million in 1998 as compared to $69.3 million in 1997 and
$61.1 million in 1996, primarily due to increases in interest expense each year.
Interest expense rose by $8.1 million in 1998 and $8.8 million in 1997 due to
the use of borrowings for investments in chain store properties. FFCA's average
debt balance increased to $590 million in 1998 from $470 million in 1997 and
$335 million in 1996. In addition, FFCA's borrowing rate has changed over the
past several years due to changes in FFCA's debt structure, together with
overall changes in the interest rate environment. FFCA's effective borrowing
rate changed from 7.15% during 1996 to 6.93% during 1997 and 7.01% during 1998.
FFCA issued its first unsecured medium-term notes totaling $100 million during
1996 at a weighted average interest rate of 6.98% and in 1997 FFCA issued $10.15
million in unsecured notes at a rate of 6.86%. During the first half of 1998,
FFCA issued $47.5 million in unsecured notes at a weighted average rate of
6.99%. As discussed earlier, changes in the capital markets during the second
half of 1998 caused an increase in FFCA's cost of borrowings from an average of
6.85% in the first quarter of 1998 to 7.29% during the fourth quarter of 1998.
In June 1998, FFCA entered into an interest rate agreement with a notional
amount of $100 million to hedge exposure to fluctuations in interest rates on
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anticipated debt. In October 1998, FFCA terminated this interest rate agreement
upon the issuance of $150 million in senior unsecured notes due 2003 at a rate
of 8.25%, at which time FFCA deferred (and amortizes into interest expense) the
payment of approximately $7 million it made in settlement of this interest rate
agreement.
Despite the growth in revenues of 40% from 1996 to 1998, operating,
general and administrative expenses increased only 24% during this same period
and remained constant at a level of approximately 8% of revenue. The increase in
operating expenses between 1996 and 1998 resulted primarily from the addition of
personnel needed to expand FFCA's line of financial products and to increase
FFCA's investment origination and servicing capacity. FFCA's recent investment
in computer system technology has increased the efficiency of its information
and portfolio servicing systems, which enables FFCA to expand its revenue base
while containing operating costs. Property costs, which are primarily related to
vacant or underperforming properties, have remained relatively unchanged since
1996 at approximately 1% of revenues.
During 1998, FFCA continued to originate loans held for sale through
securitization transactions. Certain mortgage loans originated by FFCA, its
predecessors and affiliate totaling $335 million in 1998, $261 million in 1997
and $179 million in 1996 were securitized and Secured Franchise Loan
Pass-Through and Trust Certificates were sold to investors through a trust. The
majority of each securitized loan pool was sold to third parties, while FFCA
retained the subordinated investment securities ranging from 9% to 12.5% of the
mortgage loan pools' balance. In the 1996 securitization transaction, FFCA also
purchased the interest-only certificate (carrying amount approximately $17
million and $21 million at December 31, 1998 and 1997, respectively). During
1998, FFCA also sold loans totaling $264 million through its loan sale facility
and retained trust certificates representing approximately 15% of the loan sale
price.
The retained securities, totaling $113.7 million and $55.2 million at
December 31, 1998 and 1997, respectively, generated $14.4 million, $7.7 million
and $2.7 million of revenue in 1998, 1997 and 1996, respectively. The
subordinated investment securities held by FFCA are the last of the securities
to be repaid from the loan pool, so that if any of the underlying mortgage loans
default, these securities take the first loss. Any future credit losses in the
securitized loan pool would be concentrated in these subordinated investment
securities retained by FFCA; however, FFCA originates and services mortgage
loans and has the infrastructure in place to deal with potential defaults on the
securitized portfolio (as it does with the mortgage loans it holds for
investment). To date, there have been no losses from defaults in any of the
securitized loan pools. FFCA also retained the servicing rights on the mortgage
loans it sold.
FFCA recorded net gains of $10.5 million on the sale of property during
1998 as compared to $5.5 million during 1997 and $9.9 million in 1996. Of these
gains, the sale of mortgages generated gains totaling approximately $6.2 million
in 1998, $430,000 in 1997 and $7.1 million in 1996. The gains on the sale of
mortgages represent the difference between the carrying amount of the mortgage
loans sold and their adjusted sales price. The gains on the sale of the mortgage
loans were reduced by establishing reserves for estimated probable losses under
the subordination provisions of the securitization transactions. The remaining
gains represent the net effect of gains and losses from sales of property, which
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occur primarily through the lessee's exercise of purchase options and through
the disposition of underperforming properties. During 1998, FFCA sold 57
properties and related equipment (nine of which were through the lessees'
exercise of their purchase options on the properties). Mortgage prepayments
received in 1998 represented another 49 properties. During 1997, FFCA sold 55
properties and related equipment (12 of which were through the lessees' exercise
of their purchase options on the properties) as compared to 79 properties sold
in 1996. Also during 1997, FFCA received a $20 million mortgage payoff
representing 60 chain store properties.
Approximately two-thirds of FFCA's land and building leases provide for
purchase options and approximately one-half of these options are currently
exercisable; however, only nine properties were sold through purchase options in
1998 and only 12 and 15 such properties were sold in 1997 and 1996,
respectively. Where applicable, the lessee also has the option to purchase
equipment at the end of the related equipment lease term. Generally, the
purchase options are exercisable at fair market value (but not less than
original cost in most cases). FFCA expects that the exercise of purchase options
will continue to be insignificant.
FFCA periodically reviews its real estate portfolio for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the property may not be recoverable, such as may be the case with vacant
properties. If an impairment loss is indicated, the loss is measured as the
amount by which the carrying amount of the asset exceeds the fair value of the
asset. Gain on the sale of property on the consolidated statements of income for
the years ended December 31, 1998, 1997 and 1996 is net of approximately $4
million, $1.9 million and $3.3 million, respectively, of loss related to vacant
and underperforming properties. Vacant properties held for sale represent less
than 1% of FFCA's total real estate investment portfolio. The vacancy level in
the portfolio is currently at one-half of one percent and has remained at less
than 2% since FFCA became a REIT in 1994.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item is incorporated by reference from Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Quantitative and Qualitative Disclosures About Market Risk".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and related financial information
required to be filed are attached to this Report. Reference is made to page F-1
of this Report for an index to the consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 12, 1999, to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 12, 1999, to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 12, 1999, to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 12, 1999, to be filed pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. FINANCIAL STATEMENTS. See Index to Financial Statements on page
F-1 of this Report.
2. FINANCIAL STATEMENT SCHEDULES. See Index to Financial Statements
on page F-1 of this Report. All other schedules are omitted since
they are not required, are inapplicable, or the required
information is included in the financial statements or notes
thereto.
3. EXHIBITS.
The following is a complete list of exhibits filed as part of
this Form 10-K. For electronic filing purposes only, this report
contains Exhibit 27, the Financial Data Schedule. Exhibit numbers
correspond to the numbers in the Exhibit Table of Item 601 of
Regulation S-K.
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EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.01 Second Amended and Restated Certificate of Incorporation of Franchise
Finance Corporation of America (1)
3.02 Second Amended and Restated Bylaws of Franchise Finance Corporation of
America (2)
4.01 Indenture dated as of November 21, 1995 (3)
4.02 Specimen of Common Stock Certificate (4)
4.03 Officers' Certificate relating to the 7% Senior Notes Due 2000 and the
7-1/8% Senior Notes Due 2005 of Franchise Finance Corporation of
America(5)
4.04 Officers' Certificate relating to the Medium-Term Notes due Nine Months
or More from Date of Issue of Franchise Finance Corporation of
America(6)
4.05 Form of Medium-Term Fixed Rate Note and Floating Rate Note of Franchise
Finance Corporation of America(7)
4.06 Officers' Certificate relating to the 8.25% Senior Notes Due 2003 of
Franchise Finance Corporation of America(8)
10.01 Acquisition, Construction and Term Loan Agreement, dated as of December
29, 1988, by and between Franchise Finance Corporation of America and
Scottsdale Land Trust Limited Partnership (4)
10.02 Promissory Note dated December 29, 1988, executed by Franchise Finance
Corporation of America in favor of Scottsdale Land Trust Limited
Partnership in the principal amount of $8,500,000 (4)
10.03 1995 Stock Option and Incentive Plan of Franchise Finance Corporation of
America (9)
10.04 Stock Purchase Agreement between Franchise Finance Corporation of
America and Colony Investors III, L.P. dated February 13, 1998 (10)
21.01 Subsidiaries of the Registrant*
23.01 Consent of Arthur Andersen LLP*
99.01 Second Amended and Restated Credit Agreement dated December 29, 1997
among Franchise Finance Corporation of America, Certain Lenders and
NationsBank of Texas, N.A. (11)
99.02 First Amendment to the Second Amended and Restated Credit Agreement
among Franchise Finance Corporation of America, Certain Lenders and
NationsBank N.A., dated as of June 30, 1998.*
99.03 Sale and Servicing Agreement dated as of August 14, 1998, among FFCA
Franchise Loan Owner Trust 1998-1, FFCA Loan Warehouse Corporation, FFCA
Acquisition Corporation, Franchise Finance Corporation of America and
LaSalle National Bank. (12)
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99.04 Loan Purchase Agreement dated as of August 14, 1998, between FFCA Loan
Warehouse Corporation and FFCA Acquisition Corporation. (12)
99.05 Indenture dated as of August 14, 1998, between FFCA Franchise Loan Owner
Trust 1998-1 and LaSalle National Bank. (12)
99.06 Indenture Supplement dated as of August 14, 1998, between FFCA Franchise
Loan Owner Trust 1998-1 and LaSalle National Bank. (12)
99.07 Note Purchase Agreement dated as of August 14, 1998, among FFCA
Franchise Loan Owner Trust 1998-1, FFCA Acquisition Corporation, FFCA
Loan Warehouse Corporation, and Morgan Stanley Securitization Funding
Inc. (12)
99.08 Credit Agreement dated as of February 11, 1999, among Franchise Finance
Corporation of America, Certain Lenders and NationsBank N.A.*
- ----------
* Filed herewith.
(1) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997, as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1998, as filed with the
Securities and Exchange Commission.
(3) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated November 24, 1995, as filed with the Securities and Exchange
Commission.
(4) Incorporated by reference from the Registrant's Registration Statement
on Form S-4 and amendments thereto (Registration Number 33-65302), as
filed with the Securities and Exchange Commission.
(5) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated November 24, 1995, as filed with the Securities and Exchange
Commission.
(6) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated February 14, 1996, as filed with the Securities and Exchange
Commission.
(7) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated April 16, 1998, as filed with the Securities and Exchange
Commission.
(8) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated October 27, 1998, as filed with the Securities and Exchange
Commission.
(9) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, as filed with the
Securities and Exchange Commission.
(10) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, as filed with the
Securities and Exchange Commission.
(11) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated December 29, 1997, as filed with the Securities and Exchange
Commission.
(12) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated August 14, 1998, as filed with the Securities and Exchange
Commission.
35
<PAGE>
(b) REPORTS ON FORM 8-K.
During the quarter ended December 31, 1998, FFCA filed the following
reports on Form 8-K:
Form 8-K dated August 14, 1998, filed October 9, 1998, reporting the
$600 million loan sale facility between FFCA and Morgan Stanley
Securitization Funding Inc., an affiliate of Morgan Stanley & Co.
Incorporated, under Item 5, Other Events, and Item 7, Financial
Statements and Exhibits.
Form 8-K dated October 27, 1998, filed October 29, 1998, reporting the
purchase agreement with respect to the issue and sale by FFCA of its
8.25% Senior Notes Due 2003 under Item 5, Other Events, and Item 7,
Financial Statements and Exhibits.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FRANCHISE FINANCE CORPORATION OF AMERICA
Date: March 15, 1999 By /s/ M. H. Fleischer
-------------------------------------
M. H. Fleischer, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: March 15, 1999 By /s/ M. H. Fleischer
-------------------------------------
M. H. Fleischer, Chairman of the Board,
President, and Chief Executive Officer
Date: March 15, 1999 By /s/ John Barravecchia
-------------------------------------
John Barravecchia, Executive Vice
President, Chief Financial Officer
and Treasurer
Date: March 15, 1999 By /s/ Catherine F. Long
-------------------------------------
Catherine F. Long, Senior Vice
President-Finance and Principal
Accounting Officer
Date: March 15, 1999 By /s/ Willie R. Barnes
-------------------------------------
Willie R. Barnes, Director
Date: March 15, 1999 By /s/ Kelvin L. Davis
-------------------------------------
Kelvin L. Davis, Director
Date: March 15, 1999 By /s/ Robert W. Halliday
-------------------------------------
Robert W. Halliday, Director
37
<PAGE>
Date: March 15, 1999 By /s/ Donald C. Hannah
-------------------------------------
Donald C. Hannah, Director
Date: March 15, 1999 By /s/ Dennis E. Mitchem
-------------------------------------
Dennis E. Mitchem, Director
Date: March 15, 1999 By /s/ Louis P. Neeb
-------------------------------------
Louis P. Neeb, Director
Date: March 15, 1999 By /s/ Kenneth B. Roath
-------------------------------------
Kenneth B. Roath, Director
Date: March 15, 1999 By /s/ Casey J. Sylla
-------------------------------------
Casey J. Sylla, Director
Date: March 15, 1999 By /s/ Shelby Yastrow
-------------------------------------
Shelby Yastrow, Director
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - December 31, 1998 and 1997 F-3
Consolidated Statements of Income For The Years Ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Changes in Shareholders' Equity
For The Years Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows For The Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Schedule III - Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1998 F-16
Schedule IV - Schedule of Mortgage Loans on Real Estate
as of December 31, 1998 F-18
F-1
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Franchise Finance Corporation of America:
We have audited the accompanying consolidated balance sheets of FRANCHISE
FINANCE CORPORATION OF AMERICA (a Delaware corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Franchise Finance Corporation
of America and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of the
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
January 25, 1999.
F-2
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1998 AND 1997
(Amounts in thousands except share data)
1998 1997
---- ----
ASSETS
Investments:
Investments in Real Estate, at cost (Note 3):
Land $ 496,286 $ 382,637
Buildings and Improvements 759,444 545,629
Equipment 18,870 23,039
---------- ----------
1,274,600 951,305
Less-Accumulated Depreciation 185,580 175,263
---------- ----------
Net Real Estate Investments 1,089,020 776,042
Mortgage Loans Held for Sale (Note 4) 163,172 251,622
Mortgage Loans Receivable, net of allowances
of $3,600 in 1998 and $2,600 in 1997 (Note 5) 43,343 35,184
Real Estate Investment Securities (Note 6) 113,692 55,185
Other Investments (Note 5) 14,231 27,118
---------- ----------
Total Investments 1,423,458 1,145,151
Cash and Cash Equivalents 3,881 7,130
Accounts Receivable, net of allowances
of $720 in 1998 and $1,900 in 1997 9,491 7,581
Other Assets (Note 12) 23,599 19,336
---------- ----------
Total Assets $1,460,429 $1,179,198
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Dividends Payable $ 24,041 $ 19,640
Notes Payable (Note 7) 500,168 309,360
Borrowings Under Line of Credit (Note 8) 188,000 302,000
Mortgage Payable to Affiliate (Note 12) 8,500 8,500
Accrued Expenses and Other 23,286 16,702
---------- ----------
Total Liabilities 743,995 656,202
---------- ----------
Commitments (Note 15)
Shareholders' Equity (Notes 9 and 11):
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 49,063,133 shares in 1998 and
41,787,543 shares in 1997 491 418
Capital in Excess of Par Value 773,708 583,056
Cumulative Net Income 297,823 202,106
Cumulative Dividends (355,588) (262,584)
---------- ----------
Total Shareholders' Equity 716,434 522,996
---------- ----------
Total Liabilities and Shareholders' Equity $1,460,429 $1,179,198
========== ==========
The accompanying notes are an integral part of
these consolidated balance sheets.
F-3
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Amounts in thousands except per share data)
1998 1997 1996
---- ---- ----
Revenues:
Rental $121,490 $101,292 $ 95,612
Mortgage Loan Interest 26,118 10,987 15,738
Real Estate Investment Securities
Income (Note 6) 14,350 7,680 2,745
Investment Income and Other 7,610 5,992 4,210
Interest (Related Party) (Note 12) -- 9,037 2,861
-------- -------- --------
169,568 134,988 121,166
-------- -------- --------
Expenses:
Depreciation and Amortization 24,518 20,784 20,654
Operating, General and Administrative 14,244 11,106 11,488
Property Costs 1,778 1,641 2,041
Interest 42,846 34,764 25,974
Interest (Related Party) (Note 12) 1,000 986 973
-------- -------- --------
84,386 69,281 61,130
-------- -------- --------
Income Before Gain on Sale of Property
and Other Costs 85,182 65,707 60,036
Gain on Sale of Property 10,535 5,471 9,899
Equity in Net Income (Loss) of
Affiliate (Note 12) -- 1,719 (1,396)
-------- -------- --------
Net Income $ 95,717 $ 72,897 $ 68,539
======== ======== ========
Basic Net Income Per Share $ 2.01 $ 1.78 $ 1.70
======== ======== ========
Diluted Net Income Per Share $ 2.00 $ 1.76 $ 1.69
======== ======== ========
Number of Common Shares Used in
Basic Net Income Per Share 47,554 40,968 40,423
Incremental Shares from Assumed
Conversion of Options 354 365 180
-------- -------- --------
Number of Common Shares Used in
Diluted Net Income Per Share (Note 2) 47,908 41,333 40,603
======== ======== ========
The accompanying notes are an integral part of
these consolidated statements.
F-4
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Amounts in thousands except per share data)
<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, 1995 40,295 $403 $547,478 $ 60,670 $(114,734) $ 493,817
Capital contributions--dividend
reinvestment plan 220 2 4,897 -- -- 4,899
Exercise of stock options 49 1 960 -- -- 961
Net income -- -- -- 68,539 -- 68,539
Dividends declared--$1.80 per share -- -- -- -- (72,846) (72,846)
------ ---- -------- -------- --------- ---------
BALANCE, December 31, 1996 40,564 406 553,335 129,209 (187,580) 495,370
Capital contributions -
Issuance of common stock 957 10 23,297 -- -- 23,307
Dividend reinvestment plan 235 2 5,792 -- -- 5,794
Exercise of stock options 32 -- 632 -- -- 632
Net income -- -- -- 72,897 -- 72,897
Dividends declared--$1.82 per share -- -- -- -- (75,004) (75,004)
------ ---- -------- -------- --------- ---------
BALANCE, December 31, 1997 41,788 418 583,056 202,106 (262,584) 522,996
Capital contributions -
Issuance of common stock 6,939 70 182,586 -- -- 182,656
Dividend reinvestment plan 234 2 6,069 -- -- 6,071
Exercise of stock options 102 1 1,997 -- -- 1,998
Net income -- -- -- 95,717 -- 95,717
Dividends declared--$1.90 per share -- -- -- -- (93,004) (93,004)
------ ---- -------- -------- --------- ---------
BALANCE, December 31, 1998 49,063 $491 $773,708 $297,823 $(355,588) $ 716,434
====== ==== ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
F-5
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Amounts in thousands)
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 95,717 $ 72,897 $ 68,539
Adjustments to net income:
Depreciation and amortization 24,518 20,784 20,654
Gain on sale of property (10,535) (5,471) (9,899)
Equity in net (income) loss of affiliate -- (1,719) 1,396
Provision for uncollectible mortgage loans 1,118 791 1,400
Other 1,482 (4,153) 2,637
--------- --------- ---------
Net cash provided by operating activities 112,300 83,129 84,727
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (366,836) (140,218) (128,713)
Investment in mortgage loans (537,665) (310,811) (49,102)
Investment in notes receivable (33,819) (17,460) (17,280)
Proceeds from securitization transactions 540,372 103,975 151,720
Proceeds from sale of property 33,764 26,425 34,015
Receipt of mortgage loan and note payoffs 56,415 30,198 12,265
Collection of mortgage loan and note principal 10,601 7,520 6,089
Collection of investment security principal 3,184 1,463 715
Collection of (investment in) related party
notes receivable -- 100,706 (147,616)
Purchase of investment securities -- (15,946) --
Dividend received from (investment in)
affiliate -- 9,822 (9,500)
--------- --------- ---------
Net cash used in investing activities (293,984) (204,326) (147,407)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (88,603) (73,618) (72,725)
Proceeds from issuance of common stock 190,725 29,733 5,860
Proceeds from bank borrowings 738,000 503,000 254,000
Proceeds from issuance of notes 190,313 60,150 100,000
Payment of bank borrowings (852,000) (352,288) (215,172)
Payment of other unsecured notes -- (50,000) --
--------- --------- ---------
Net cash provided by financing activities 178,435 116,977 71,963
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,249) (4,220) 9,283
CASH AND CASH EQUIVALENTS, beginning of year 7,130 11,350 2,067
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 3,881 $ 7,130 $ 11,350
========= ========= =========
The accompanying notes are an integral part of
these consolidated statements.
F-6
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) ORGANIZATION AND OPERATION:
Franchise Finance Corporation of America ("FFCA"), a Delaware
corporation, is a self-administered real estate investment trust ("REIT") which
provides real estate financing to chain store operators (including operators of
restaurants, convenience stores and automotive service and parts stores). FFCA
offers financing through various products, including sale-leaseback
transactions, mortgage loans, equipment loans and construction financing. At
December 31, 1998, FFCA had interests in 3,592 properties representing over $1.6
billion in gross investments in chain store properties located throughout the
United States and in Canada (although investments in Canada are not
significant). In addition to this geographic diversification, the portfolio is
also represented by more than 450 different operators in approximately 100
retail chains. No single operator represented 10% or more of FFCA's total
portfolio revenues during 1998. FFCA's portfolio included 2,109 chain store
properties consisting of investments in real estate mortgage loans and
properties subject to leases and 1,483 properties consisting of securitized
mortgage loans in which FFCA holds a residual interest.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION AND EQUITY METHOD INVESTMENTS - The accompanying
consolidated financial statements include the accounts of FFCA and its
wholly-owned subsidiaries, FFCA Acquisition Corporation (and its wholly-owned
subsidiary FFCA Loan Warehouse Corporation), FFCA Capital Holding Corporation,
FFCA Residual Interest Corporation, FFCA Secured Assets Corporation, FFCA
Secured Lending Corporation and FFCA Institutional Advisors, Inc. All
intercompany transactions have been eliminated.
FEDERAL INCOME TAXES - FFCA has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended, as of June 1, 1994. As a result, FFCA
generally will not be subject to federal income taxation at the corporate level
provided it meets certain tests which, among other things, require that its
assets consist primarily of real estate, its income be derived primarily from
real estate and at least 95% of its taxable income be distributed annually to
its shareholders. The tax basis of the assets and liabilities has been recorded
based upon the value of the consideration exchanged upon the merger of FFCA with
its predecessor companies and, accordingly, the tax basis of the net assets
exceeds the book basis by approximately $223 million at December 31, 1998. In
1998, excess inclusion income related to the securitization transactions (see
Note 6) resulted in unrelated business taxable income of $.018 per share for
FFCA's tax-exempt investors.
REAL ESTATE - FFCA records the acquisition of real estate at cost,
which includes miscellaneous acquisition and closing costs. Depreciation is
computed using the straight-line method over the estimated useful life of 24 to
30 years for buildings and improvements and 7 to 8 years for equipment. FFCA
periodically reviews its real estate portfolio for impairment whenever events or
changes in circumstances indicate that the carrying amount of the property may
not be recoverable, such as may be the case with vacant properties. If an
impairment loss is indicated, the loss is measured as the amount by which the
carrying amount of the asset exceeds the estimated fair value of the asset. Gain
on sale of property in the consolidated statements of income for the years ended
December 31, 1998, 1997 and 1996 is net of approximately $4.0 million, $1.9
million and $3.3 million, respectively, of impairment loss related to certain
vacant properties. Vacant properties held for sale represent less than 1% of the
total real estate investment portfolio at December 31, 1998.
LOAN ORIGINATION FEES AND COSTS - FFCA generally receives a fee related
to activities performed to process a client's request for and origination of
credit. Direct costs associated with these activities are offset against the
related fees received and the balance is deferred and amortized into revenue
over the term of the related loan. Loan origination fees and costs related to
mortgage loans held for sale are deferred until the related loan is sold.
F-7
<PAGE>
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all cash
and highly liquid investment securities with maturities at acquisition of three
months or less. Such investment securities are carried at cost plus accrued
interest, which approximates fair market value.
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. FFCA
does not hold or issue derivative financial instruments for speculative trading
purposes. The instruments used are interest rate contracts, which are
non-leveraged and involve little complexity. FFCA intends to terminate these
contracts upon securitization of the fixed-rate mortgage loans, at which time
both the gain or loss on the sale of the loans and the gain or loss on the
termination of the interest rate contracts will be measured and recognized in
the statement of operations.
FFCA would be exposed to credit loss in the event of nonperformance by
the counterparties to the interest rate contracts. FFCA minimizes its credit
risk on these transactions by only dealing with leading, credit-worthy financial
institutions and, therefore, does not anticipate non-performance.
RENTAL REVENUE RECOGNITION - FFCA leases its real estate under
long-term net leases which are classified as operating leases. Rental revenue
from operating leases is recognized as it is earned.
EARNINGS PER SHARE - Stock options to purchase 970,000 weighted shares
of common stock (representing options granted in January 1998, May 1998 and
January 1997) at a range of $26.375 to $27.625 per share were outstanding during
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. A warrant to purchase 1,476,908 shares of common stock at
$31.64 per share was also excluded from the computation of earnings per share.
In early 1999, FFCA sold 6.7 million shares of its common stock in a public
offering at a price of $23 per share.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although management believes
its estimates are reasonable, actual results could differ from those estimates.
NEW PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board (FASB) 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. FFCA is currently assessing the method to be
utilized for adoption and the impact of the adoption on FFCA's financial
statements. It is not expected, however, that adoption of this statement will
have a material effect on FFCA's results of operations, financial condition or
cash flows.
In October 1998, the FASB issued SFAS No. 134 "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". This standard requires that
after the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. FFCA elected early adoption of this standard in October 1998 and,
accordingly, all retained interests except the interest-only certificate (which
is classified as available-for-sale) were reclassified to the held-to-maturity
category based on FFCA's intent and ability to hold these investments. There
were no unrecognized holding gains or losses at the time of reclassification.
The adoption of this new accounting standard did not have a material effect on
FFCA's 1998 financial statements.
F-8
<PAGE>
(3) INVESTMENTS IN REAL ESTATE:
FFCA's real estate portfolio is comprised of property leased to tenants
under long-term net operating leases. The lease agreements generally provide for
base monthly rentals plus additional rentals based on a percentage of the
lessees' gross sales or based on other contractual increases in rent during the
lease term. The terms of the leases are generally 15 to 20 years for land and
buildings and seven or eight years for equipment (if any). The initial terms of
FFCA's leases extend through 2018 with a weighted average remaining term of 13
years as of December 31, 1998. Land and building leases generally provide for
two or four five-year renewal options. Generally, the lessee has the option to
purchase equipment at the end of the lease term and land and buildings anytime
after the first ten years of the lease at fair market value (but not less than
original cost). A majority of leases entered into after 1994 provide for 90-day
option windows at various dates during the lease term. Approximately two-thirds
of FFCA's land and building leases provide for purchase options and
approximately one-half of these options are currently exercisable.
Minimum future rentals under noncancellable operating leases as of
December 31, 1998, are as follows (amounts in thousands):
Year ending December 31,
------------------------
1999 $ 128,500
2000 126,100
2001 124,200
2002 119,600
2003 115,500
Thereafter 931,400
----------
Total minimum future rentals $1,545,300
==========
The above table assumes that all leases which expire are not renewed;
therefore, neither renewal rentals nor rentals from replacement lessees are
included. In addition, minimum future rentals do not include contingent rentals
that may be received under the leases based upon a percentage of the lessee's
gross sales. These percentage rentals totaled approximately $7.6 million in
1998, $6.4 million in 1997 and $5 million in 1996. FFCA recognizes estimated
contingent rentals ratably throughout the year when it is probable that a lessee
will exceed the sales threshold where percentage rentals are due. Verification
of the actual amount of percentage rentals due is received from the lessee at
various times during the year, based on the lessee's reporting requirements. Had
FFCA adopted a policy of deferring recognition of contingent rentals until
receiving verification that the lessee reached its sales targets, approximately
$850,000 of the percentage rental revenue would have been deferred at December
31, 1998.
(4) MORTGAGE LOANS HELD FOR SALE:
Mortgage loans held for sale are stated at the lower of cost or fair
market value, determined in the aggregate. The loans represent first mortgage
loans on the land and/or buildings and/or equipment of 162 properties comprising
$115 million in fixed-rate loans and $1 million in variable-rate loans.
Variable-rate construction loans totaled $47 million at December 31, 1998. The
fixed-rate loans carry a weighted average interest rate of 9.4% and mature 5 to
20 years from the date of origination. The variable-rate loans carry interest
rates that adjust monthly based on 30-day LIBOR plus a margin (average interest
rate was 8.8% at December 31, 1998). Total principal and interest payments
aggregate approximately $1.2 million per month. The fixed-rate mortgage loans
generally prohibit prepayment for certain periods or condition prepayment upon
receipt of prepayment penalties from the borrower. The variable-rate mortgage
loans generally have no prepayment restrictions.
(5) OTHER MORTGAGE LOANS AND NOTES RECEIVABLE:
At December 31, 1998, FFCA held first mortgage loans on the land and/or
buildings and/or equipment of approximately 165 properties represented by $24
million in participating fixed-rate loans (net of reserve of $3.6 million in
1998) and $19 million in variable-rate loans. These loans are held for long-term
investment. Generally, the fixed-rate loans carry interest rates ranging from
10% to 13.5% per annum and mature 5 to 20 years from the date of origination.
F-9
<PAGE>
In addition, these loans generally provide for additional interest
payments based on a percentage of the mortgagor's gross sales. The variable-rate
loans carry interest rates which adjust monthly based on 30-day LIBOR, plus a
margin and carry an average interest rate of 10.3% at December 31, 1998.
Principal and interest payments on the mortgage loans are due in level amounts
with payments aggregating approximately $8.5 million per year to maturity.
FFCA also held various secured and unsecured notes totaling $14 million
at December 31, 1998 and $27 million at December 31, 1997 (net of allowances of
$460,000 in 1998 and 1997). Generally, the notes carry interest rates ranging
from 10% to 12% per annum and mature 5 to 10 years from the date of origination.
(6) REAL ESTATE INVESTMENT SECURITIES:
Certain mortgage loans originated for sale by FFCA totaling $335
million in 1998 and $261 million in 1997 were securitized and Secured Franchise
Loan Trust 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; such amounts are included in "Other Assets" in the
accompanying financial statements and are not significant at December 31, 1998.
Generally, the majority of each securitized loan pool is sold to third parties,
while FFCA retains the subordinated investment securities (ranging from 9% to
12.5% of the aggregate mortgage loan principal balance, to date). In the 1996
securitization transaction, FFCA also purchased the interest-only certificate.
The aggregate investment securities, totaling $74.4 million and $55.2 million at
December 31, 1998 and 1997, respectively, were recorded by allocating the
previous carrying amount of the mortgages between the assets sold and the
retained interests, based on their relative fair values and are included in
"Real Estate Investment Securities" in the accompanying consolidated balance
sheets. FFCA's investment securities are classified as held to maturity
securities, except for its interest-only certificate (carrying amount
approximately $17 million and $21 million at December 31, 1998 and 1997,
respectively) which is classified as available-for-sale. At December 31, 1998,
the estimated fair market value of FFCA's investments approximated the carrying
amount and the weighted average remaining term was approximately 18 years.
In 1998, FFCA entered into a $600 million loan sale facility with a
third party. This facility permits FFCA to sell loans on a regular basis to a
trust for an agreed upon advance rate. Upon the sale of such loans, FFCA acts as
servicer for the loans. As of December 31, 1998, FFCA sold 460 loans with an
outstanding aggregate principal balance of $264 million to the trust and
received cash proceeds of $225 million plus trust certificates representing the
remaining 15% of the loan sale price. The retained subordinated investment
securities, totaling $39.3 million, were accounted for as the sale of mortgage
loans and the purchase of trust certificates and are included in "Real Estate
Investment Securities" in the accompanying consolidated balance sheets. These
trust certificates are classified as trading securities and their estimated fair
market value approximates their carrying amount at December 31, 1998.
(7) NOTES PAYABLE:
A summary of FFCA's unsecured notes payable follows (amounts in
thousands):
1998 1997
---- ----
7% Senior Notes due 2000, net of unamortized
discount of $465 in 1998 and $709 in 1997 $149,535 $149,291
8.25% Senior Notes due 2003, net of unamortized
discount of $146 and related costs of $6,800 143,054 --
7.875% Senior Notes due 2005, net of unamortized
discount of $71 in 1998 and $81 in 1997 49,929 49,919
6.78% Notes due 2002 30,000 30,000
7.02% Notes due 2003 30,000 30,000
7.1% Notes due 2026, callable by holder in 2004 40,000 40,000
6.95% Notes due 2007 10,150 10,150
6.86% Notes due 2007 17,000 --
7.07% Notes due 2008 30,500 --
-------- --------
$500,168 $309,360
======== ========
F-10
<PAGE>
Interest on the notes is payable semi-annually in arrears with
principal due at maturity. The aggregate weighted average interest rate on the
notes was 7.26% in 1998 and 7.05% in 1997. With the exception of the $40 million
notes due 2026, the notes may not be redeemed prior to their respective
maturities. The note agreements contain certain covenants which, among other
restrictions, limit the incurrence of additional debt if FFCA's debt exceeds 60%
of total assets (as defined in the note agreements), or if FFCA's debt service
coverage is less than 1.5 to 1. As of December 31, 1998, FFCA was in compliance
with its note covenants.
Amortization of debt issuance costs for the years ended December 31,
1998, 1997 and 1996 amounted to $1.4 million, $1.3 million and $994,000,
respectively, which is included in "Interest Expense" in the accompanying
financial statements.
In 1998, FFCA entered into an interest rate agreement with a notional
amount of $100 million to hedge exposure to fluctuations in interest rates on
anticipated debt. FFCA terminated this interest rate agreement upon the issuance
of its senior unsecured notes in October 1998, at which time FFCA deferred (and
amortizes into interest expense) the payment of approximately $7 million it made
in settlement of this interest rate agreement.
(8) BORROWINGS UNDER LINE OF CREDIT:
The following is a summary of borrowings under FFCA's line of credit
(amounts in thousands):
1998 1997
---- ----
Borrowings at LIBOR Bid Rate, weighted average
interest rate of 6.37% and 6.69% at December 31,
1998 and 1997, respectively $ 47,000 $ 56,000
Borrowings at 30-day LIBOR plus 1%, weighted
average interest rate of 6.59% and 6.96% at
December 31, 1998 and 1997, respectively 35,000 210,000
Borrowings at Base Rate, 7.75% and 8.50% at
December 31, 1998 and 1997, respectively,
subsequently converted to LIBOR loans 106,000 36,000
-------- --------
$188,000 $302,000
======== ========
At December 31, 1998, FFCA had outstanding $188 million on a $350
million revolving loan facility with participating banks used to provide funds
for the acquisition or financing of chain store properties. Interest on this
unsecured loan facility is due in periodic installments with a weighted average
rate of 6.57% in 1998 and 6.63% in 1997. FFCA has the option under this loan
facility to borrow at rates that are competitively bid among the participating
banks. The loan facility provides for a fee on the unused commitment amount of
.20% per annum, payable quarterly in arrears. The revolving loan facility
expires in December 2000, with the possibility of annual extensions. The credit
agreement contains covenants, which, among other restrictions, require FFCA to
maintain a fixed charge coverage ratio of 2 to 1 and a debt to adjusted net
worth ratio of no more than .9 to 1, as defined. As of December 31, 1998, FFCA
was in compliance with its debt covenants.
Amortization of loan fees related to the facility for the years ended
December 31, 1998, 1997 and 1996 amounted to approximately $880,000, $1.2
million and $1.4 million, respectively, which is included in "Interest Expense"
in the accompanying consolidated financial statements.
(9) STOCK-BASED COMPENSATION PLANS:
On May 10, 1995, FFCA shareholders approved a stock option and
incentive plan which permits the issuance of options, restricted stock and other
stock-based awards to key employees, the Board of Directors and certain
independent contractors of FFCA. This plan reserves 3,018,804 shares of common
stock for grant and provides that the term of each award be determined by the
compensation committee of the Board of Directors. In 1998, FFCA issued 29,886
shares of restricted stock, which awards are conditioned upon years of service
requirements, and recognized compensation expense totaling approximately
$150,000. Stock options granted under the plan may be either non-qualified or
incentive stock options and the exercise price, determined by the committee,
F-11
<PAGE>
may not be less than the fair market value of a share of common stock on the
grant date. Options granted to FFCA's non-employee directors are immediately
exercisable, while the remaining options vest over a three-year period from the
date of grant. The options expire ten years after the date of grant.
FFCA measures the compensation cost of its stock option grants and
restricted stock awards using the intrinsic value based method of accounting
prescribed in APB Opinion 25, "Accounting for Stock Issued to Employees".
Accordingly, no compensation cost has been recognized for stock options issued
under the plan. Had FFCA's compensation cost been determined using the fair
value based method of accounting prescribed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", FFCA's net income
and earnings per share would have been changed to the following pro forma
amounts (in thousands, except per share data):
1998 1997 1996
---- ---- ----
Net income:
As reported $95,717 $72,897 $68,539
Pro forma $94,950 $70,718 $67,605
Earnings per share of common stock:
As reported:
Basic $ 2.01 $ 1.78 $ 1.70
Assuming dilution $ 2.00 $ 1.76 $ 1.69
Pro forma:
Basic $ 2.00 $ 1.73 $ 1.67
Assuming dilution $ 1.98 $ 1.71 $ 1.67
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of 6.5%, 6.4% and 8.2%; expected stock price volatility of 18.53%, 18.47% and
20.13%; risk-free interest rates of 5.57%, 5.65% and 5.59%; and an expected
option term of seven years.
A summary of the status of FFCA's stock option and incentive plan as of
December 31, 1998, 1997 and 1996, and changes during the years then ended, is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 2,425,245 $22.14 1,705,181 $20.23 1,227,989 $19.50
Granted 258,003 $27.58 774,730 $26.32 526,091 $21.87
Exercised (102,435) $19.50 (32,166) $19.62 (48,899) $19.63
Cancellations -- -- (22,500) $24.38 -- --
--------- --------- ---------
Outstanding, end of year 2,580,813 $22.79 2,425,245 $22.14 1,705,181 $20.23
========= ========= =========
Options exercisable, end of year 1,691,130 $21.17 956,071 $20.07 400,181 $19.64
Weighted average fair value of
each option granted during year $ 2.91 $ 2.88 $ 2.05
</TABLE>
As of December 31, 1998, options outstanding under the plan had
exercise prices ranging from $19.50 to $27.625 with a weighted average price of
$22.79, and expiration dates ranging from May 2005 to May 2008 with a weighted
average remaining term of approximately seven years.
The FFCA 401K Plan was established as a savings plan for FFCA's
employees who have been employed by FFCA for a minimum of six months. This plan
allows employees to make their own contributions through payroll deductions.
FFCA matches participating employees' contributions up to six percent of the
participating employees' salaries. Employer matching contributions are made in
FFCA stock, which is purchased on the open market, and are subject to
years-of-service vesting requirements. Employer contributions totaled $277,000
in 1998, $256,000 in 1997 and $213,000 in 1996.
F-12
<PAGE>
In 1997, FFCA established an employee stock purchase plan. Under this
plan, employees can purchase stock through payroll deductions at a price equal
to 85% of the fair market value of the stock, as defined in the agreement.
Employee purchases are limited to 10% of their salary each year and were not
significant in 1998 or 1997.
(10) DERIVATIVE FINANCIAL INSTRUMENTS:
At December 31, 1998, FFCA had interest rate swap contracts outstanding
with a notional amount aggregating $28 million. Under the interest rate swap
contracts, two parties agree to swap payments over a specified period where one
party agrees to make payments at a specified fixed rate and the other party to
the contract agrees to make payments based on a floating rate. The notional
amount serves solely as a basis for the calculation of payments to be exchanged
and is not a measure of the exposure of FFCA through its use of derivatives.
FFCA intends to terminate these contracts upon securitization of the fixed-rate
mortgage loans in 1999, 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 fixed rate set at the beginning of the interest rate swap
contract and the then-current market fixed rate at the time of termination.
Based on the level of interest rates prevailing, FFCA would have paid
approximately $250,000 if it had terminated these swap contracts at December 31,
1998. Under the contracts, no cash payments would be required until the earlier
of the securitization transaction or July 1999.
(11) DIVIDENDS AND CAPITAL STOCK:
FFCA declared a fourth quarter 1998 dividend of $0.49 per share,
payable on February 19, 1999, to shareholders of record on February 10, 1999.
The dividend payments made by FFCA to its shareholders for 1998 are
characterized as ordinary income of $1.88 per share. Dividend payments made by
FFCA to its shareholders for 1997 are characterized as ordinary income of $1.68
per share and capital gain of $0.12 per share. Dividend payments made by FFCA to
its shareholders for 1996 are characterized as ordinary income of $1.58 per
share and capital gain of $0.22 per share.
At December 31, 1998, a warrant to purchase 1,476,908 shares of FFCA
common stock was outstanding. The warrant is immediately exercisable as to all
1,476,908 shares and expires on March 13, 2005 except, under certain
circumstances (as described in the warrant agreement), the warrant expires as to
738,454 shares on September 13, 2001 and the remaining 738,454 shares on March
13, 2005.
(12) RELATED PARTY TRANSACTIONS:
INVESTMENT IN AFFILIATE - FFCA Mortgage Corporation (Mortgage Corp.)
was formed in 1996 to originate mortgage loans to be held for future
securitization transactions. FFCA, as owner of all of the issued and outstanding
nonvoting preferred stock of Mortgage Corp., was entitled to receive 95% of all
dividends paid by Mortgage Corp. prior to the dissolution of Mortgage Corp. on
December 31, 1997. At dissolution, cash dividends were paid to the common
stockholder and the remaining assets were distributed to FFCA in satisfaction of
its note receivable from Mortgage Corp. FFCA recorded 95% of Mortgage Corp.'s
net income (loss) for 1997 and 1996 as "Equity in Net Income (Loss) of
Affiliate" in the accompanying financial statements.
Investments in companies in which FFCA has significant influence but
less than a controlling voting interest are accounted for using the equity
method. Under the equity method, only FFCA's investment in and amounts due from
the equity investee are included in the consolidated balance sheet, only FFCA's
share of the investee's earnings is included in the consolidated operating
results, and only the cash investment, loans or other cash paid to the investee,
less any dividends, cash distributions, loan repayments or other cash received
from the investee, are included in the consolidated cash flows.
Prior to Mortgage Corp.'s dissolution, FFCA provided funding to
Mortgage Corp. for the origination of mortgage loans. Under revolving loan
agreements with Mortgage Corp., FFCA was entitled to receive a draw fee of 1%
and interest at a rate equal to LIBOR or a Base rate (as defined in the
agreement), plus a margin ranging from 2.5% to 3%. FFCA also provided temporary
working capital advances to Mortgage Corp. bearing an interest rate of LIBOR
plus 3%.
F-13
<PAGE>
A summary of selected financial information as reported by Mortgage
Corp. as of, and for the years ended December 31, 1997 and 1996, is set forth
below (amounts in thousands):
1997 1996
---- ----
Revenues $9,632 $ 2,336
Interest expense 9,037 2,861
Net income (loss) 1,809 (1,470)
Mortgage loans held for sale -- 140,967
Total assets -- 156,928
Notes payable to FFCA -- 147,616
Total liabilities -- 148,398
Total shareholders' equity -- 8,530
MORTGAGE PAYABLE TO AFFILIATE - In 1988, a partnership managed by an
affiliate of FFCA provided financing for land purchased by FFCA from the
partnership and for the construction of the corporate headquarters of FFCA
(together, the FFCA Premises). The mortgage loan on the FFCA Premises provides
for payments of interest only, at the rate of 10% per year, until May 2000, at
which time the entire principal amount is due. The loan also provides for the
payment of additional interest upon maturity based upon the increase, if any, in
the value of the FFCA Premises, as defined in the loan agreement. Under certain
circumstances, FFCA may be required to prepay the loan. The loan is secured by
land and land improvements, the FFCA Premises and the guaranty of an affiliate.
The FFCA Premises, including equipment, amounted to $11.8 million in 1998 and
$10.5 million in 1997 (net of accumulated depreciation of $4.1 million in 1998
and $3.2 million in 1997) and is included in "Other Assets" in the accompanying
financial statements.
ADMINISTRATIVE SERVICES AGREEMENTS WITH AFFILIATES - FFCA provides
certain accounting, computer, investor and other administrative services to its
affiliates under service agreements which provide for a monthly fee based upon
the amount of services used by each affiliate. Fees for such services aggregated
approximately $590,000 in 1998, $1.4 million in 1997 and $1.6 million in 1996.
(13) FINANCIAL INSTRUMENTS:
The carrying value of FFCA's financial instruments approximates fair
value, except for differences with respect to mortgage loans receivable, real
estate investment securities and long-term, fixed-rate debt (Notes Payable and
Mortgage Payable to Affiliate). The fair value of a financial instrument is
generally determined by reference to its quoted market price or, if quoted
market prices are not available, to the market price of a financial instrument
with similar characteristics.
The fair value of FFCA's mortgage loans is estimated by discounting the
future cash flows using the current interest rates for similar loans with
similar maturities at December 31, 1998. The estimated fair values of the
mortgage loans held for long-term investment and the mortgage loans held for
sale exceeded their carrying amounts by $1 million and $6.9 million,
respectively. Based on market prices of similar investments at December 31,
1998, the carrying amount of FFCA's real estate investment securities exceeded
its fair value by $600,000. The carrying amount of FFCA's long-term, fixed-rate
debt exceeded its fair value by $9.9 million based on the level of interest
rates prevailing at December 31, 1998.
The fair value of FFCA's interest rate swap contracts is based on the
theoretical cost to unwind or terminate the swap transactions. FFCA would have
paid approximately $250,000 if it had terminated its interest rate swap
contracts at December 31, 1998.
The combined fair value differences of these financial instruments, is
equivalent to an unrealized gain of $17 million; however, changes in the
unrealized gains or losses on mortgage loans, the real estate investment
securities, fixed-rate debt and the interest rate swap contracts do not result
in the realization or expenditure of cash unless the investments are actually
sold or the debt is retired.
F-14
<PAGE>
(14) ADDITIONAL FINANCIAL INFORMATION:
Additional information with respect to cash flows follows (amounts in
thousands):
1998 1997 1996
---- ---- ----
Investment in securities resulting from
securitization $61,162 $11,303 $30,763
Mortgage loans obtained as part of property
sale proceeds, net of deferred gain 1,447 997 825
Acquisition of property and equipment
through foreclosure -- -- 1,245
Mortgage loans received from affiliate -- 46,910 --
Interest paid, net of amounts capitalized 38,980 32,296 23,692
Income taxes paid 98 119 27
Cash flows from derivative financial instruments that are accounted for
as hedges of identifiable transactions or events, including anticipatory hedges,
are classified in the same category as the cash flows from the items being
hedged.
(15) COMMITMENTS:
In the normal course of business, FFCA makes commitments to extend
credit to meet the financing needs of its clients in the chain restaurant,
convenience store and automotive service and parts industries. FFCA evaluates
each client's credit and, based on management's evaluation of the client and the
proposed property site, determines the amount of credit to be extended and
collateral obtained. The commitments generally have fixed expiration dates or
other termination clauses and require payment of a fee by the client. At
December 31, 1998, FFCA's outstanding commitments to extend credit aggregated
approximately $625 million.
(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Quarter Ended
----------------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(amounts in thousands, except per share data)
1998
Revenues $39,390 $40,366 $42,983 $46,829
Net income 18,574 28,384 23,837 24,922
Net income per share,
assuming dilution 0.42 0.58 0.48 0.51
Dividends per share $ 0.47 $ 0.47 $ 0.47 $ 0.49
Weighted average shares 44,060 49,026 49,236 49,276
1997
Revenues $32,775 $34,648 $32,861 $34,704
Net income 18,215 21,570 16,457 16,655
Net income per share,
assuming dilution 0.44 0.53 0.40 0.40
Dividends per share $ 0.45 $ 0.45 $ 0.45 $ 0.47
Weighted average shares 40,977 40,973 41,247 42,121
F-15
<PAGE>
SCHEDULE III
Page 1 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Initial Cost to Company and
Gross Amount At December 31, 1998 Accumulated Depreciation
----------------------------------------- --------------------------------
No. of
U.S. Region Properties Land Buildings Equipment Total Buildings Equipment Total
- ----------- ---------- ---- --------- --------- ----- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E.N. Central 286 $ 69,304 $129,441 $ 4,404 $ 203,149 $ 28,425 $ 4,385 $ 32,810
Mideast 260 76,365 114,548 755 191,668 17,484 755 18,239
Mountain 203 51,255 96,493 1,545 149,293 10,787 1,545 12,332
Northeast 119 29,500 44,738 671 74,909 8,488 671 9,159
Pacific 143 44,679 41,879 285 86,843 12,683 285 12,968
Southeast 505 130,069 185,265 3,477 318,811 47,702 3,477 51,179
Southwest 263 66,364 99,240 4,638 170,242 25,158 4,638 29,796
W.N. Central 154 28,750 47,840 3,095 79,685 16,072 3,025 19,097
----- -------- -------- ------- ---------- -------- ------- --------
TOTAL 1,933 $496,286 $759,444 $18,870 $1,274,600 $166,799 $18,781 $185,580
===== ======== ======== ======= ========== ======== ======= ========
</TABLE>
F-16
<PAGE>
SCHEDULE III
Page 2 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(Amounts in thousands)
NOTES:
(1) The properties consist of restaurants, convenience stores and automotive
service and parts properties.
(2) There are no encumbrances on properties.
(3) The aggregate cost for Federal income tax purposes is approximately $1.3
billion.
(4) Depreciation is computed over the estimated useful life of 24 to 30 years
for the buildings and improvements and 7 to 8 years for the equipment.
(5) Transactions in real estate and equipment and accumulated depreciation
during 1998, 1997, and 1996 are summarized as follows:
Accumulated
Cost Depreciation
---- ------------
Balance, December 31, 1995 $ 794,580 $ 176,232
Acquisitions 128,713 --
Cost of real estate sold (42,447) (12,705)
Cost of equipment sold (10,591) (10,122)
Foreclosed property 1,245 --
Impairment loss (3,285) --
Depreciation expense -- 19,536
----------- ---------
Balance, December 31, 1996 868,215 172,941
Acquisitions 140,218 --
Cost of real estate sold (31,321) (9,531)
Cost of equipment sold (8,059) (8,016)
Construction in progress transferred to
mortgage loans held for sale (15,819) --
Impairment loss (1,929) --
Depreciation expense -- 19,869
----------- ---------
Balance, December 31, 1997 951,305 175,263
Acquisitions 367,509 --
Cost of real estate sold (36,030) (8,877)
Cost of equipment sold (4,169) (4,156)
Impairment loss (4,015) --
Depreciation expense -- 23,350
----------- ---------
Balance, December 31, 1998 $ 1,274,600 $ 185,580
=========== =========
F-17
<PAGE>
SCHEDULE IV
Page 1 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1998
(Dollar amounts in thousands)
No. of
Financed Interest
U.S. Region Original Loan Amount Properties Rate Range
- ----------- -------------------- ---------- ----------
Southeast under $500 27 10.0% - 13.5%
$501-$1,000 2 10.0% - 10.5%
over $1,000 1 11.4%
Mideast under $500 5 11.0% - 12.5%
$501-$1,000 1 10.5%
over $1,000 1 10.0%
Northeast under $500 23 11.25% - 11.5%
over $1,000 3 11.5%
E.N. Central under $500 5 11.0% - 12.5%
$501-$1,000 9 11.25%
W.N. Central under $500 17 11.0% - 13.5%
$501-$1,000 1 10.5%
Southwest under $500 18 10.25% - 12.5%
$501-$1,000 8 9.05%
over $1,000 1 9.05%
Mountain under $500 11 10.25% - 11.3%
$501-$1,000 6 9.05% - 11.5%
Pacific under $500 2 10.25% - 11.0%
$501-$1,000 1 11.5%
Principal Amount
Face Carrying of Loans Subject to
Maturity Date Amount of Amount of Delinquent Principal
U.S. Region Range Mortgages Mortgages or Interest
- ----------- ------------- --------- --------- -----------
Southeast Jul. 2000 - Jan. 2005 $ 4,146 $ 2,366 $ 419
Jul. 2002 - Jul. 2014 1,291 810 --
Jul. 2000 15,525 10,425 --
------- ------- ------
20,962 13,601 419
------- ------- ------
Mideast Aug. 1999 - Feb. 2003 1,112 608 --
Nov. 2011 750 381 --
Jun. 1999 1,290 630 --
------- ------- ------
3,152 1,619 --
------- ------- ------
Northeast Apr. 2003 - Apr. 2004 4,392 2,483 2,314
Sep. 2003 - Nov. 2015 4,126 2,698 2,698
------- ------- ------
8,518 5,181 5,012
------- ------- ------
E.N. Central Sep. 1999 - Dec. 2004 1,345 500 --
May 2002 - May 2015 6,596 4,998 --
------- ------- ------
7,941 5,498 --
------- ------- ------
W.N. Central Sep. 2001 - May. 2010 1,555 427 --
Jan. 2009 778 641 --
------- ------- ------
2,333 1,068 --
------- ------- ------
Southwest Jun. 1999 - Jun. 2016 4,189 3,010 38
Jan. 2000 - Jul. 2005 6,310 6,279 --
Jan. 2000 1,060 1,060 --
------- ------- ------
11,559 10,349 38
------- ------- ------
Mountain Feb. 2000 - Aug. 2005 3,487 2,247 --
Jul. 1999 - Dec. 2002 3,749 2,993 --
------- ------- ------
7,236 5,240 --
------- ------- ------
Pacific Jan. 2004 - May 2005 439 402 --
Sept. 2002 549 385 --
------- ------- ------
988 787 --
------- ------- ------
TOTAL $62,689 $43,343 $5,469
======= ======= ======
F-18
<PAGE>
SCHEDULE IV
Page 2 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1998
(Amounts in thousands)
NOTES:
(1) Generally, loans are first mortgages on the land, buildings and/or
equipment of restaurants, convenience stores and automotive service and
parts properties.
(2) Principal and interest are payable at level amounts to maturity.
(3) For mortgages where the land is under a ground lease, there are generally
no provisions for prepayment of the mortgage loans in whole or in part,
except upon sale of the related property.
(4) There are no prior liens.
(5) The aggregate cost for Federal income tax purposes is approximately $48
million.
(6) Transactions in mortgage loans on real estate during 1998, 1997 and 1996
are summarized as follows:
Balance, December 31, 1995 $ 199,486
Additions during period:
New mortgage loans 50,592
Recognition of deferred gain, net of additional
deferred gains in 1996 5,145
Net loan fees recognized 1,490
Deductions during period:
Collections of principal (4,867)
Mortgage loan payoffs (190,769)
Reserve for mortgage loan losses (1,400)
Foreclosures (1,869)
---------
Balance, December 31, 1996 57,808
Additions during period:
New mortgage loans 6,760
Deferred gain, net of gain recognized (192)
Unamortized loan fees, net of amortization (496)
Deductions during period:
Collections of principal (3,217)
Mortgage loan payoffs (24,265)
Reserve for mortgage loan losses (1,214)
---------
Balance, December 31, 1997 35,184
Additions during period:
New mortgage loans 22,948
Recognition of deferred gain, net of additional
deferred gains in 1998 750
Net loan fees recognized 496
Deductions during period:
Collections of principal (1,741)
Mortgage loan payoffs (13,176)
Reserve for mortgage loan losses (1,118)
---------
Balance, December 31, 1998 $ 43,343
=========
F-19
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
EXHIBIT INDEX
The following is a complete list of exhibits filed as part of this Form 10-K.
For electronic filing purposes only, this report contains Exhibit 27, the
Financial Data Schedule. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.01 Second Amended and Restated Certificate of Incorporation of Franchise
Finance Corporation of America (1)
3.02 Second Amended and Restated Bylaws of Franchise Finance Corporation of
America (2)
4.01 Indenture dated as of November 21, 1995 (3)
4.02 Specimen of Common Stock Certificate (4)
4.03 Officers' Certificate relating to the 7% Senior Notes Due 2000 and the
7-1/8% Senior Notes Due 2005 of Franchise Finance Corporation of
America(5)
4.04 Officers' Certificate relating to the Medium-Term Notes due Nine Months
or More from Date of Issue of Franchise Finance Corporation of
America(6)
4.05 Form of Medium-Term Fixed Rate Note and Floating Rate Note of Franchise
Finance Corporation of America(7)
4.06 Officers' Certificate relating to the 8.25% Senior Notes Due 2003 of
Franchise Finance Corporation of America(8)
10.01 Acquisition, Construction and Term Loan Agreement, dated as of December
29, 1988, by and between Franchise Finance Corporation of America and
Scottsdale Land Trust Limited Partnership (4)
10.02 Promissory Note dated December 29, 1988, executed by Franchise Finance
Corporation of America in favor of Scottsdale Land Trust Limited
Partnership in the principal amount of $8,500,000 (4)
10.03 1995 Stock Option and Incentive Plan of Franchise Finance Corporation of
America (9)
10.04 Stock Purchase Agreement between Franchise Finance Corporation of
America and Colony Investors III, L.P. dated February 13, 1998 (10)
21.01 Subsidiaries of the Registrant*
23.01 Consent of Arthur Andersen LLP*
99.01 Second Amended and Restated Credit Agreement dated December 29, 1997
among Franchise Finance Corporation of America, Certain Lenders and
NationsBank of Texas, N.A. (11)
99.02 First Amendment to the Second Amended and Restated Credit Agreement
among Franchise Finance Corporation of America, Certain Lenders and
NationsBank N.A., dated as of June 30, 1998.*
<PAGE>
99.03 Sale and Servicing Agreement dated as of August 14, 1998, among FFCA
Franchise Loan Owner Trust 1998-1, FFCA Loan Warehouse Corporation, FFCA
Acquisition Corporation, Franchise Finance Corporation of America and
LaSalle National Bank. (12)
99.04 Loan Purchase Agreement dated as of August 14, 1998, between FFCA Loan
Warehouse Corporation and FFCA Acquisition Corporation. (12)
99.05 Indenture dated as of August 14, 1998, between FFCA Franchise Loan Owner
Trust 1998-1 and LaSalle National Bank. (12)
99.06 Indenture Supplement dated as of August 14, 1998, between FFCA Franchise
Loan Owner Trust 1998-1 and LaSalle National Bank. (12)
99.07 Note Purchase Agreement dated as of August 14, 1998, among FFCA
Franchise Loan Owner Trust 1998-1, FFCA Acquisition Corporation, FFCA
Loan Warehouse Corporation, and Morgan Stanley Securitization Funding
Inc. (12)
99.08 Credit Agreement dated as of February 11, 1999, among Franchise Finance
Corporation of America, Certain Lenders and NationsBank N.A.*
- ----------
* Filed herewith.
(1) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997, as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1998, as filed with the
Securities and Exchange Commission.
(3) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated November 24, 1995, as filed with the Securities and Exchange
Commission.
(4) Incorporated by reference from the Registrant's Registration Statement
on Form S-4 and amendments thereto (Registration Number 33-65302), as
filed with the Securities and Exchange Commission.
(5) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated November 24, 1995, as filed with the Securities and Exchange
Commission.
(6) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated February 14, 1996, as filed with the Securities and Exchange
Commission.
(7) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated April 16, 1998, as filed with the Securities and Exchange
Commission.
(8) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated October 27, 1998, as filed with the Securities and Exchange
Commission.
(9) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, as filed with the
Securities and Exchange Commission.
(10) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, as filed with the
Securities and Exchange Commission.
(11) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated December 29, 1997, as filed with the Securities and Exchange
Commission.
(12) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated August 14, 1998, as filed with the Securities and Exchange
Commission.
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
STATE OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
FFCA Acquisition Corporation Delaware
FFCA Institutional Advisors, Inc. Delaware
FFCA Secured Assets Corporation Delaware
FFCA Residual Interest Corporation Delaware
FFCA Secured Lending Corporation Delaware
FFCA Capital Holding Corporation Delaware
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into Franchise Finance Corporation of
America's previously filed Registration Statement No. 33-627-69, 333-001-23 and
333-26437.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
March 18, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,881
<SECURITIES> 0
<RECEIVABLES> 10,211
<ALLOWANCES> 720
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,274,600
<DEPRECIATION> 185,580
<TOTAL-ASSETS> 1,460,429
<CURRENT-LIABILITIES> 0
<BONDS> 696,668
0
0
<COMMON> 491
<OTHER-SE> 715,943
<TOTAL-LIABILITY-AND-EQUITY> 1,460,429
<SALES> 0
<TOTAL-REVENUES> 169,568
<CGS> 0
<TOTAL-COSTS> 1,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,846
<INCOME-PRETAX> 95,717
<INCOME-TAX> 0
<INCOME-CONTINUING> 95,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,717
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 2.00
</TABLE>
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:
"`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."
<PAGE>
(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:
"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
2
<PAGE>
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 if 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;
(c) the representations and warranties set forth in Section 2
of this First Amendment shall be true and correct; and
4
<PAGE>
(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 (a)
acknowledges, consents and agrees to the execution, delivery and performance by
Company of this First Amendment, (b) 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, (c)
ratifies and confirms its obligations under its Guaranty Agreement and
Subordination Agreement, and (d) 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.
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.
5
<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
LENDERS:
NATIONSBANK, N.A., individually
and as Administrative Agent
By /s/ Frank M. Johnson
----------------------------------
Frank M. Johnson, Senior Vice
President
BANK OF MONTREAL, CHICAGO
BRANCH, individually and as Co-Agent
By /s/ Catherine Sahagian Mousseau
----------------------------------
Catherine Sahagian Mousseau, Director
COMMERZBANK AKTIENGESELLSCHAFT, LOS
ANGELES BRANCH, individually and as
Co-Agent
By /s/ Steven F. Larsen
----------------------------------
Steven F. Larsen, Vice President
By /s/ Werner Schmidbauer
----------------------------------
Werner Schmidbauer, Vice President
6
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., individually and as Co-Agent
By /s/ Noboru Akahane
----------------------------------
Noboru Akahane, Deputy General
Manager
By /s/ Bryan Read
----------------------------------
Bryan Read, Vice President
UBS AG (NEW YORK BRANCH),
individually and as Co-Agent
By /s/ Jeffrey W. Wald
----------------------------------
Jeffrey W. Wald, Director
By /s/ David M. Goldman
----------------------------------
David M. Goldman, Assistant Vice
President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND," NEW YORK BRANCH
By /s/ W. Jeffrey Vollack
----------------------------------
W. Jeffrey Vollack, Senior Credit
Officer and Senior Vice President
By /s/ M. Christina Debler
----------------------------------
M. Christina Debler, Vice President
AMSOUTH BANK (f/k/a AMSOUTH BANK
OF ALABAMA)
By /s/ Steven R. Chester
----------------------------------
Steven R. Chester, Assistant
Vice-President
7
<PAGE>
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN BRANCH
By /s/ John W. Sweeney
----------------------------------
John W. Sweeney, Assistant Vice
President
By /s/ Beverly G. Carson
----------------------------------
Beverly G. Carson, Vice President
BANK HAPOALIM, B.M., SAN FRANCISCO
BRANCH
By /s/ Dan Jozefov
----------------------------------
Dan Jozefov, Vice President
By /s/ John Rice
----------------------------------
John Rice, Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Takeshi Kubo
----------------------------------
Takeshi Kubo, Vice President
FIRST UNION NATIONAL BANK
By /s/ John A. Schissel
----------------------------------
John A. Schissel, Director
8
<PAGE>
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION
By /s/ Jaclyn Noel
----------------------------------
Jaclyn Noel, Vice President
ACKNOWLEDGED:
FFCA ACQUISITION CORPORATION
By John R. Barravecchia
-------------------------------------------
John R. Barravecchia, Executive Vice President
and Chief Financial Officer
FFCA INSTITUTIONAL ADVISORS, INC.
By John R. Barravecchia
-------------------------------------------
John R. Barravecchia, Executive Vice President
and Chief Financial Officer
9
<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:
<TABLE>
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
<S> <C> <C> <C>
(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, 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 purchase price is paid
for in Capital Stock of Borrower or such
Subsidiary
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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 Notes and
which is subject to a Subordination Agreement $___________
(iii) Total Indebtedness [(i) - (ii)] $___________
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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
[(iii)/(iv)] _____ to 1
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 $___________
(vii) [(iv) + (v) + (vi)] $___________
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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
(i) Total Assets as of the first day of preceding
four consecutive fiscal quarters divided by four $___________
(ii) 25% times 8(a)(i) above $___________
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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____________________________________
C-5
================================================================================
CREDIT AGREEMENT
Dated as of February 11, 1999
AMONG
FRANCHISE FINANCE CORPORATION OF AMERICA,
CERTAIN LENDERS
and
NATIONSBANK, N.A.
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS
1.1 DEFINITIONS.......................................................... 1
1.2 ACCOUNTING AND OTHER TERMS........................................... 23
ARTICLE II. AMOUNTS AND TERMS OF ADVANCES
2.1 ADVANCES UNDER THE LOAN.............................................. 23
2.2 MAKING ADVANCES...................................................... 24
2.3 EVIDENCE OF INDEBTEDNESS............................................. 26
2.4 REDUCTION OF COMMITMENT.............................................. 26
2.5 PREPAYMENTS.......................................................... 27
2.6 REPAYMENT............................................................ 28
2.7 INTEREST............................................................. 28
2.8 DEFAULT INTEREST..................................................... 29
2.9 CONTINUATION AND CONVERSION ELECTIONS................................ 29
2.10 FEES................................................................. 30
2.11 FUNDING LOSSES....................................................... 31
2.12 COMPUTATIONS AND MANNER OF PAYMENTS.................................. 31
2.13 YIELD PROTECTION..................................................... 32
2.14 USE OF PROCEEDS...................................................... 35
2.15 EXTENSION OPTION AND CONVERSION OPTION RELATING TO THE LOAN.......... 35
2.16 COMMITMENT INCREASE.................................................. 36
ARTICLE III. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE.......................... 37
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES................................. 39
ARTICLE IV.REPRESENTATIONS AND WARRANTIES
4.1 ORGANIZATION AND QUALIFICATION....................................... 40
<PAGE>
4.2 DUE AUTHORIZATION; VALIDITY.......................................... 40
4.3 CONFLICTING AGREEMENTS AND OTHER MATTERS............................. 40
4.4 FINANCIAL STATEMENTS................................................. 41
4.5 LITIGATION........................................................... 41
4.6 COMPLIANCE WITH LAWS REGULATING THE INCURRENCE OF INDEBTEDNESS....... 41
4.7 AUTHORIZATIONS, TITLE TO PROPERTIES, AND RELATED MATTERS............. 42
4.8 OUTSTANDING DEBT AND LIENS........................................... 42
4.9 TAXES................................................................ 42
4.10 ERISA................................................................ 42
4.11 ENVIRONMENTAL LAWS................................................... 43
4.12 DISCLOSURE........................................................... 43
4.13 INVESTMENTS; SUBSIDIARIES............................................ 44
4.14 CERTAIN FEES......................................................... 44
4.15 INTELLECTUAL PROPERTY................................................ 44
4.16 INVESTMENT COMPANY ACT............................................... 44
4.17 RESTRICTED PAYMENTS.................................................. 44
4.18 STATUS AS A REAL ESTATE INVESTMENT TRUST............................. 44
4.19 COMMON ENTERPRISE.................................................... 44
4.20 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC....................... 45
4.21 YEAR 2000 COMPLIANCE.................................................. 45
ARTICLE V. AFFIRMATIVE COVENANTS
5.1 COMPLIANCE WITH LAWS AND PAYMENT OF DEBT.............................. 45
5.2 INSURANCE............................................................. 46
5.3 INSPECTION RIGHTS..................................................... 46
5.4 RECORDS AND BOOKS OF ACCOUNT; CHANGES IN GAAP......................... 46
5.5 REPORTING REQUIREMENTS................................................ 46
5.6 USE OF PROCEEDS....................................................... 48
5.7 MAINTENANCE OF EXISTENCE AND ASSETS................................... 48
5.8 PAYMENT OF TAXES...................................................... 49
5.9 INDEMNITY............................................................. 49
5.10 AUTHORIZATIONS AND MATERIAL AGREEMENTS................................ 50
5.11 INTERCOMPANY NOTES.................................................... 50
5.12 FURTHER ASSURANCES.................................................... 50
5.13 SUBSIDIARIES AND OTHER OBLIGORS....................................... 50
5.14 INTEREST HEDGE AGREEMENTS............................................. 50
5.15 YEAR 2000 COMPLIANCE.................................................. 51
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<PAGE>
ARTICLE VI. NEGATIVE COVENANTS
6.1 FINANCIAL COVENANTS................................................... 51
6.2 INDEBTEDNESS.......................................................... 51
6.3 CONTINGENT LIABILITIES................................................ 52
6.4 LIENS................................................................. 52
6.5 PROHIBITION OF FUNDAMENTAL CHANGES.................................... 52
6.6 DISPOSITIONS OF ASSETS................................................ 53
6.7 DISTRIBUTIONS AND RESTRICTED PAYMENTS................................. 53
6.8 BUSINESS.............................................................. 53
6.9 TRANSACTIONS WITH AFFILIATES.......................................... 53
6.10 LOANS AND INVESTMENTS................................................. 54
6.11 FISCAL YEAR AND ACCOUNTING METHOD..................................... 54
6.12 AMENDMENT OF CORPORATE DOCUMENTS...................................... 54
6.13 COMPLIANCE WITH ERISA................................................. 54
6.14 SUBSIDIARIES AND OTHER OBLIGORS....................................... 55
6.15 AMENDMENTS TO MATERIAL AGREEMENTS..................................... 55
6.16 PROHIBITED TRANSACTIONS............................................... 55
6.17 NO NEW SUBSIDIARIES................................................... 55
6.18 ASSET SECURITIZATION AFFILIATES....................................... 55
6.19 REPAYMENT OF ADVANCES UNDER THE AMENDED AND RESTATED
CREDIT AGREEMENT .................................................. 55
ARTICLE VII. EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT.................................................... 56
7.2 REMEDIES UPON DEFAULT................................................ 58
7.3 CUMULATIVE RIGHTS.................................................... 58
7.4 WAIVERS.............................................................. 59
7.5 PERFORMANCE BY ADMINISTRATIVE AGENT OR ANY LENDER.................... 59
7.6 EXPENDITURES......................................................... 59
7.7 CONTROL.............................................................. 59
ARTICLE VIII. ADMINISTRATIVE AGENT
8.1 AUTHORIZATION AND ACTION............................................. 59
8.2 ADMINISTRATIVE AGENT'S RELIANCE, ETC................................. 60
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<PAGE>
8.3 NATIONSBANK, N.A. AND AFFILIATES..................................... 60
8.4 LENDER CREDIT DECISION............................................... 61
8.5 INDEMNIFICATION BY LENDERS........................................... 61
8.6 SUCCESSOR ADMINISTRATIVE AGENT....................................... 61
ARTICLE IX. MISCELLANEOUS
9.1 AMENDMENTS AND WAIVERS............................................... 62
9.2 NOTICES.............................................................. 62
9.3 PARTIES IN INTEREST.................................................. 64
9.4 ASSIGNMENTS AND PARTICIPATIONS....................................... 65
9.5 SHARING OF PAYMENTS.................................................. 65
9.6 RIGHT OF SET-OFF..................................................... 66
9.7 COSTS, EXPENSES, AND TAXES........................................... 66
9.8 RATE PROVISION....................................................... 68
9.9 CONFIDENTIALITY...................................................... 69
9.10 SEVERABILITY......................................................... 70
9.11 EXCEPTIONS TO COVENANTS.............................................. 70
9.12 COUNTERPARTS......................................................... 70
9.13 GOVERNING LAW; WAIVER OF JURY TRIAL.................................. 70
9.14 ENTIRE AGREEMENT..................................................... 71
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<PAGE>
TABLE OF SCHEDULES AND EXHIBITS
SCHEDULES
Schedule 4.1 Organization and Qualification
Schedule 4.5 Litigation
Schedule 4.8 Debt, Contingent Liabilities and Liens of Company and each
Subsidiary Entity in Existence on the Closing Date
Schedule 4.11 Environmental Liabilities of Company and each Subsidiary on the
Closing Date
Schedule 4.13 Investments
EXHIBITS
Exhibit A - Note (Evidencing Loan)
Exhibit B - Guaranty Agreement
Exhibit C - Compliance Certificate
Exhibit D - Conversion/Continuation Notice
Exhibit E - Borrowing Notice
Exhibit F - Assignment and Acceptance
Exhibit G - Subordination Agreement
Exhibit H - Confidentiality Agreement
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<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "AGREEMENT") is dated as of February 11, 1999,
among FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation
("COMPANY"), Lenders from time to time party hereto or to an Assignment and
Acceptance, and NATIONSBANK, N.A., a national banking association, as
Administrative Agent (in such capacity, "ADMINISTRATIVE AGENT").
BACKGROUND
Lenders have been requested to provide Company funds to finance the ongoing
working capital and general corporate requirements of Company, including
acquisitions to the extent permitted hereunder. Lenders have agreed to provide
such financing, subject to the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms have the
respective meanings indicated below (such meanings to be applicable equally to
both the singular and plural forms of such terms):
"ACCUMULATED DEPRECIATION" means, as of any date of determination, the
accumulated depreciation and amortization of prepaid expenses of Company and its
Consolidated Subsidiaries determined in accordance with GAAP as of such date of
determination.
"ADJUSTED NET WORTH" means, as of any date of determination, for Company
and its Consolidated Subsidiaries determined in accordance with GAAP, the sum of
(a) Net Worth, plus (b) Accumulated Depreciation.
<PAGE>
"ADJUSTMENT DATE" means, for purposes of the determination of the
Applicable Margin and the Commitment Fee, the effective date of any issuance of,
or change in, the Index Debt Rating which results in a change in the Applicable
Margin and the Commitment Fee.
"ADMINISTRATIVE AGENT" means NationsBank, N.A., in its capacity as
Administrative Agent hereunder, or any successor Administrative Agent appointed
pursuant to SECTION 8.6 hereof.
"ADVANCE" means an advance made by a Lender to Company pursuant to SECTION
2.1 hereof.
"AFFILIATE" means a Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled By or is Under Common Control with
another Person.
"AGREEMENT" means this Credit Agreement, as hereafter amended, modified, or
supplemented from time to time.
"AMENDED AND RESTATED CREDIT AGREEMENT" means that certain Second Amended
and Restated Credit Agreement, dated as of December 29, 1997, among Company,
certain lenders and co-agents, and Administrative Agent, as amended, modified,
supplemented or restated from time to time.
"APPLICABLE LAW" means (a) in respect of any Person, all provisions of Laws
applicable to such Person, and 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 made or performed in the State of Texas,
"Applicable Law" shall also mean the laws of the United States of America,
including, without limiting the foregoing, 12 USC Sections 85 and 86, as amended
to the date hereof and as the same may be amended at any time and from time to
time hereafter, 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 agree that the provisions of Chapter 346 of the Texas
Finance Code, as amended, shall not apply to the Advances, this Agreement, the
Notes or any other Loan Papers.
"APPLICABLE MARGIN" means the following per annum percentages, applicable
in the following situations:
APPLICABILITY BASE RATE LIBOR
------------- --------- -----
CATEGORY 1 - There is no Index Debt Rating or the
Index Debt Rating is the following: below BBB- by S&P
or below Baa3 by Moody's 0.25 1.50
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<PAGE>
CATEGORY 2 - The Index Debt Rating is the following:
BBB- by S&P or Baa3 by Moody's 0.00 1.00
CATEGORY 3 - The Index Debt Rating is the following:
BBB by S&P or Baa2 by Moody's 0.00 0.95
CATEGORY 4 - The Index Debt Rating is the following:
BBB+ by S&P or Baa1 by Moody's 0.00 0.90
CATEGORY 5 - The Index Debt Rating is the following:
A- or better by S&P or A3 or better by Moody's 0.00 0.80
The Applicable Margin payable by Company on the Advances outstanding hereunder
shall be adjusted on each Adjustment Date according to the most recent
determination of the Index Debt Rating; PROVIDED, that if (i) there exists a
Default or (ii) Company does not have an Index Debt Rating, the Applicable
Margin shall be (A) 0.25% per annum with respect to Base Rate Advances and (B)
1.50% per annum with respect to LIBOR Advances. For purposes of the foregoing,
if the Index Debt Rating established by S&P or Moody's shall fall within a
different category, the Applicable Margin shall be determined by reference to
whichever Index Debt Rating shall fall within the inferior (or numerically
lower) category. If the rating system of Moody's or S&P shall change prior to
the Maturity Date, Company and Lenders shall negotiate in good faith to amend
the references to specific ratings in this definition to reflect such changed
rating system.
"ART. 1D" means Article 5069-1D, Title 79, Revised Civil Statutes of Texas,
1925, as amended.
"ART. 1H" means Article 5069-1H, Title 79, Revised Civil Statutes of Texas,
as amended.
"ASSET SALE" means any sale or other disposition, or series of sales or
other dispositions (including, without limitation, by merger or consolidation,
and whether by operation of law or otherwise), made on or after the Closing Date
by Company or any of its Subsidiaries to any Person (other than Company or any
of its Subsidiaries) of (a) all or substantially all of the outstanding Capital
Stock of any of its Subsidiaries, (b) all or substantially all of its assets or
the assets of any division of Company or any of its Subsidiaries or (c) any
other asset or assets of Company or any of its Subsidiaries, including the sale
of notes in connection with an Asset Securitization (but excluding any Retained
Securities in connection with such Asset Securitization); PROVIDED, HOWEVER,
that the following shall not be considered an Asset Sale hereunder: (i) the sale
or other disposition by Company or any of its Subsidiaries of worn out or
obsolete tools, property or equipment; (ii) the sale of debt or equity
investment securities in the ordinary course of business; and (iii) sales
resulting from the exercise by Tenants under Leases with respect to Property
owned by Company and its Subsidiaries as of the Closing Date of purchase options
granted by Company and its Subsidiaries to such Tenants.
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<PAGE>
"ASSET SALE PROCEEDS" means cash payments received by Company or any of
its Subsidiaries (including, without limitation, any cash payments received by
way of deferred payment of principal pursuant to a note or receivable or
otherwise, but only as and when received) from any Asset Sale (after repayment
of any Indebtedness due by reason of such Asset Sale or to effect the release of
any Lien on the property or assets being sold), in each case net of the amount
of (a) reasonable brokers', underwriters' and advisors' fees and commissions
payable in connection with such Asset Sale, (b) all Taxes reasonably estimated
to be payable as a direct consequence of such Asset Sale, (c) the reasonable
fees and expenses (including, without limitation, severance payments)
attributable to such Asset Sale, and (d) to the extent not included in clauses
(a) through (c), any amount required to be paid to any Person (other than
Company and any of its Subsidiaries) owning a beneficial interest in the
property or assets sold. For purposes of this definition, Asset Sale Proceeds
shall be deemed to include, without limitation, any award of compensation for
any asset or property or group thereof taken by condemnation or eminent domain
and insurance proceeds for the loss of or damage to any asset or property if
such award or proceeds equals or exceeds $50,000 (per occurrence) and within 90
days after the receipt thereof replacement or repair of such asset or property
has not commenced, except that in the event that at any time such replacement or
repair is abandoned or is otherwise discontinued or is not diligently pursued,
the remaining award or proceeds, as the case may be, shall constitute Asset Sale
Proceeds at such time.
"ASSET SECURITIZATION" means the sale, disposition, transfer or assignment
by Company or any of its Subsidiaries to a special purpose corporation, trust or
other entity, of notes evidencing obligations to repay secured or unsecured
loans owned by Company or any such Subsidiary, which notes are subsequently
sold, transferred or assigned to one or more Asset Securitization Affiliates,
and, as a result of such sale, transfer or assignment, bonds, certificates or
other evidences of ownership representing interests in pools of such loans are
issued, either simultaneously or subsequently.
"ASSET SECURITIZATION AFFILIATE" means an Affiliate of Company or any of
its Subsidiaries which owns no assets (other than initial capitalization of each
Affiliate not to exceed $100,000) and transacts no business other than as a
depositor, conduit or grantor in an Asset Securitization, including, without
limitation, any real estate mortgage investment conduit or special purpose
corporation, trust or other entity whose sole purpose is to effect an Asset
Securitization or a warehousing of loans in anticipation of an Asset
Securitization.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into
by a Lender and an Eligible Assignee, and accepted by Administrative Agent, in
the form of EXHIBIT F hereto, as each such agreement may be amended, modified,
extended, restated, renewed, substituted or replaced from time to time.
"AUDITOR" means Arthur Andersen LLP, or other independent certified public
accountants selected by Company and acceptable to Administrative Agent.
-4-
<PAGE>
"AUTHORIZATIONS" means all filings, recordings and registrations with, and
all validations or exemptions, consents and Licenses from, any Tribunal.
"AUTHORIZED OFFICER" means the chief executive officer, an executive vice
president or senior vice president of Company or any other executive officer of
Company authorized by Company from time to time of which Administrative Agent
has been notified in writing.
"BANK AFFILIATE" means the holding company of any Lender, or any
wholly-owned direct or indirect subsidiary of such holding company or of such
Lender.
"BASE RATE ADVANCE" means an Advance bearing interest at the Base Rate.
"BASE RATE" means a fluctuating rate per annum as shall be in effect from
time to time equal to the lesser of (a) the higher of (i) the sum of the
Applicable Margin plus the rate of interest as then in effect announced publicly
by NationsBank, N.A. in Dallas, Texas from time to time as its U.S. dollar prime
commercial lending rate (such rate may or may not be the lowest rate of interest
charged by NationsBank from time to time) or (ii) the sum of the Applicable
Margin, plus 0.50%, plus the Federal Funds Rate, and (b) the Highest Lawful
Rate. The Base Rate shall be adjusted automatically without notice as of the
opening of business on the effective date of each change in the prime rate or
Federal Funds Rate, as applicable, to account for such change.
"BORROWING" means a borrowing under the Facility of the same Type made on
the same day.
"BORROWING NOTICE" has the meaning set forth in SECTION 2.2(A) hereof.
"BUSINESS DAY" means a day on which commercial banks are open (a) for the
transaction of commercial banking business in Dallas, Texas and Phoenix, Arizona
and (b) with respect to any LIBOR Advance for the transaction of international
business (including dealings in Dollar deposits) in London, England.
"CAPITAL LEASES" means capital leases and subleases, as defined in
accordance with GAAP.
"CAPITAL STOCK" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
of any Person that is a corporation and each class of partnership interests
(including, without limitation, general, limited and preference units) in any
Person that is a partnership.
"CASH EQUIVALENTS" means investments (directly or through a money market
fund) in (a) certificates of deposit and other interest bearing deposits or
accounts with United States commercial banks having a combined capital and
surplus of at least $300,000,000, which certificates, deposits, and accounts
mature within one year from the date of investment and are fully insured as to
principal by the Federal Deposit Insurance Corporation or any successor agency,
(b) obligations issued or unconditionally guaranteed by the United States
government, or issued by
-5-
<PAGE>
an agency thereof and backed by the full faith and credit of the United States
government, which obligations mature within one year from the date of
investment, (c) direct obligations issued by any state or political subdivision
of the United States, which mature within one year from the date of investment
and have the highest rating obtainable from S&P or Moody's on the date of
investment, and (d) commercial paper which has one of the three highest ratings
obtainable from S&P or Moody's.
"CASH FLOW FROM OPERATIONS" means, for any period of determination, for
Company and its Consolidated Subsidiaries on a consolidated basis, net income
PLUS depreciation and amortization, all as determined in accordance with GAAP;
PROVIDED that there shall not be included in such calculation (a) any proceeds
of any insurance policy other than rental guaranty insurance or business
interruption insurance received by such Person, (b) any gain or loss which is
classified as "extraordinary" in accordance with GAAP, (c) any capital gains and
taxes on capital gains or (d) any gains or losses from sales of Properties.
"CHANGE OF CONTROL" means (a) a transaction or series of transactions
whereby any Person or group (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "1934 ACT")) shall acquire beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act), directly or indirectly, of
securities of Company (or other securities convertible into such securities)
representing 35% of the combined voting power of all securities of Company
entitled to vote in the election of directors (for purposes of this definition,
a "Controlling Person") or (b) at any time a majority of Company's directors are
persons who were not (i) in office on the Closing Date or (ii) initially
nominated by directors who were in office on the Closing Date or by successor
directors elected or appointed upon the initial nomination of such directors or
successors directors. In connection with clause (a) above, a Person or group
shall not be a "Controlling Person" if such Person or group holds voting power
in good faith and not for the purpose of circumventing the effect of the
occurrence of a Change of Control as an agent, bank, broker, nominee, trustee or
holder of revocable proxies given in response to a solicitation pursuant to the
1934 Act, for one or more beneficial owners who do not individually, or, if they
are a group acting in concert, as a group, have the voting power specified in
the previous sentence.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations issued thereunder, as from time to time in effect.
"COMMITMENT" means, with respect to the Loan prior to the Conversion Date,
initially $75,000,000, as such amount may be increased from time to time up to
an amount not in excess of $100,000,000 in accordance with the terms of SECTION
2.16 hereof or as such amount may be reduced from time to time in accordance
with the terms of SECTION 2.4 hereof, provided that (a) on the Option Date, if
Company and Lenders have not agreed to an Extension Option or Company has not
exercised its Conversion Option, in each case in accordance with the terms of
SECTION 2.15 hereof,
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<PAGE>
the Commitment shall mean $0.00 and (b) on or after the Final Maturity, the
Commitment shall mean $0.00.
"COMMITMENT FEE" means the fee described in SECTION 2.10 hereof.
"COMPANY" means Franchise Finance Corporation of America, a Delaware
corporation.
"COMPLIANCE CERTIFICATE" means a certificate of an Authorized Officer of
Company acceptable to Administrative Agent, in the form of EXHIBIT C hereto, (a)
certifying that such individual has no knowledge that a Default or Event of
Default has occurred and is continuing, or if a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof and the action
being taken or proposed to be taken with respect thereto, and (b) setting forth
detailed calculations with respect to each of the covenants described in SECTION
6.1 hereof.
"CONFIDENTIAL INFORMATION" has the meaning specified in SECTION 9.9 hereof.
"CONFIDENTIALITY AGREEMENT" means a Confidentiality Agreement in
substantially the form of EXHIBIT H hereto, as such agreement may be amended,
modified or supplemented from time to time.
"CONSENSUAL LIEN" means any Lien of the type described in clauses (g) and
(h) of the definition of Permitted Liens.
"CONSEQUENTIAL LOSS," with respect to (a) Company's payment of all or any
portion of the then-outstanding principal amount of a LIBOR Advance on a day
other than the last day of the related Interest Period, including, without
limitation, payments made as a result of the acceleration of the maturity of a
Note, (b) (subject to Administrative Agent's prior consent), a LIBOR Advance
made on a date other than the date on which the Advance is to be made according
to SECTION 2.2(A) hereof or SECTION 2.9 hereof, or (c) any of the circumstances
specified in SECTION 2.4 hereof and SECTION 2.5 hereof on which a Consequential
Loss may be incurred, means any loss, cost or expense incurred by any Lender as
a result of the timing of the payment or Advance or in liquidating,
redepositing, redeploying or reinvesting the principal amount so paid or
affected by the timing of the Advance or the circumstances described in SECTION
2.4 hereof and SECTION 2.5 hereof, which amount shall be the sum of (i) the
interest that, but for the payment or timing of Advance, such Lender would have
earned in respect of that principal amount, reduced, if such Lender is able to
redeposit, redeploy, or reinvest the principal amount, by the interest earned by
such Lender as a result of redepositing, redeploying or reinvesting the
principal amount plus (ii) any expense or penalty incurred by such Lender by
reason of liquidating, redepositing, redeploying or reinvesting the principal
amount. Each determination by each Lender of any Consequential Loss is, in the
absence of demonstrable error, conclusive and binding.
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<PAGE>
"CONSOLIDATED SUBSIDIARY" means, as to any Person, each Subsidiary of such
Person (whether then existing or thereafter created or acquired) the financial
statements of which are (or should have been) consolidated with the financial
statements of such Person in accordance with GAAP.
"CONTINGENT LIABILITY" means, as to any Person, any obligation, contingent
or otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness or obligation of any other Person in any manner,
whether directly or indirectly, including without limitation any obligation of
such Person, direct or indirect, (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Indebtedness, (b) to purchase Property or services for the purpose of
assuring the owner of such Indebtedness of its payment, or (c) to maintain the
solvency, working capital, equity, cash flow, fixed charge or other coverage
ratio, or any other financial condition of the primary obligor so as to enable
the primary obligor to pay any Indebtedness or to comply with any agreement
relating to any Indebtedness or obligation, and shall, in any event, include any
contingent obligation under any letter of credit, application for any letter of
credit or other related documentation.
"CONTINUE," "CONTINUATION" and "CONTINUED" each refer to the continuation
pursuant to SECTION 2.9 hereof of a LIBOR Advance from one Interest Period to
the next Interest Period.
"CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" mean possession,
direct or indirect, of power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided that, in any event (a) it shall include any director (or
Person holding the equivalent position) or executive officer (or Person holding
the equivalent position) of such Person or of any Affiliate of such Person, (b)
any Person which beneficially owns 5% or more (in number of votes) of the
securities having ordinary voting power for the election of directors of a
corporation shall be conclusively presumed to control such corporation, (c) any
general partner of any partnership shall be conclusively presumed to control
such partnership, (d) any other Person who is a member of the immediate family
(including parents, spouse, siblings and children) of any general partner of a
partnership, and any trust whose principal beneficiary is such individual or one
or more members of such immediate family and any Person who is controlled by any
such member or trust, or is the executor, administrator or other personal
representative of such Person, shall be conclusively presumed to control such
Person, and (e) no Person shall be deemed to be an Affiliate of a corporation
solely by reason of his being an officer or director of such corporation.
"CONTROLLED GROUP" means, as to any Person, all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
which are under common control with such Person and which, together with such
Person, are treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code.
"CONVERSION OR CONTINUANCE NOTICE" has the meaning set forth in SECTION
2.9(B) hereof.
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"CONVERSION DATE" means the date upon which the Loan converts from a
revolving loan to a term loan, in accordance with the terms of SECTION 2.15(B)
hereof.
"CONVERSION OPTION" means that option to be exercised by Company on the
Option Date or the Final Maturity in accordance with the terms of SECTION
2.15(B) hereof to convert the Loan to a term loan.
"DEBT FOR BORROWED MONEY" means, as to any Person, at any date, without
duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes, letters of
credit (or applications for letters of credit) or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (d) all obligations of such Person secured by a Lien on any assets or
property of any Person and (e) Intercompany Notes.
"DEBTOR RELIEF LAWS" means applicable bankruptcy, reorganization,
insolvency, receivership, liquidation, arrangement, conservatorship, moratorium,
or similar Laws, or principles of equity affecting the enforcement of creditors'
rights generally.
"DEFAULT" means any event specified in SECTION 7.1 hereof, whether or not
any requirement in connection with such event for the giving of notice, lapse of
time, or happening of any further condition has been satisfied.
"DISTRIBUTION" means, as to any Person, (a) any declaration or payment of
any distribution or dividend (other than a stock dividend) on, or the making of
any pro rata distribution, loan, advance, or investment to or in any holder (in
its capacity as a partner, shareholder or other equity holder) of, any
partnership interest or shares of Capital Stock or other equity interest of such
Person, or (b) any purchase, redemption, or other acquisition or retirement for
value of any shares of partnership interest or Capital Stock or other equity
interest of such Person.
"DOLLARS" and "$" means the lawful currency of the United States of
America.
"ELIGIBLE ASSIGNEE" means (a) a Lender, (ii) an Affiliate of a Lender, and
(iii) any other Person approved by both Administrative Agent and, unless an
Event of Default has occurred and is continuing at the time any assignment is
effected in accordance with SECTION 9.4(A) hereof, Company, such approval not to
be unreasonably withheld or delayed by Company or Administrative Agent and such
approval to be deemed given by Company if no objection is received by assigning
Lender and Administrative Agent from Company within two Business Days after
notice of such proposed assignment has been provided by assigning Lender to
Company; PROVIDED, HOWEVER, that neither Company nor any of its Affiliates shall
qualify as an Eligible Assignee.
"ENVIRONMENTAL CLAIM" means any written notice by any Tribunal alleging
potential liability for damage to the environment, or by any Person alleging
potential liability for personal injury
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(including sickness, disease or death), resulting from or based upon (a) the
presence or release (including sudden or non-sudden, accidental or
non-accidental, leaks or spills) of any Hazardous Material at, in or from
property, whether or not owned by Company or any of its Subsidiaries, or (b)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss.9601 Et SEQ.) ("CERCLA"), the
Hazardous Material Transportation Act (49 U.S.C. ss.1801 ET Seq.), the Resource
Conservation and Recovery Act (42 U.S.C ss.6901 ET Seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss.1251 ET seq.), the Clean Air Act (42 U.S.C.
ss.7401 et SEQ.), the Toxic Substances Control Act (15 U.S.C. ss.2601 ET Seq.),
and the Occupational Safety and Health Act (29 U.S.C. ss.651 et SEQ.) ("OSHA"),
as such laws have been or hereafter may be amended or supplemented, and any and
all similar present or future federal, state and local Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rulings and regulations issued thereunder, as from time to time
in effect.
"ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA
is a member of the controlled group of Company or any of its Subsidiaries, or is
under common control with Company or any of its Subsidiaries, within the meaning
of Section 414(c) of the Code.
"ERISA EVENT" means (a) a Reportable Event, within the meaning of Section
4043 of ERISA, unless the 30-day notice requirement with respect thereto has
been waived by the PBGC, (b) the issuance by the administrator of any Plan of a
notice of intent to terminate such Plan in a distress situation, pursuant to
Section 4041(a)(2) and 4041(c) of ERISA (including any such notice with respect
to a plan amendment referred to in Section 4041(e) of ERISA), (c) the cessation
of operations at a facility in the circumstances described in Section 4062(e) of
ERISA, (d) the withdrawal by Company, any Subsidiary of Company, or an ERISA
Affiliate from a Multiple Employer Plan during a Plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA, (e) the failure
by Company, any Subsidiary of Company, or any ERISA Affiliate to make a payment
to a Plan required under Section 302 of ERISA, (f) the adoption of an amendment
to a Plan requiring the provision of security to such Plan, pursuant to Section
307 of ERISA, or (g) the institution by the PBGC of proceedings to terminate a
Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition that constitutes grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, a Plan.
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"EVENT OF DEFAULT" means any of the events specified in SECTION 7.1 hereof,
provided there has been satisfied any requirement in connection therewith for
the giving of notice, lapse of time, or happening of any further condition.
"EXTENSION OPTION" means that option to be exercised by Company and agreed
to by Lenders in accordance with the terms of SECTION 2.15(A) hereof to extend
the Loan for an additional 364 day period beyond the Option Date.
"FACILITY" means the Loan evidenced by this Agreement and the other Loan
Papers.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of Dallas, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such date on such
transactions received by Administrative Agent from three federal funds brokers
of recognized standing selected by it.
"FINAL MATURITY" means, in the event that Company and Lenders have agreed
to an Extension Option or Company has exercised its Conversion Option, that date
which is 364 days after the Option Date, but in no event later than the stated
maturity date of the Amended and Restated Credit Agreement.
"FIXED CHARGE COVERAGE RATIO" means, as of any date of determination, for
Company and its Consolidated Subsidiaries determined in accordance with GAAP,
the ratio of (a) the sum of (i) Cash Flow From Operations for the twelve
calendar month period ending on or most recently ended prior to such date of
determination PLUS (ii) cash interest payable on all Indebtedness (including
interest in respect of Capital Leases) of Company and its Consolidated
Subsidiaries during such period to (b) the sum of (i) cash interest payable on
all Indebtedness (including interest in respect of Capitalized Leases) of
Company and its Consolidated Subsidiaries during such period PLUS (ii) regularly
scheduled principal amounts of all Indebtedness of Company and its Consolidated
Subsidiaries (including the principal portion of rentals payable under Lease
Obligations) payable during such period, excluding, however, any regularly
scheduled principal payment on Indebtedness of Company and its Consolidated
Subsidiaries which pays such Indebtedness in full, but only to the extent that
the amount of such final payment is greater than the scheduled principal payment
immediately preceding such final payment, plus (iii) without duplication, the
principal amounts of all Indebtedness of Company and its Subsidiaries (including
the principal portion of rentals payable under Lease Obligations) required to be
prepaid or purchased during such period.
"FUNDED MORTGAGES" means promissory notes secured by duly recorded first
priority mortgages, deeds of trust, assignments of rents, security agreements,
fixture filings and similar instruments executed by a purchaser or owner of a
Property in favor of Company or any Subsidiary of Company, or a trustee acting
for the benefit of Company or any Subsidiary of Company, relating to loans made
by Company or any Subsidiary of Company to unaffiliated third parties secured by
such Property, the principal amount of which was or will be funded from proceeds
of Advances or Intercompany Loans.
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"GAAP" means generally accepted accounting principles applied on a
consistent basis. Application on a consistent basis shall mean that the
accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period, except for new
developments or statements promulgated by the Financial Accounting Standards
Board.
"GUARANTY" of a Person means any agreement by which such Person assumes,
guarantees, endorses, contingently agrees to purchase or provide funds for the
payment of, or otherwise becomes liable upon, the obligation of any other
Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person, or otherwise assures any creditor or
such other Person against loss, including, without limitation, any agreement
which assures any creditor or such other Person payment or performance of any
obligation, or any take-or-pay contract and shall include without limitation,
the contingent liability of such Person in connection with any application for a
letter of credit (without duplication of any amount already included in
Indebtedness).
"GUARANTY AGREEMENT" means a Guaranty Agreement, duly executed by each
Guarantor, in substantially the form of EXHIBIT B hereto, appropriately
completed, as such agreement may be amended, modified, extended, renewed,
restated, substituted or replaced from time to time.
"GUARANTORS" means each Subsidiary of Company and each other Person from
time to time guaranteeing payment of the Obligations to Administrative Agent and
Lenders.
"HAZARDOUS MATERIALS" means all materials subject to any Environmental Law,
including, without limitation, materials listed in 49 C.F.R. ss. 172.101,
Hazardous Substances, explosive or radioactive materials, hazardous or toxic
wastes or substances, petroleum or petroleum distillates, asbestos, or material
containing asbestos.
"HAZARDOUS SUBSTANCES" means hazardous waste as defined in the Clean Water
Act, 33 U.S.C. ss. 1251 ET Seq., the Comprehensive Environmental Response
Compensation and Liability Act as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. ss. 9601 ET Seq., the Resource Conservation
Recovery Act, 42 U.S.C. ss. 6901 ET seq., and the Toxic Substances Control Act,
15 U.S.C. ss. 2601 ET Seq.
"HIGHEST LAWFUL RATE" means at the particular time in question the maximum
rate of interest which, under Applicable Law, Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, Lenders are permitted to charge on the Obligations 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 Company. 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%
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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.
"INCREASED ADVANCE COSTS" has the meaning specified in SECTION 2.13(E)
hereof.
"INCREASED ADVANCE COSTS RETROACTIVE EFFECTIVE DATE" has the meaning
specified in SECTION 2.13(E) hereof.
"INCREASED ADVANCE COSTS SET DATE" has the meaning specified in SECTION
2.13(E) hereof.
"INDEBTEDNESS" means, without duplication, with respect to any Person, all
obligations of such Person, determined on a consolidated basis and measured in
accordance with GAAP that is required to be classified on the balance sheet as
liabilities, and in any event shall include (without duplication) (a) Debt for
Borrowed Money, (b) Capital Lease obligations, (c) reimbursement obligations
relating to letters of credit, (d) Contingent Liabilities relating to any of the
foregoing, (e) Withdrawal Liability, (f) indebtedness, if any, associated with
Interest Hedge Agreements with other Persons, (g) payments due for the deferred
purchase price of property and services (but excluding trade payables that are
less than 90 days old and (h) obligations (contingent or otherwise) to purchase,
retire or redeem any Capital Stock of such Person.
"INDEMNITEES" has the meaning ascribed thereto in SECTION 5.9 hereof.
"INDEX DEBT RATING" means the rating applicable to Company's senior,
unsecured, non-credit enhanced long term indebtedness for borrowed money.
"INITIAL ADVANCE" means the initial Advance made in accordance with the
terms hereof, which shall only be after Company has satisfied each of the
conditions set forth in SECTION 3.1 and SECTION 3.2 hereof (or any such
condition shall have been waived by each Lender).
"INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities within the meaning of Section 4001(a)(18) of ERISA.
"INTERCOMPANY LOANS" means all loans made by Company to its Subsidiaries.
"INTERCOMPANY NOTES" means all promissory notes payable to Company by any
Subsidiary of Company evidencing the obligation to repay Intercompany Loans, as
such notes may be amended, modified, extended, renewed, substituted or replaced
from time to time.
"INTEREST HEDGE AGREEMENTS" means any interest rate swap agreements,
interest cap agreements, interest rate collar agreements, or any similar
agreements or arrangements designed to hedge the risk of variable interest rate
volatility, or foreign currency hedge, exchange or similar agreements, on terms
and conditions reasonably acceptable to Administrative Agent (evidenced by
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Administrative Agent's consent in writing), as such agreements or arrangements
may be modified, supplemented, and in effect from time to time.
"INTEREST PERIOD" means the period beginning on the date an Advance is made
or continued as or converted into a LIBOR Advance and ending one, two, three or
six months thereafter (as Company, in its sole discretion, shall select)
PROVIDED, HOWEVER, that:
(a) Company may not select any Interest Period that ends after any
principal repayment date unless, after giving effect to such selection, the
aggregate principal amount of LIBOR Advances having Interest Periods that
end on or prior to such principal repayment date, shall be at least equal
to the principal amount of Advances due and payable on and prior to such
date;
(b) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding Business Day, PROVIDED,
HOWEVER, that if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day; and
(c) whenever the first day of any Interest Period occurs on a day of an
initial calendar month for which there is no numerically corresponding day
in the calendar month that succeeds such initial calendar month by the
number of months equal to the number of months in such Interest Period,
such Interest Period shall end on the last Business Day of such succeeding
calendar month.
"INVESTMENT" means any acquisition of all or substantially all assets of
any Person, or any direct or indirect purchase or other acquisition of, or a
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, extension of credit, advance (other than
advances to employees for moving and travel expenses, drawing accounts, and
similar expenditures in the ordinary course of business), or capital
contribution to or investment in any other Person, including without limitation
the incurrence or sufferance of Debt or accounts receivable of any other Person
that are not current assets or do not arise from sales to that other Person in
the ordinary course of business.
"LAW" means any constitution, statute, law, ordinance, regulation, rule,
order, writ, injunction, or decree of any Tribunal.
"LEASE" means any lease, sublease, license, franchise, concession or other
agreement, whether written or oral, permitting any other Person to use, occupy
or possess any Property.
"LEASE OBLIGATIONS" means the obligations of Company and its Consolidated
Subsidiaries to pay rent or other amounts under a Capital Lease or any Operating
Lease.
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"LENDERS" means the lenders listed on the signature pages of this
Agreement, and each Eligible Assignee which hereafter becomes a party to this
Agreement pursuant to SECTION 9.4 hereof, for so long as any such Person is owed
any portion of the Obligations or obligated to make any Advances under the Loan.
"LENDING OFFICE" means, with respect to each Lender, its branch or
affiliate, (a) initially, the office of such Lender, branch or affiliate
identified as such on the signature pages hereof, and (b) subsequently, such
other office of such Lender, branch or affiliate as such Lender may designate in
writing to Company and Administrative Agent as the office from which the
Advances of such Lender will be made and maintained and for the account of which
all payments of principal and interest on the Advances and the Commitment Fee
will thereafter be made. Lenders may have more than one Lending Office for the
purpose of making Base Rate Advances and LIBOR Advances.
"LIBOR ADVANCE" means an Advance bearing interest at the LIBOR Rate.
"LIBOR RATE" means a simple per annum interest rate equal to the lesser of
(a) the Highest Lawful Rate, and (b) the sum of the LIBOR Rate plus the
Applicable Margin. The LIBOR Rate shall, with respect to LIBOR Advances subject
to reserve or deposit requirements, be subject to premiums assessed therefor by
each Lender, which are payable directly to each Lender.
"LIBOR RATE BASIS" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100th of one percent) appearing on Telerate Page 3750 (or any successor page)
as the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If for any reason
such rate is not available, the term "LIBOR Rate Basis" shall mean, for any
LIBOR Advance for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, 1/100th of one percent) appearing on Reuters Screen LIBO
Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period; PROVIDED,
HOWEVER, if more than one rate is specified on the Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates.
"LICENSE" means, as to any Person, any license, permit, certificate of
need, authorization, orders, certification, accreditation, franchise, approval,
or grant of rights by any Tribunal or third person necessary or appropriate for
such Person to own, maintain, or operate its business or Property, unless the
failure to obtain, retain, or comply with same would not constitute a Material
Adverse Change.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind, including without limitation any agreement to give or not to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of
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or agreement to give any financing statement or other similar form of public
notice under any Laws (except for the filing of a financing statement or notice
in connection with an Operating Lease).
"LITIGATION" means any proceeding, claim, lawsuit, arbitration, and/or
investigation conducted or threatened by or before any Tribunal, including
without limitation proceedings, claims, lawsuits, and/or investigations under or
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement, or other instrument.
"LOAN" means that certain Loan made to Company on the Closing Date in
accordance with SECTION 2.1(A) hereof.
"LOAN PAPERS" means this Agreement; the Notes; any Interest Rate Hedge
Agreements executed between Company and any Lender or Bank Affiliate; all
Guaranty Agreements; each Assignment and Acceptance; all promissory notes
evidencing any portion of the Obligations; and all other documents, instruments,
agreements or certificates executed or delivered by Company or any of its
Subsidiaries, as security for Company's obligations hereunder, in connection
with the loans to Company or otherwise; as each such document shall, with the
consent of Lenders pursuant to the terms hereof, be amended, revised, renewed,
extended, substituted or replaced from time to time.
"MAJORITY LENDERS" means any combination of Lenders having at least 66.67%
of the Advances under the Loan; provided, however, that if no Advances under the
Loan are outstanding under this Agreement, such term means any combination of
Lenders having a Specified Percentage equal to at least 66.67% of the
Commitment.
"MANAGEMENT FEES" means all fees from time to time directly or indirectly
paid or payable by Company or any Subsidiary of Company to any Person for
management services for managing any portion of any Property.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any
circumstance or event that (a) can reasonably be expected to cause a Default or
an Event of Default, (b) otherwise can reasonably be expected to (i) be material
and adverse to the continued operation of any Company and its Subsidiaries taken
as a whole, or (ii) be material and adverse to the financial condition, business
operations, prospects or Properties of Company and its Subsidiaries taken as a
whole, or (c) in any manner whatsoever does or can reasonably be expected to (i)
materially and adversely affect the validity or enforceability of any material
provision of any of the Loan Papers or (ii) materially and adversely affect the
ability of Company or any Subsidiary of Company to perform its obligations under
the Loan Papers executed by it.
"MATURITY DATE" means the earlier of (a) the later of the Option Date or
the Final Maturity or (b) the date all of the Obligations become due and payable
(whether by acceleration, prepayment in full, scheduled reduction or otherwise).
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"MAXIMUM AMOUNT" means the maximum amount of interest which, under
Applicable Law, Administrative Agent or any Lender is permitted to charge on the
Obligations.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which Company, any Subsidiary of Company, or any ERISA
Affiliate is making or accruing an obligation to make contributions, or has
within any of the preceding five plan years made or accrued an obligation to
make contributions, such plan being maintained pursuant to one or more
collective bargaining agreements.
"MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of Company,
any Subsidiary of Company, or any ERISA Affiliate and at least one Person other
than Company, any Subsidiary of Company, and any ERISA Affiliate, or (b) was so
maintained and in respect of which Company, any Subsidiary of Company, or any
ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the
event such plan has been or were to be terminated.
"NET CASH PROCEEDS" means with respect to any offering or other disposition
of Capital Stock by any Person, the aggregate amount of cash received by such
Person in connection with such transaction minus reasonable fees, costs and
expenses and related Taxes.
"NET WORTH" means, at any time, the shareholders' equity of Company and its
Consolidated Subsidiaries, determined on a consolidated basis in accordance with
GAAP at such time.
"NOTE" means each promissory note of Company evidencing the Advances and
obligations owing hereunder to each Lender under the Loan, in substantially the
form of EXHIBIT A hereto, as each such note may be amended, extended, restated,
renewed, substituted or replaced from time to time, and each promissory note of
Company evidencing the Loan after the Conversion Date, in accordance with
SECTION 2.15 hereof, as each such Note may be extended, restated, renewed,
substituted or replaced from time to time.
"OBLIGATIONS" means all present and future obligations, indebtedness and
liabilities, and all renewals and extensions of all or any part thereof, of
Company and each Subsidiary of Company to any Lender or Administrative Agent
arising from, by virtue of, or pursuant to this Agreement, any of the other Loan
Papers and any and all renewals and extensions thereof or any part thereof, or
future amendments thereto, all interest accruing on all or any part thereof and
reasonable attorneys' fees incurred by Lenders and Administrative Agent for the
administration, execution of waivers, amendments and consents, and in connection
with any restructuring, workouts or in the enforcement or the collection of all
or any part thereof, whether such obligations, indebtedness and liabilities are
direct, indirect, fixed, contingent, joint, several or joint and several.
Without limiting the generality of the foregoing, "Obligations" includes all
amounts which would be owed by Company, each Subsidiary of Company and any other
Person (other than Administrative Agent or Lenders) to
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Administrative Agent or Lenders under any Loan Paper, but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving Company, any Subsidiary of
Company or any other Person (including all such amounts which would become due
but for the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding of Company, any Subsidiary of
Company or any other Person under any Debtor Relief Law).
"OPERATING LEASES" means operating leases, as defined in accordance with
GAAP.
"OPTION DATE" means that date which is 364 days after the Closing Date.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
agency or entity performing substantially the same functions.
"PERMITTED DISTRIBUTIONS" means, for Company for any fiscal year of
Company, an amount not to exceed 95% of Cash Flow From Operations for such
fiscal year, commencing with the 1996 fiscal year of Company.
"PERMITTED LIENS" means
(a) those imposed by the Loan Papers (as defined in this Agreement) or
by the Loan Papers (as defined in the Amended and Restated Credit
Agreement);
(b) Liens in connection with workers' compensation, unemployment
insurance or other social security obligations (which phrase shall not be
construed to refer to ERISA);
(c) deposits, pledges or liens to secure the performance of bids,
tenders, contracts (other than contracts for the payment of borrowed
money), leases, statutory obligations, surety, customs, appeal, performance
and payment bonds and other obligations of like nature arising in the
ordinary course of business;
(d) mechanics', workmen's, carriers, warehousemen's, materialmen's,
landlords' or other like Liens arising in the ordinary course of business
with respect to obligations which are not due or which are either (i) being
contested in good faith and by appropriate proceedings diligently conducted
(including, if applicable, by a Tenant of a Property as required under the
Lease relating thereto or by a mortgagor under a Funded Mortgage as
required thereby) and in respect of which adequate reserves shall have been
established in accordance with GAAP on the books of Company or of its
Subsidiaries or (ii) the obligation of a Tenant of a Property under its
Lease or of a mortgagor under a Funded Mortgage and Company or any of its
Subsidiaries has made a demand upon such Tenant or mortgagor to pay amounts
owed in order to remove such Liens; provided that if the Tenant fails to
pay such amounts then Company or its Subsidiary, as applicable, shall
promptly take all necessary action to remove such Liens;
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(e) Liens for taxes, assessments, fees or governmental charges or
levies not delinquent or to the extent that payment hereof is either (i)
being contested in good faith and by appropriate proceedings diligently
conducted (including, if applicable, by a Tenant of a Property as required
under the Lease relating thereto or by a mortgagor under a Funded Mortgage
as required thereby), and in respect of which adequate reserves shall have
been established in accordance with GAAP on the books of Company or any
Subsidiary of Company or (ii) the obligation of a Tenant of Property under
its Lease or of a mortgagor under a Funded Mortgage and Company or any of
its Subsidiaries has made a demand upon such Tenant or mortgagor to pay
amounts owed in order to remove such Liens; provided that if the Tenant
fails to pay such amounts then Company or its Subsidiary, as applicable,
shall promptly take all necessary action to remove such Liens;
(f) easements, rights of way, restrictions, leases of Property to
others, easements for installations of public utilities, title
imperfections and restrictions, zoning ordinances and other similar
encumbrances affecting Property which in the aggregate do not materially
adversely affect the value of such Property or materially impair its use
for the operation of the business of Company or any Subsidiary of Company;
(g) Liens on Property acquired by Company or any of its Subsidiaries in
the ordinary course of business, securing Indebtedness of Company or any of
its Subsidiaries incurred or assumed for the purpose of financing all or
part of the cost of acquiring such Property; provided that (i) such Lien
attaches solely to the Property so acquired in such transaction, (ii) such
Lien attaches to such Property concurrently with or within 90 days after
the acquisition thereof, (iii) such Property is used in the business of
Company or any of its Subsidiaries, (iv) the amount of Indebtedness secured
by Lien shall not exceed 100% of the cost of such Property, and (v) such
Indebtedness is permitted to be incurred hereunder and would not otherwise
result in a Default or Event of Default hereunder; and
(h) Liens on the Property constituting Company's executive offices
located in Scottsdale, Arizona, securing Indebtedness for the acquisition,
construction or improvement thereof.
"PERSON" means an individual, partnership, joint venture, corporation,
trust, Tribunal, unincorporated organization, and government, or any department,
agency, or political subdivision thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer Plan.
"PROHIBITED TRANSACTION" has the meaning specified therefor in Section 4975
of the Code or Section 406 of ERISA.
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"PROPERTY" means all types of real, personal, tangible, intangible, or
mixed property, whether owned in fee simple or leased.
"QUARTERLY DATE" means the last Business Day of each March, June, September
and December during the term of this Agreement, commencing on March 31, 1999.
"RATABLE" means, as to any Lender, in accordance with its Specified
Percentage.
"REAL ESTATE INVESTMENT TRUST means the classification for federal tax
purposes as a real estate investment trust pursuant to Part II, Subchapter M of
Chapter 1 of the Code.
"REFINANCING ADVANCE" means an Advance that is used to pay the principal
amount of an existing Advance (or any performance thereof) at the end of its
Interest Period and which, after giving effect to such application, does not
result in an increase in the aggregate amount of outstanding Advances.
"REGULATORY CHANGE" means any change after the date hereof in federal,
state, or foreign Laws (including the introduction of any new Law) or the
adoption or making after such date of any interpretations, directives, or
requests of or under any federal, state, or foreign Laws (whether or not having
the force of Law) by any Tribunal charged with the interpretation or
administration thereof, applying to a class of financial institutions that
includes any Lender.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any such waivers in accordance
with either Section 4043(a) of ERISA or Section 412(d) of the Code.
"RESTRICTED PAYMENTS" means (a) any direct or indirect distribution,
Distribution or other payment on account of any general or limited partnership
interest in (or the setting aside of funds for, or the establishment of a
sinking fund or analogous fund with respect to), or shares of Capital Stock or
other securities of, Company or any Subsidiary of Company; (b) any payments of
principal of, or interest on, or fees related to, or any other payments and
prepayments with respect to, or the establishment of, or any payment to, any
sinking fund or analogous fund for the purpose of making any such payments on,
Indebtedness of Company or any Subsidiary of Company (including, without
limitation, Debt evidenced by the Intercompany Notes, but excluding the
Obligations); (c) any Management Fee or any management, consulting or other
similar fees, or any interest thereon, payable by Company or any of its
Subsidiaries to any Affiliate of Company; and (d) any administration fee or any
administration, consulting or other similar fees, or any interest thereon,
payable by Company or any of its Subsidiaries to any Affiliate of Company or to
any other Person.
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"RETAINED SECURITIES" means any class of securities or portion thereof
purchased or retained by Company or any Subsidiary from any corporation, trust
or other entity in conjunction with any Asset Securitization.
"RIGHTS" means rights, remedies, powers, and privileges.
"S&P" means Standard & Poor's Ratings Group, a Division of McGraw-Hill,
Inc., a New York corporation.
"SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, other than a Multiple Employer Plan, that is maintained
for employees of Company or any ERISA Affiliate.
"SOLVENT" means, with respect to any Person, that on such date (a) the fair
value of the Property of such Person is greater than the total amount of
liabilities, including, without limitation, Contingent Liabilities of such
Person, (b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature, and
(d) such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's Property would
constitute an unreasonably small capital.
"SPECIAL COUNSEL" means the law firm of Donohoe, Jameson & Carroll, P.C.,
Dallas, Texas, special counsel to Administrative Agent, or such other counsel
selected by Administrative Agent from time to time.
"SPECIFIED PERCENTAGE" means, as to any Lender, the percentage indicated
beside its name on the signature pages hereof, or as adjusted or specified in
any Assignment and Acceptance, or amendment to this Agreement.
"SUBORDINATION AGREEMENT" means a subordination agreement substantially in
the form of EXHIBIT G hereto, as amended, modified or supplemented from time to
time.
"SUBSIDIARY" of any Person means
(a) any corporation, partnership, joint venture, trust, estate or other
Person of which (or in which) more than 50% of:
(i) the outstanding Capital Stock having voting power to elect a
majority of the Board of Directors of such corporation (or other
Persons performing similar functions of such entity, and irrespective
of whether at the time Capital Stock of any
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other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency),
(ii) the interest in the capital or profits of such partnership or
joint venture,
(iii) the beneficial interest of such trust or estate, or
(iv) the equity interest of such other Person,
is at the time directly or indirectly owned by (A) such Person, (B) such
Person and one or more of its Subsidiaries or (C) one or more of such
Person's Subsidiaries, and
(b) any corporation which is a non-qualified REIT Subsidiary under the
Code of which more than 50% of the non-voting preferred Capital Stock is at
the time directly or indirectly owned by (i) such Person, (ii) such Person
and one or more of its Subsidiaries or (iii) one or more of such Person's
Subsidiaries; PROVIDED, HOWEVER, Subsidiary does not mean or include any
Asset Securitization Affiliate.
"TAXES" means all taxes, assessments, imposts, fees, or other charges at
any time imposed by any Laws or Tribunal.
"TENANTS" means any and all tenants, licensees, occupants, concessionaires
or other Person or Persons possessing, occupying or otherwise using or having a
right to use, any space at Property of Company or its Subsidiaries and giving or
paying rent or other consideration, whether under written agreement or
otherwise.
"TOTAL ASSETS" means, at any time, all assets (calculated without any
deduction for accumulated depreciation) of Company and its Consolidated
Subsidiaries determined on a consolidated basis in accordance with GAAP at such
time.
"TOTAL INDEBTEDNESS" means, without duplication, with respect to Company
and its Consolidated Subsidiaries, the sum of all Indebtedness of Company and
its Consolidated Subsidiaries, excluding Indebtedness evidenced by the
Intercompany Notes (which Debt is subject to a Subordination Agreement),
calculated on a consolidated basis in accordance with GAAP.
"TOTAL SECURED INDEBTEDNESS" means, at any time, the aggregate amount of
Indebtedness of Company and its Consolidated Subsidiaries determined in
accordance with GAAP on a consolidated basis that is secured solely by a
Consensual Lien.
"TOTAL UNENCUMBERED ASSETS" means, at any time, the aggregate amount of
Total Assets of Company and its Consolidated Subsidiaries determined in
accordance with GAAP on a consolidated
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basis which are not subject to a Lien, other than Permitted Liens of the type
described in clauses (a) through (f) of the definition thereof.
"TOTAL UNSECURED INDEBTEDNESS" means, at any time, the aggregate amount of
Indebtedness of Company and its Consolidated Subsidiaries that is not secured by
a Lien, other than Permitted Liens of the type described in clauses (a) through
(f) of the definition thereof.
"TRIBUNAL" means any state, commonwealth, federal, foreign, territorial, or
other court or government or regulatory body, subdivision, agency, department,
commission, board, bureau, or instrumentality of a governmental body.
"TYPE" refers to the distribution between Advances bearing interest at the
Base Rate or LIBOR Rate.
"UCC" means the Uniform Commercial Code as adopted in the State of Texas.
"UNUSED COMMITMENT" means, on any date, with respect to each Lender, an
amount equal to the product of such Lender's Specified Percentage multiplied by
the Commitment in effect on such date, minus an amount equal to the sum of all
outstanding Advances made by such Lender under the Loan which are outstanding on
such date.
"WITHDRAWAL LIABILITY" has the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms used in this Agreement
which are not otherwise defined herein shall be construed in accordance with
GAAP consistently applied on a consolidated basis for Company and its
Consolidated Subsidiaries, unless otherwise expressly stated herein. References
herein to one gender shall be deemed to include all other genders. Except where
the context otherwise requires, all references to time are deemed to be Dallas,
Texas time.
ARTICLE II.
AMOUNTS AND TERMS OF ADVANCES
2.1 ADVANCES UNDER THE LOAN. Each Lender severally agrees, on the terms and
subject to the conditions hereinafter set forth, to make Advances to Company on
any Business Day during the period from the Closing Date to the Option Date or,
if Company and Lenders have agreed to extend the Loan until the Final Maturity
pursuant to SECTION 2.15(A) hereof, to the Final Maturity, in an aggregate
principal amount not to exceed at any time outstanding such Lender's Specified
Percentage of the Commitment. On the Conversion Date, if Company has elected to
convert the Loan to a term loan pursuant to SECTION 2.15(B) hereof, all
outstanding Advances shall convert to a term loan in the amount of the Advances
outstanding on the Conversion Date, and no scheduled
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payments of principal of Advances in respect of the term loan (other than
Refinancing Advances) shall be required to be made until the Final Maturity.
Subject to the terms and conditions of this Agreement, until the Conversion
Date, Company may borrow, repay and reborrow the Advances. Notwithstanding
anything in this SECTION 2.1 to the contrary, at no time shall the sum of all
the aggregate principal amount of Advances outstanding under the Loan exceed the
Commitment. After the Conversion Date, no Advances will be available under the
Loan except Refinancing Advances.
2.2 MAKING ADVANCES.
(a) Each Borrowing of Advances under the Loan prior to the Conversion Date
shall be made upon the written notice of Company, received by Administrative
Agent not later than (i) 12:00 noon three Business Days prior to the proposed
date of the Borrowing, in the case of LIBOR Advances and (ii) not later than
10:00 a.m. on the date of such Borrowing, in the case of Base Rate Advances.
Each such notice of a Borrowing (a "BORROWING NOTICE") shall be by telecopy,
promptly confirmed by letter, in substantially the form of EXHIBIT E hereto
specifying therein:
(i) the date of such proposed Borrowing, which shall be a Business Day;
(ii) the amount of such proposed Borrowing which, (A) prior to the
Conversion Date, shall not exceed the Commitment less the sum of all
Advances then outstanding, and (B) shall, in the case of a Borrowing of
LIBOR Advances, be in an amount of not less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof and, in the case of a Borrowing of
Base Rate Advances, be in an amount of not less than $1,000,000 or an
integral multiple of $500,000 in excess thereof;
(iii) the Type of Advances of which the Borrowing is to be comprised; and
(iv) if the Borrowing is to be comprised of LIBOR Advances, the duration
of the initial Interest Period applicable to such Advances.
If the Borrowing Notice fails to specify the duration of the initial
Interest Period for any Borrowing comprised of LIBOR Advances, such Interest
Period shall be one month. Administrative Agent shall give prompt notice (which
may be by telecopy or telephonic, to be confirmed by telecopy) of its receipt of
a Borrowing Notice to each Lender. Each Lender shall, before 2:00 p.m. on the
date of each Advance hereunder under the Loan (other than a Refinancing
Advance), make available to
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Administrative Agent
NationsBank Plaza
901 Main Street
14th Floor
Dallas, Texas 75202
Attn. Theresa Belk
such Lender's Specified Percentage of the aggregate Advances under the Loan to
be made on that day in immediately available funds.
(b) Unless any applicable condition specified in ARTICLE III hereof has not
been satisfied, Administrative Agent will make the funds on Advances under the
Loan promptly available to Company (other than with respect to a Refinancing
Advance) by wiring Norwest Bank Minneapolis, N.A., ABA #091000019, Beneficiary
Bank: Norwest Bank Arizona, Beneficiary Account: 8711701002, Beneficiary Name:
FFCA, or such other account as shall have been specified by Company.
(c) After giving effect to any Borrowing, (i) there shall not be more than
ten different Interest Periods in effect and (ii) the aggregate principal of
outstanding Advances shall not exceed the Commitment.
(d) No Interest Period for a Borrowing under the Facility shall extend
beyond the Maturity Date.
(e) Unless a Lender shall have notified Administrative Agent prior to the
date of any Advance that it will not make available its Specified Percentage of
any Advance, Administrative Agent may assume that such Lender has made the
appropriate amount available in accordance with SECTION 2.2(A), and
Administrative Agent may, in reliance upon such assumption, make available to
Company a corresponding amount. If and to the extent any Lender shall not have
made such amount available to Administrative Agent, such Lender and Company
severally agree to repay to Administrative Agent immediately on demand such
corresponding amount together with interest thereon, from the date such amount
is made available to Company until the date such amount is repaid to
Administrative Agent, at (i) in the case of Company, the Base Rate, and (ii) in
the case of such Lender, the Federal Funds Rate. The obligation of Company under
this SECTION 2.2(E) shall not affect or impair any right of Company against any
Lender for such Lender's breach of its obligation to fund Advances.
(f) The failure by any Lender to make available its Specified Percentage of
any Advance shall not relieve any other Lender of its obligation, if any, to
make available its Specified Percentage of any Advance. In no event, however,
shall any such Lender be responsible for the failure of any other Lender to make
available any portion of any Advance.
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(g) Company shall indemnify each Lender against any Consequential Loss
incurred by each Lender as a result of (i) any failure to fulfill, on or before
the date specified in the Borrowing Notice for an Advance, the conditions to
such Advance set forth herein or (ii) Company's requesting that an Advance not
be made on the date specified in the Borrowing Notice.
2.3 EVIDENCE OF INDEBTEDNESS.
(a) The obligations of Company with respect to all Advances made by each
Lender shall be evidenced by a Note in the amount of such Lender's Specified
Percentage of the Commitment on the Closing Date (as the same may be modified
pursuant to SECTION 9.4 hereof)
(b) Absent demonstrable error, Administrative Agent's and each Lender's
records shall be conclusive as to amounts owed Administrative Agent and such
Lender under the Notes and this Agreement.
2.4 REDUCTION OF COMMITMENT.
(a) VOLUNTARY COMMITMENT REDUCTION. Company shall have the right from time
to time upon notice by Company to Administrative Agent not later than 1:00 p.m.,
five Business Days in advance, to reduce the Commitment, in whole or in part;
provided, however, that Company shall pay the accrued and unpaid Commitment Fee
on the amount of such reduction, if any, and any partial reduction shall be in
an aggregate amount which is not less than $1,000,000 and an integral multiple
of $500,000. Such notice shall specify the amount of reduction and the proposed
date of such reduction.
(b) MANDATORY COMMITMENT REDUCTION OR TERMINATION.
(i) (A) If Company and Lenders have not agreed to extend the Loan
final maturity in accordance with the Extension Option pursuant to SECTION
2.15(A) hereof and Company has not exercised the Conversion Option in
accordance with the terms of SECTION 2.15(B) hereof, then the Commitment
shall automatically be reduced to zero on the Option Date. (B) If Company
and Lenders have agreed to extend the Loan final maturity in accordance
with the Extension Option pursuant to SECTION 2.15(A) hereof, or if
Company has exercised the Conversion Option in accordance with the terms
of SECTION 2.15(B) hereof, then the Commitment shall be automatically
reduced to zero on the Final Maturity.
(ii) ASSET SALES. On the date of any Asset Sale by Company or any
Subsidiary of Company which (A) occurs on a date on which the Amended and
Restated Credit Agreement is no longer in effect and (B) is not otherwise
permitted to be made pursuant to SECTION 6.6 hereof, the Commitment shall
be automatically and permanently reduced by an amount equal to the amount
by which the Asset Sale Proceeds of such Asset Sale exceeds the amount not
otherwise permitted pursuant to SECTION 6.6 hereof.
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(c) COMMITMENT REDUCTIONS, GENERALLY. To the extent that the sum of the
aggregate outstanding Advances exceed the Commitment after any reduction
thereof, Company shall simultaneously repay on the date of such reduction,
any such excess amount and all accrued interest thereon, together with any
amounts constituting any Consequential Loss. Once reduced or terminated
pursuant to this SECTION 2.4, the Commitment may not be increased or
reinstated.
2.5 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Company may, upon at least three Business Days
prior written notice to Administrative Agent stating the proposed date and
aggregate principal amount of the prepayment, prepay the outstanding principal
amount of any Advances in whole or in part, together with accrued interest to
the date of such prepayment on the principal amount prepaid without premium
other than any Consequential Loss; PROVIDED, HOWEVER, that in the case of a
prepayment of a Base Rate Advance, the notice of prepayment may be given by
telephone by 11:00 a.m. on the date of prepayment. Each partial prepayment
shall, in the case of Base Rate Advances, be in an aggregate principal amount of
not less than $1,000,000 or a larger integral multiple of $500,000 in excess
thereof and, in the case of LIBOR Advances, be in an aggregate principal amount
of not less than $5,000,000 or a larger integral multiple of $1,000,000 in
excess thereof. If any notice of prepayment is given, the principal amount
stated therein, together with accrued interest on the amount prepaid and the
amount, if any, due under SECTIONS 2.11 and 2.13 hereof, shall be due and
payable on the date specified in such notice.
(b) MANDATORY PREPAYMENTS. On the date of any Asset Sale by Company or any
Subsidiary of Company (x) which occurs on a date on which the Amended and
Restated Credit Agreement is no longer in effect and (y) in which the Asset Sale
Proceeds thereof exceed $3,000,000, Company shall make a mandatory prepayment of
Advances under the Loan in an amount equal to the amount by which the Asset Sale
Proceeds of such Asset Sale exceeds $3,000,000. On the date of any Asset Sale of
Company or any Subsidiary of Company which (x) occurs on a date on which the
Amended and Restated Credit Agreement is no longer in effect and (y) is not
otherwise permitted to be made pursuant to SECTION 6.6 hereof, Company shall
make a mandatory prepayment of Advances under the Loan by an amount equal to the
amount by which the Asset Sale Proceeds of such Asset Sale exceeds the amount
not otherwise permitted pursuant to SECTION 6.6 hereof.
(c) PREPAYMENTS, GENERALLY. No prepayments of Advances made pursuant to
SECTION 2.5(A) or the first sentence of SECTION 2.5(B) shall cause the
Commitment to be reduced. Any prepayment of Advances pursuant to the second
sentence of SECTION 2.5(B) shall cause the Commitment to be automatically and
permanently reduced by the amount of such required prepayment. Any prepayment of
Advances pursuant to this SECTION 2.5 shall be applied FIRST to Base Rate
Advances, if any, then outstanding under the Facility, SECOND to LIBOR Advances
for which the date of prepayment is the last day of the applicable Interest
Period, if any, outstanding under the Facility and THIRD to LIBOR Advances with
the shortest remaining Interest Periods outstanding under the Facility. If
Company has exercised the Conversion Option in accordance with the terms of
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SECTION 2.15(B) hereof, Advances prepaid under SECTIONS 2.5(A) and 2.5(B) hereof
may not be reborrowed.
2.6 REPAYMENT.
(a) LIBOR ADVANCES. The principal amount of each LIBOR Advance is due and
payable on the last day of the applicable Interest Period, which principal
payment may be made by means of a Refinancing Advance in accordance with the
terms of Section 2.09 hereof (and subject to the other provisions of this
Agreement).
(b) COMMITMENT REDUCTION. On the date of a reduction of the Commitment
pursuant to SECTION 2.4 hereof prior to the Conversion Date, the aggregate
amount of Advances in excess of the Commitment shall in each case be immediately
due and payable. Each such principal repayments may not be made by means of
Refinancing Advances.
(c) OPTION DATE. The aggregate outstanding amount of the Advances shall be
due and payable in full on the Option Date, provided that, notwithstanding the
foregoing, on the Option Date if Company and Lenders have agreed to an Extension
Option in accordance with the terms of SECTION 2.15 hereof, then the Loan shall
be due and payable in full on the Final Maturity. Any portion of the Loan not
extended in accordance with the terms of SECTION 2.15(A) hereof shall be due and
payable on the Option Date.
(d) CONVERSION DATE. If Company has elected the Conversion Option, then the
Loan shall be due and payable in full on the Final Maturity and no scheduled
payments of principal of Advances (other than Refinancing Advances) shall be
required to be made prior to the Final Maturity.
(e) MATURITY DATE. All outstanding Advances under the Loans and all other
Obligations shall be due and payable in full on the Maturity Date.
(f) REPAYMENTS, GENERALLY. All outstanding Advances and other Obligations
shall be due and payable in full on the Maturity Date. Any repayments made
pursuant to this Section shall be without premium or penalty, except Company
must pay together with any such prepayments, any Consequential Losses. Repayment
of Advances shall be applied to Base Rate Advances first, and then to LIBOR
Advances. After (i) the Conversion Date, and (ii) the Option Date (if Company
and Lenders did not agree to an Extension Option), Advances prepaid hereunder
may not be reborrowed.
2.7 INTEREST. Subject to SECTION 2.8 below, Company shall pay interest on
the unpaid principal amount of each Advance from the date of such Advance until
such principal shall be paid in full, at the following rates:
(a) BASE RATE ADVANCES. Base Rate Advances shall bear interest at a rate
per annum equal to the lesser of (i) the Base Rate as in effect from time to
time and (ii) the Highest Lawful Rate. If the amount of interest payable in
respect of any interest computation period is reduced to
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the Highest Lawful Rate pursuant to the immediately preceding sentence and the
amount of interest payable in respect of any subsequent interest computation
period would be less than the Maximum Amount, then the amount of interest
payable in respect of such subsequent interest computation period shall be
automatically increased to Maximum Amount; PROVIDED that at no time shall the
aggregate amount by which interest paid has been increased pursuant to this
sentence exceed the aggregate amount by which interest has been reduced pursuant
to the immediately preceding sentence.
(b) LIBOR ADVANCES. LIBOR Advances shall bear interest at the rate per
annum equal to the LIBOR Rate applicable to such Advance, which at no time shall
exceed the Highest Lawful Rate.
(c) PAYMENT DATES. Accrued and unpaid interest on Base Rate Advances shall
be paid quarterly in arrears on each Quarterly Date and on the appropriate
maturity, repayment or prepayment date. Accrued and unpaid interest on LIBOR
Advances shall be paid on the last day of the appropriate Interest Period and on
the date of any prepayment or repayment of such Advance; PROVIDED, HOWEVER, that
if any Interest Period for a LIBOR Advance exceeds three months, interest shall
also be paid on each date occurring during the Interest Period which is the
three month anniversary date of the first day of the Interest Period.
2.8 DEFAULT INTEREST. During the continuation of any Event of Default,
Company shall pay, on demand, interest (after as well as before judgment to the
extent permitted by Law) on the principal amount of all Advances outstanding and
on all other Obligations due and unpaid hereunder for each Advance equal to the
lesser of the (a) the Highest Lawful Rate and (b) the Base Rate (whether or not
in effect) plus 3.00%.
2.9 CONTINUATION AND CONVERSION ELECTIONS.
(a) Company may upon irrevocable written notice to Administrative Agent and
subject to the terms of this Agreement:
(i) elect to convert, on any Business Day, all or any portion of
outstanding Base Rate Advances (in an aggregate amount not less than
$5,000,000 or a larger integral multiple of $1,000,000 in excess thereof)
into LIBOR Advances;
(ii) elect to convert at the end of any Interest Period therefor, all or
any portion of outstanding LIBOR Advances comprised of the same Borrowing
(in an aggregate amount not less than $1,000,000 or a larger integral
multiple of $500,000 in excess thereof) into Base Rate Advances; or
(iii) elect to continue, at the end of any Interest Period therefor, any
LIBOR Advances;
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PROVIDED, HOWEVER, that if the aggregate amount of outstanding LIBOR Advances
comprised in the same Borrowing shall have been reduced as a result of any
payment, prepayment or conversion of part thereof to an amount less than
$1,000,000, the LIBOR Advances comprised in such Borrowing shall automatically
convert into Base Rate Advances at the end of each respective Interest Period.
(b) Company shall deliver a notice of conversion or continuation (a "NOTICE
OF CONVERSION/CONTINUATION"), in substantially the form of EXHIBIT D hereto, to
Administrative Agent not later than (i) 12:00 noon three Business Days prior to
the proposed date of conversion or continuation, if the Advances or any portion
thereof are to be converted into or continued as LIBOR Advances; and (ii) not
later than 10:00 a.m. on the proposed date of conversion or continuation, if the
Advances or any portion thereof are to be converted into Base Rate Advances.
Each such Notice of Conversion/Continuation shall be by telecopy or
telephone, promptly confirmed in writing, specifying therein:
(i) the proposed date of conversion or continuation;
(ii) the aggregate amount of Advances to be converted or continued;
(iii) the nature of the proposed conversion or continuation; and
(iv) the duration of the applicable Interest Period.
(c) If, upon the expiration of any Interest Period applicable to LIBOR
Advances, Company shall have failed to select a new Interest Period to be
applicable to such LIBOR Advances or if an Event of Default shall then have
occurred and be continuing, Company shall be deemed to have elected to convert
such LIBOR Advances into Base Rate Advances effective as of the expiration date
of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation, Administrative
Agent shall promptly notify each Lender thereof. All conversions and
continuations shall be made pro rata among Lenders based on their Specified
Percentage of the respective outstanding principal amounts of the Advances with
respect to which such notice was given held by each Lender.
(e) Notwithstanding any other provision contained in this Agreement, after
giving effect to any conversion or continuation of any Advances, there shall not
be outstanding Advances with more than ten different Interest Periods.
2.10 FEES. Subject to SECTION 9.8 hereof, Company agrees to pay to
Administrative Agent, for the account of each Lender, a Commitment Fee on the
average daily amount of each Lender's Unused Commitment, from February 19, 1999
through the Maturity Date, payable quarterly in arrears on each Quarterly Date
occurring after the Closing Date, with the last such payment due and
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owing on the Maturity Date at the following per annum percentage applicable in
the following situations:
APPLICABILITY PERCENTAGE
------------- ----------
CATEGORY 1 - There is no Index Debt
Rating or the Index Debt Rating is the following:
below BBB- by S&P or below Baa3 by Moody's 0.375%
CATEGORY 2 - The Index Debt Rating is the following:
BBB-, BBB or BBB+ by S&P or Baa3, Baa2 or Baa1 by Moody's 0.200%
CATEGORY 3 - The Index Debt Rating is the following:
A- or better by S&P or A3 or better by Moody's 0.150%
The Commitment Fee shall be (i) fully earned when due and nonrefundable when
paid and (ii) adjusted on each Adjustment Date according to the most recent
determination of the Index Debt Rating. For purposes of the foregoing, if the
Index Debt Rating established by S&P or Moody's shall fall within a different
category, the Commitment Fee shall be determined by reference to whichever Index
Debt Rating shall fall within the inferior (or numerically lower) category.
2.11 FUNDING LOSSES. If Company makes any payment or prepayment of
principal with respect to any LIBOR Advance (including payments made after any
acceleration thereof) or converts any Advance from a LIBOR Advance on any day
other than the last day of an Interest Period applicable thereto or if Company
fails to prepay, borrow, convert, or continue any LIBOR Advance after a notice
or prepayment, borrowing, conversion or continuation has been given (or is
deemed to have been given) to Administrative Agent, Company shall pay to each
Lender on demand (subject to SECTION 9.8 hereof) any Consequential Loss.
2.12 COMPUTATIONS AND MANNER OF PAYMENTS.
(a) Company shall make each payment not later than 1:00 p.m. on the day
when due in immediately available funds to Administrative Agent, for the Ratable
account of Lenders unless otherwise specifically provided herein, at
Administrative Agent
NationsBank Plaza
901 Main Street
14th Floor
Dallas, Texas 75202
Attn. Theresa Belk
for the further credit to the account of Franchise Finance Corporation of
America. No later than the end of each day when each payment hereunder is made,
Company shall notify Theresa Belk, telephone (214) 508-9177, facsimile (214)
508-2515, or such other Person as Administrative Agent
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may from time to time specify. Notwithstanding anything in this SECTION 2.16(A)
or any other provision of this Agreement or any other Loan Paper to the
contrary, any payment by Company in respect of any Advances after acceleration
of the Advances pursuant to SECTION 7.2 or any monies received by Administrative
Agent or any Lender as a result of the exercise of remedies under any Loan Paper
after acceleration of Advances pursuant to SECTION 7.2 shall be distributed pro
rata to each Lender based on the percentage that the outstanding Advances owed
to such Lender bears to the aggregate Advances owed to all Lenders.
(b) Unless Administrative Agent shall have received notice from Company
prior to the date on which any payment is due hereunder that Company will not
make payment in full, Administrative Agent may assume that such payment is so
made on such date and may, in reliance upon such assumption, make distributions
to Lenders. If and to the extent Company shall not have made such payment in
full, each Lender shall repay to Administrative Agent forthwith on demand the
applicable amount distributed, together with interest thereon at the Federal
Funds Rate, from the date of distribution until the date of repayment. Company
hereby authorizes each Lender, if and to the extent payment is not made when due
hereunder, to charge the amount so due against any account of Company with such
Lender.
(c) Subject to SECTION 9.8 hereof, interest on Advances, the Commitment Fee
and other amounts due under the Loan Papers shall be calculated on the basis of
actual days elapsed but computed as if each year consisted of 360 days. Such
computations shall be made including the first day but excluding the last day
occurring in the period for which such interest, payment or Commitment Fee is
payable. Each determination by Administrative Agent or a Lender of an interest
rate, fee or commission hereunder shall be conclusive and binding for all
purposes, absent demonstrable error. All payments under the Loan Papers shall be
made in United States dollars, and without setoff, counterclaim, or other
defense.
(d) Reference to any particular index or reference rate for determining any
applicable interest rate under this Agreement is for purposes of calculating the
interest due and is not intended as and shall not be construed as requiring any
Lender to actually fund any Advance at any particular index or reference rate.
2.13 YIELD PROTECTION.
(a) If any Lender determines that either (i) the adoption, after the date
hereof, of any Applicable Law, rule, regulation or guideline regarding capital
adequacy and applicable to commercial banks or financial institutions generally
or any change therein, or any change, after the date hereof, in the
interpretation or administration thereof by any Tribunal, central bank or
comparable agency charged with the interpretation or administration thereof, or
(ii) compliance by any Lender (or Lending Office of any Lender) with any request
or directive made after the date hereof applicable to commercial banks or
financial institutions generally regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency has the effect of reducing the rate of return on such Lender's capital as
a consequence of its
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obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy (but excluding
consequences of such Lender's negligence or intentional disregard of law or
regulation)) by an amount reasonably deemed by such Lender to be material, then
from time to time, within fifteen days after demand by such Lender, Company
shall, subject to SECTION 9.8 hereof, pay to such Lender such additional amount
or amounts as will adequately compensate such Lender for such reduction. Each
Lender will notify Company of any event occurring after the date of this
Agreement which will entitle such Lender to compensation pursuant to this
SECTION 2.13(A) as promptly as practicable after such Lender obtains actual
knowledge of such event; PROVIDED, no Lender shall be liable for its failure or
the failure of any other Lender to provide such notification. A certificate of
such Lender claiming compensation under this SECTION 2.13(A), setting forth in
reasonable detail the calculation of the additional amount or amounts to be paid
to it hereunder and certifying that such claim is consistent with such Lender's
treatment of similar customers having similar provisions generally in their
agreements with such Lender shall be conclusive in the absence of demonstrable
error. Each Lender shall use reasonable efforts to mitigate the effect upon
Company of any such increased costs payable to such Lender under this SECTION
2.13(A).
(b) If, after the date hereof, any Tribunal, central bank or other
comparable authority, at any time imposes, modifies or deems applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit extended by, any
Lender, or imposes on any Lender any other condition affecting a LIBOR Advance,
the Notes, or its obligation to make a LIBOR Advance; and the result of any of
the foregoing is to increase the cost to such Lender of making or maintaining
its LIBOR Advances, or to reduce the amount of any sum received or receivable by
such Lender under this Agreement or under the Notes or reimbursement obligations
by an amount deemed by such Lender to be material, THEN, within five days after
demand by such Lender, Company shall, subject to SECTION 9.8 hereof, pay to such
Lender such additional amount or amounts as will compensate such Lender for such
increased cost or reduction. Each Lender will (i) notify Company and
Administrative Agent of any event occurring after the date of this Agreement
that entitles such Lender to compensation pursuant to this SECTION 2.13(B), as
promptly as practicable after such Lender obtains actual knowledge of the event;
PROVIDED, no Lender shall be liable for its failure or the failure of any other
Lender to provide such notification and (ii) use good faith and reasonable
efforts to designate a different Lending Office for LIBOR Advances of such
Lender if the designation will avoid the need for, or reduce the amount of, the
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender. A certificate of such Lender claiming
compensation under this SECTION 2.13(B), setting forth in reasonable detail the
computation of the additional amount or amounts to be paid to it hereunder and
certifying that such claim is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender shall be conclusive in the absence of demonstrable error. If such Lender
demands compensation under this SECTION 2.13(B), Company may at any time, on at
least five Business Days' prior notice to such Lender (i) repay in full the then
outstanding principal amount of LIBOR Advances, of such Lender, together with
accrued interest thereon, or (ii) convert the LIBOR Advances to Base Rate
Advances in accordance with the
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provisions of this Agreement; PROVIDED, HOWEVER, that Company shall be liable
for the Consequential Loss arising pursuant to those actions.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation or administration of
any Law shall make it unlawful, or any central bank or other Tribunal shall
assert that it is unlawful, for a Lender to perform its obligations hereunder to
make LIBOR Advances or to continue to fund or maintain LIBOR Advances hereunder,
then, on notice thereof and demand therefor by such Lender to Company, (i) each
LIBOR Advance will automatically, upon such demand, convert into a Base Rate
Advance and (ii) the obligation of such Lender to make, or to convert Advances
into, LIBOR Advances shall be suspended until such Lender notifies
Administrative Agent and Company that such Lender has determined that the
circumstances causing such suspension no longer exist.
(d) Upon the occurrence and during the continuance of any Default or Event
of Default, (i) each LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Rate Advance and
(ii) the obligation of each Lender to make, or to convert Advances into, LIBOR
Advances shall be suspended.
(e) Failure on the part of any Lender to demand compensation for any
increased costs, increased capital or reduction in amounts received or
receivable or reduction in return on capital pursuant to this SECTION 2.13
(collectively, "INCREASED ADVANCE COSTS") with respect to any period shall not
constitute a waiver of any Lender's right to demand compensation with respect to
such period or any other period, subject, however, to the limitations set forth
in this SECTION 2.13. Notwithstanding the foregoing, any Lender's demand for
Increased Advance Costs shall not include any Increased Advance Costs with
respect to any period more than two years prior to the date that such Lender
gives notice to Company of such Increased Advance Costs unless the effective
date of the condition which results in the right to receive Increased Advance
Costs is retroactive (the "INCREASED ADVANCE COSTS RETROACTIVE EFFECTIVE DATE").
If any Increased Advance Costs has an Increased Advance Costs Retroactive
Effective Date and any Lender demands compensation within two years after the
date setting the Increased Advance Costs Retroactive Effective Date (the
"INCREASED ADVANCE COSTS SET DATE"), such Lender shall have the right to receive
such Increased Advance Costs from the Increased Advance Costs Retroactive
Effective Date. If a Lender does not demand such Increased Advance Costs within
two years after the Increased Advance Costs Set Date, such Lender may not
receive payment of Increased Advance Costs with respect to any period more than
two years prior to such demand.
(f) The obligations of Company under this SECTION 2.13 shall survive any
termination of this Agreement, subject, however, to the limitations set forth in
SECTION 2.13(E) above.
(g) Determinations by Lenders for purposes of this SECTION 2.13 shall be
conclusive, absent demonstrable error. Any certificate delivered to Company by a
Lender pursuant to this SECTION 2.13 shall include in reasonable detail the
basis for such Lender's demand for additional compensation and a certification
that the claim for compensation is consistent with such Lender's
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treatment of similar customers having similar provisions generally in their
agreements with such Lender.
(h) If any Lender notifies Administrative Agent that, in its reasonable
determination, the LIBOR Rate for any Interest Period for any LIBOR Advances
will not adequately reflect the cost to such Lender of making, funding or
maintaining LIBOR Advances for such Interest Period, Administrative Agent shall
promptly so notify Company, whereupon (i) each such LIBOR Advance will
automatically, on the last day of the then existing Interest Period therefor,
convert into a Base Rate Advance and (ii) the obligation of such Lender to make,
or to convert Advances into, LIBOR Advances shall be suspended until such Lender
notifies Administrative Agent that such Lender has determined that the
circumstances causing such suspension no longer exist and Administrative Agent
notifies Company of such fact.
2.14 USE OF PROCEEDS. The proceeds of the Advances shall be available (and
Company and its Subsidiaries shall use such proceeds) to (a) finance acquisition
of, and making loans secured by, Property and (b) use for other general working
capital purposes.
2.15 EXTENSION OPTION AND CONVERSION OPTION RELATING TO THE LOAN.
(a) On the Option Date, Company, with the prior written consent of Lenders
and so long as there exists no Default or Event of Default, may elect to extend
the maturity of the Loan for an additional 364 day period until the Final
Maturity. Such election must be made no sooner than 60 days prior to the Option
Date and no later than 45 days prior to the Option Date by written notice in
accordance with the terms of SECTION 9.2 hereof to each Lender of its request to
extend the final maturity of the Loan. Each Lender shall, no later than 30 days
after receipt of such notice, give written notice to Company and Administrative
Agent of its approval or disapproval of such extension. Any Lender failing to
give notice shall be deemed to have not approved such extension. No Lender shall
be obligated to consent to such extension. If Company fails to receive the
consent of all Lenders to such extension, the Commitment shall be reduced to
zero on the Option Date.
(b) On the Option Date, Company, so long as there exists no Default or
Event of Default on such date of conversion, shall have the option (which shall
not require the consent of any Lender) to convert the Loan to a term loan. Such
election must be made no sooner than 60 days prior to the Option Date, and no
later than 45 days prior to the Option Date, by written notice in accordance
with the terms of SECTION 11.2 hereof to each Lender of such conversion. Prior
to such conversion, Company shall execute and deliver new promissory notes to
each Lender in the form required by Administrative Agent. Upon such notice and
receipt by Lenders of the new promissory notes, the Loan shall automatically
convert to a term loan on the Option Date which shall mature on the Final
Maturity and no scheduled payments of principal of Advances (other than
Refinancing Advances) shall be required to be made prior to the Final Maturity.
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2.16 COMMITMENT INCREASE.
(a) During the term of this Agreement, Company may, from time to time,
request an increase in the Commitment to an amount not to exceed $100,000,000.
Such increase in the Commitment may be effected by any combination of Lenders
and new creditors. No Lender shall be required to participate, but each Lender
expressly agrees and acknowledges that upon establishment of the increase in the
Commitment, regardless of whether the Lender has agreed to increase its
participation in the Advances by participating in the increase in the
Commitment, Administrative Agent shall reallocate the Advances so that all
Lenders will have a pro rata portion of each Advance based on the Specified
Percentages as adjusted to give effect to the increase in the Commitment.
(b) On the date of any proposed increase in the Commitment, (i) the
representations and warranties contained in ARTICLE IV hereof shall be true and
correct on such date, as though made on and as of such date and (ii) no Default
or Event of Default shall exist and no Default or Event of Default would result
from such increase in the Commitment.
(c) For any increase from time to time of the Commitment, Company and such
Lenders (including the new lenders) shall have agreed to an up-front facility
fee for each such increase, such fees to be negotiated at the time of each such
increase, which such fees shall be paid prior to or on the date of such
increase.
(d) Notwithstanding anything herein or in any other Loan Paper to the
contrary, Company and Administrative Agent may agree to add other lenders in
connection with any proposed increase to the Commitment.
(e) With respect to each increase to the Commitment, Administrative Agent
shall have received a certificate from Company to the effect that (i) such
increase has received all regulatory approvals, if necessary, and is in
compliance with all Applicable Laws, (ii) no other approvals or consents from
any Person are required by any such Person except to the extent they have been
received and (iii) such increase in the Commitment does not conflict with, or
result in violation of, any agreement or instrument to which Company or any of
its Subsidiaries, or any of their respective Properties, is subject.
(f) With respect to each increase to the Commitment, Administrative Agent
and each Lender (including any new Lenders party hereto) shall have received new
Notes evidencing any increase in the Commitment, and Company, each of its
Subsidiaries, each Lender and each new Lender agrees to execute any and all such
documents deemed reasonably necessary by Administrative Agent to effectuate this
SECTION 2.16 (whether affirmation of guaranties, other documents or otherwise).
(g) Promptly after any increase in the Commitment, Administrative Agent
shall deliver to each Lender evidence of new Specified Percentages, adjusted to
give effect to any increase in the
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Commitment, and any reallocation required in order for each Lender to have a
proportionate part of the Loan.
(h) With respect to each increase to the Commitment, on or prior to the
date of such increase, each new Lender being added to the Facility shall deliver
to Company and Administrative Agent documentation acceptable to Administrative
Agent evidencing such new Lender's acceptance of this Agreement and all other
Loan Papers in form and substance reasonably acceptable to Administrative Agent
(and making such Lender a party to this Agreement and the other Loan Papers).
(i) With respect to each increase to the Commitment, on the date of such
increase, Administrative Agent shall deliver to Company notice of the cost of
any LIBOR breakage or other Consequential Loss incurred by any Lender as a
result of such increase and any reallocation among Lenders, and Company shall
pay such costs on the date of such increase in immediately available funds to
Administrative Agent on behalf of such Lenders.
ARTICLE III.
CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The obligations of each
Lender under this Agreement and the obligation of each Lender to make the
Initial Advance shall be subject to the following conditions precedent that on
the Closing Date:
(a) All terms, conditions and documentation in connection with this
Agreement shall be acceptable to Lenders.
(b) The making of the Commitment shall not contravene any Law applicable to
Administrative Agent or any Lender.
(c) Each Lender shall have received a Certificate from an Authorized
Officer stating that no material adverse change in the business, assets,
prospects, or financial condition of Company and its Subsidiaries since the
December 31, 1997 financial statements provided to Lenders. Administrative Agent
shall have received financial information regarding Company and each Subsidiary
of Company requested by it.
(d) Each Lender shall have received an executed copy of this Agreement and
its respective Note, duly completed and correct. Lenders shall have received
copies of the Fee Letters signed by Company, as applicable. Each of the
following shall have been delivered to Administrative Agent on behalf of
Lenders, in form and substance satisfactory to Administrative Agent, Special
Counsel and each Lender. The Guaranty Agreement executed by each Guarantor and a
Subordination Agreement executed by each payee of an Intercompany Note.
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(e) Company shall have delivered to Administrative Agent a Certificate,
dated the Closing Date, executed by an Authorized Officer, certifying that, to
such Authorized Officer's knowledge, (i) no Default or Event of Default has
occurred and is continuing, (ii) the representations and warranties set forth in
ARTICLE IV hereof are true and correct in all material respects, and (iii)
Company and each Subsidiary of Company has complied with all agreements and
conditions to be complied with by it in all material respects under the Loan
Papers by such date.
(f) Company and each Guarantor shall have each delivered to Administrative
Agent on behalf of Lenders a Secretary's Certificate, dated the Closing Date,
certifying (i) that attached copies of the certificates of organization
certified by the Secretary of States of the appropriate states, and bylaws are
true and complete, and in full force and effect, without amendment except as
shown, and (ii) that a copy of the resolutions authorizing execution and
delivery of this Agreement and any Loan Papers, as appropriate, are true and
complete, and that such resolutions are in full force and effect, were duly
adopted, have not been amended, modified, or revoked, and constitute all
resolutions adopted with respect to this loan transaction. Administrative Agent
and Lenders may conclusively rely on the certificate delivered pursuant to this
subsection until they receive notice in writing to the contrary.
(g) Administrative Agent shall have received an opinion or opinions of
counsel to Company and its Subsidiaries, dated the Closing Date, acceptable to
Lenders and otherwise in form and substance satisfactory to Lenders and Special
Counsel, with respect to this loan transaction and otherwise, including, without
limitation, opinions (i) to the valid and binding nature of the Loan Papers,
(ii) to the power, authorization and corporate matters of each such Person taken
in connection with the transactions contemplated by the Loan Papers, (iii) that
the execution, delivery and performance by Company and the Subsidiaries of
Company of the respective Loan Papers does not violate any of the terms of
Company's or any such Subsidiary's agreements, and (iv) to such other matters as
are reasonably requested by Special Counsel.
(h) Administrative Agent shall have received, on behalf of Lenders, each of
the following, in form and substance satisfactory to Administrative Agent and
Special Counsel:
(i) evidence that all proceedings of Company and its Subsidiaries taken
in connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to Lenders and Special
Counsel; and each Lender shall have received copies of all documents or
other evidence which Lenders or Special Counsel may reasonably request in
connection with this facility, including without limitation the resolutions
of the Board of Directors of Company and each Subsidiary, and the requisite
authorizations of all other Persons necessary to authorize the transactions
contemplated herein, certified to be true and correct by an Authorized
Officer;
(ii) payment of all fees, costs and expenses (including, without
limitation, attorneys' fees of Special Counsel due to be paid on or through
the Closing Date); and
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(iii) a Compliance Certificate computed after giving effect to the
Initial Advance.
(i) All corporate proceedings of Company and its Subsidiaries taken in
connection with the transactions contemplated hereby, and all documents
incidental thereto, shall be satisfactory in form and substance to each Lender.
Administrative Agent and each Lender shall have received copies of all documents
or other evidence that it may reasonably request in connection with such
transactions.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of each Lender to
make each Advance (including the Initial Advance) shall be subject to the
further conditions precedent that on the date of such Advance (a) the following
statements shall be true (and the delivery of each Borrowing Notice under
SECTION 2.2(A), each Application and each Conversion or Continuation Notice
under SECTION 2.9(B), or the failure to deliver a Conversion or Continuation
Notice under SECTION 2.9(B) shall constitute a representation that on the
disbursement date (except as to representations and warranties which (i) refer
to a specific date, (ii) have been modified by transactions permitted pursuant
to this Agreement or any other Loan Paper or (iii) have been specifically waived
by Administrative Agent, to the extent permitted pursuant to SECTION 9.1) are
true:
(i) The representations and warranties contained in ARTICLE IV hereof
are true and correct on such date, as though made on and as of such date;
(ii) No event has occurred and is continuing, or would result from such
Advance (including the intended application of the proceeds of such
Advance), that does or could constitute a Default or Event of Default; and
(iii) There shall have occurred no Material Adverse Change, and the
making of such Advance, shall not cause or result in a Material Adverse
Change;
(iv) After giving effect to each such Advance, the aggregate
outstanding Advances do not exceed the Commitment; and
(v) The Unused Commitment (as defined in the Amended and Restated
Credit Agreement) of each lender under the Amended and Restated Credit
Agreement is zero;
and (b) Administrative Agent shall have received, in form and substance
acceptable to it, such other approvals, documents, certificates, opinions, and
information as it may deem necessary or appropriate.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Company represents and warrants that the following are true and correct:
4.1 ORGANIZATION AND QUALIFICATION. Company and each of its Subsidiaries
is a corporation duly organized, validly existing, and in good standing under
the Laws of its state of incorporation. Company and each of its Subsidiaries is
qualified to do business in all jurisdictions where the nature of its business
or Properties require such qualification, except where the failure to so qualify
could not reasonably be expected to have a Material Adverse Effect. Set forth on
SCHEDULE 4.1 attached hereto is a complete and accurate listing with respect to
Company and each of its Subsidiaries, showing (a) the jurisdiction of its
organization and its mailing address, which is the principal place of business
and executive offices of each unless otherwise indicated, (b) the classes of
Capital Stock and shares of Capital Stock issued and outstanding in Company and
each of its Subsidiaries, and the numbers or amounts of Capital Stock authorized
and outstanding of Company and each of its Subsidiaries, and (c) each record and
beneficial owner of outstanding Capital Stock on the date hereof, indicating the
ownership percentage (provided that, with Administrative Agent's consent,
SCHEDULE 4.1 need only set forth each record and beneficial owner of 1% or more
of Capital Stock of Company based on the most current records of Company prior
to the Closing Date). All Capital Stock of Company and each of its Subsidiaries
is validly issued and fully paid and has been issued in compliance with all
requirements of Applicable Law. No share of Capital Stock of Company or any
Subsidiary of Company is subject to any Lien, including any restrictions on
hypothecation or transfer.
4.2 DUE AUTHORIZATION; VALIDITY. The board of directors of Company and
each Subsidiary of Company have duly authorized the execution, delivery, and
performance of the Loan Papers to be executed by Company and each Subsidiary of
Company, as appropriate. Company and each Subsidiary of Company has full legal
right, power, and authority to execute, deliver, and perform under the Loan
Papers to be executed and delivered by it. The Loan Papers constitute the legal,
valid, and binding obligations of Company and each Subsidiary of Company, as
appropriate, enforceable in accordance with their terms (subject as to
enforcement of remedies to any applicable Debtor Relief Laws).
4.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. The execution or delivery of
any Loan Papers, and performance thereunder, does not conflict with, or result
in a breach of the terms, conditions, or provisions of, or constitute a default
under, or result in any violation of, or result in the creation of any Lien
(other than in favor of Administrative Agent) upon any Properties of Company or
any Subsidiary of Company under, or require any consent, approval, or other
action by, notice to, or filing with, any Tribunal or Person pursuant to, the
certificate of incorporation or bylaws of Company or any Subsidiary of Company,
any award of any arbitrator, or any agreement,
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instrument, or Law to which Company or any Subsidiary of Company, or any of
their Properties is subject.
4.4 FINANCIAL STATEMENTS. The financial statements of Company and its
Consolidated Subsidiaries, dated September 30, 1998 and delivered to
Administrative Agent, fairly present its financial condition and the results of
operations as of the dates and for the periods shown, all in accordance with
GAAP. Such financial statements reflect all material liabilities, direct and
contingent, of Company and its Consolidated Subsidiaries that are required to be
disclosed in accordance with GAAP. As of the date of such financial statements,
there were no Contingent Liabilities, liabilities for Taxes, forward or
long-term commitments, or unrealized or anticipated losses from any unfavorable
commitments that are substantial in amount and that are not reflected on such
financial statements or otherwise disclosed in writing to Administrative Agent.
Since September 30, 1998, there has been no Material Adverse Change. Company and
each Subsidiary of Company is Solvent. The projections of Company dated December
1998 delivered to Administrative Agent were prepared in good faith and
management believes them to be based on reasonable assumptions (each of which
are stated in such statement) and to provide reasonable estimations of future
performance as of the dates and for the periods shown for Company and its
Subsidiaries, subject to the uncertainty and approximation inherent in any
projections. Company's fiscal year ends on December 31.
4.5 LITIGATION. As of the Closing Date, SCHEDULE 4.5 lists all Litigation
that is pending, and to Company's best knowledge, threatened by written demand
against Company or any of its Subsidiaries or any of their Properties or assets
on the Closing Date in which an adverse determination with respect thereto could
reasonably be expected to result in an uninsured liability of Company or any of
its Subsidiaries in excess of $500,000. Except as set forth on SCHEDULE 4.5,
there is no pending or, to Company's best knowledge, threatened Litigation
against Company, any Subsidiary of Company or any of their respective Properties
that could reasonably be expected to result in a Material Adverse Change.
4.6 COMPLIANCE WITH LAWS REGULATING THE INCURRENCE OF INDEBTEDNESS. No
proceeds of any Advance will be used directly or indirectly to acquire any
security in any transaction which is subject to Sections 13 and 14 of the
Securities Exchange Act of 1934, as amended. Company is not, nor is any
Subsidiary of Company, engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U issued by the Board of Governors of the Federal Reserve System), and no
proceeds of any Advance will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. Following Company's intended use of the proceeds of each Advance, not
more than 25% of the value of the assets of Company will be "MARGIN STOCK"
within the meaning of Regulation U. Company is not subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940, the Interstate Commerce Act (as any of the
preceding acts have been amended), or any other Law that the incurring of
Indebtedness by Company would violate, including without limitation Laws
relating to common or contract carriers or the sale of electricity, gas, steam,
water, or other public utility services.
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4.7 AUTHORIZATIONS, TITLE TO PROPERTIES, AND RELATED MATTERS. Company and
each Subsidiary of Company possess all material Authorizations necessary and
appropriate to own and operate their businesses and are not in violation thereof
in any material respect. All such Authorizations are in full force and effect,
and no event has occurred that permits, or after notice or lapse of time could
permit, the revocation, termination or material and adverse modification of any
such Authorization, except those which in the aggregate could not reasonably be
expected to cause a Material Adverse Change. Company and each Subsidiary of
Company has requisite corporate power (as applicable) and legal right to own and
operate its Property and to conduct its business. Each has good and indefeasible
title (fee or leasehold, as applicable) to its Property, subject to no Lien of
any kind, except Permitted Liens and first Liens for the benefit of Company or
any Subsidiary of Company. Neither Company nor any Subsidiary of Company is in
violation of its respective certificates or articles of incorporation or bylaws.
Neither Company nor any Subsidiary of Company is in violation of any Law, or
material agreement or instrument binding on or affecting it or any of its
Properties, the effect of which could reasonably be expected to cause a Material
Adverse Change. No business or Properties of Company or any Subsidiary of
Company is affected by any drought, storm, earthquake, embargo, act of God or
public enemy, or other casualty, the effect of which could reasonably be
expected to cause a Material Adverse Change.
4.8 OUTSTANDING DEBT AND LIENS. Company and its Subsidiaries have no
outstanding Debt, Contingent Liabilities or Liens, except Permitted Liens,
except as shown on SCHEDULE 4.8 hereto. No breach, default or event of default
exists under any document, instrument or agreement evidencing or otherwise
relating to any Indebtedness of Company or any of its Subsidiaries. All
Intercompany Notes are subject to a Subordination Agreement.
4.9 TAXES. Company and each Subsidiary of Company has filed all federal,
state, and other Tax returns (or extensions related thereto) which are required
to be filed, and has paid all Taxes as shown on said returns, as well as all
other Taxes, to the extent due and payable, except to the extent payment is
contested in good faith and for which adequate reserves have been established
therefor in accordance with GAAP. All Tax liabilities of Company and each
Subsidiary of Company are adequately provided for on its books, including
interest and penalties, and adequate reserves have been established therefor in
accordance with GAAP. No income Tax liability of a material nature has been
asserted by taxing authorities for Taxes in excess of those already paid, and no
taxing authority has notified Company or any Subsidiary of Company of any
deficiency in any Tax return.
4.10 ERISA. Each Plan of Company and each Subsidiary of Company has
satisfied the minimum funding standards under all Laws applicable thereto, and
no Plan has an accumulated funding deficiency thereunder. Company has not, and
neither has Subsidiary of Company incurred any material liability to the PBGC
with respect to any Plan. No ERISA Event has occurred with respect to any Plan
for which an Insufficiency in excess of $100,000 exists on the date of such
occurrence. Neither Company nor any ERISA Affiliate has participated in any
non-exempt Prohibited Transaction with respect to any Plan or trust created
thereunder. Neither Company nor any ERISA Affiliate has incurred any Withdrawal
Liability to any Multiemployer Plan that has not
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been satisfied. Neither Company nor any ERISA Affiliate has been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of ERISA.
4.11 ENVIRONMENTAL LAWS. Company and Subsidiary of Company has obtained all
material environmental, health and safety Authorizations required under all
applicable Environmental Laws to carry on its business as being conducted,
except where the failure to obtain such Authorizations could not reasonably be
expected to have a Material Adverse Effect. On the Closing Date, there are no
environmental liabilities of Company or any Subsidiary of Company (with respect
to any fee owned Properties) which could reasonably be expected to have a
Material Adverse Effect, except as disclosed and described in detail on SCHEDULE
4.11 hereto. Each of such Authorizations is in full force and effect and Company
and each Subsidiary of Company is in compliance with the terms and conditions
thereof, and is also in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in any applicable Environmental Law or in any regulation,
code, plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder, except to the extent the failure to
have such Authorizations or comply with any of the terms and conditions thereof
could not reasonably be expected to have a Material Adverse Effect. In addition,
no written notice, notification, demand, request for information, citation,
summons or order has been issued, no written complaint has been filed, no
penalty has been assessed and no investigation or review is pending or, to the
best knowledge of Company, or any Subsidiary of Company, threatened, by any
Tribunal or other entity with respect to any alleged failure by Company or any
Subsidiary of Company to have any environmental, health or safety Authorization
required under any applicable Environmental Law in connection with the conduct
of the business of Company or any Subsidiary of Company or with respect to any
generation, treatment, storage, recycling, transportation, discharge, disposal
or release of any Hazardous Materials by Company or any Subsidiary of Company,
the effect of which could reasonably be expected to have a Material Adverse
Effect. There are no environmental liabilities of Company or any Subsidiary of
Company which could reasonably be expected to cause a Material Adverse Change.
Mortgagors in respect of Funded Mortgages and Tenants under Leases are
contractually (i) prohibited from generating or producing Hazardous Materials at
or in connection with the Properties of Company and its Subsidiaries and
disposing of any Hazardous Materials on or to any Property of Company or any
Subsidiary of Company, except in compliance with applicable Environmental Laws
or (ii) obligated to maintain and occupy the Properties of Company and its
Subsidiaries in compliance with all applicable Laws.
4.12 DISCLOSURE. Neither Company nor any Subsidiary of Company has made a
material misstatement of fact, or failed to disclose any fact necessary to make
the facts disclosed not misleading, in light of the circumstances under which
they were made, to Administrative Agent or any Lender during the course of
application for and negotiation of any Loan Papers or otherwise in connection
with any Advances. There is no fact known to Company or any Subsidiary of
Company that materially adversely affects any of Company's or any Subsidiary of
Company's Properties or business, or that could constitute a Material Adverse
Change, and that has not been set forth in the Loan Papers or in other documents
furnished to Administrative Agent.
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4.13 INVESTMENTS; SUBSIDIARIES. Company and its Subsidiaries have no
Investments except as described on SCHEDULE 4.13 hereto and as permitted by
SECTION 6.10 hereof. SCHEDULE 4.13 is a complete and accurate listing of Company
and each Subsidiary of Company, showing (a) its complete name, (b) its
jurisdiction of organization, (c) its capital structure, and (d) its street and
mailing address, which is its principal place of business and executive office.
4.14 CERTAIN FEES. No broker's, finder's, management fee or other fee or
commission will be payable by Company with respect to the making of Commitment
or Advances hereunder (other than to Administrative Agent and Lenders
hereunder), or the offering, issuance or sale of the Capital Stock of Company.
Company and each Subsidiary of Company hereby agrees to indemnify and hold
harmless Administrative Agent and each Lender from and against any claims,
demand, liability, proceedings, costs or expenses asserted with respect to or
arising in connection with any such fees or commissions.
4.15 INTELLECTUAL PROPERTY. Company and each Subsidiary of Company has
obtained all patents, trademarks, service-marks, trade names, copyrights,
licenses and other rights, free from material restrictions, which are necessary
for the operation of their respective businesses as presently conducted and as
proposed to be conducted.
4.16 INVESTMENT COMPANY ACT. Neither Company nor any of its Subsidiaries is
an "investment company", "promoter", "principal under" or "controlled by" an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended. The making of the Advances by Lenders, the application of the
proceeds and repayment thereof by Company and the consummation of the
transactions contemplated by the Loan Papers will not violate any such Act or
any rule, regulation or order thereunder issued by the Securities and Exchange
Commission.
4.17 RESTRICTED PAYMENTS. Neither Company nor any of its Subsidiaries has
made any Restricted Payment during the period from and including September 30,
1997 through and including the Closing Date.
4.18 STATUS AS A REAL ESTATE INVESTMENT TRUST. Company (i) has elected to
be treated as and is qualified as a Real Estate Investment Trust, (ii) has not
revoked its election to be a Real Estate Investment Trust, (iii) for each
taxable year, has satisfied the requirements of Section 856(c)(4) of the Code
and (iv) for its current "tax year" (as defined in the Code) is and for all
prior tax years subsequent to its election as a Real Estate Investment Trust has
been entitled to a dividends paid deduction which meets the requirements of
Section 857 of the Code.
4.19 COMMON ENTERPRISE. Company and its Subsidiaries are engaged in the
businesses set forth in SECTION 6.8 hereof. These operations require financing
on a basis such that the credit supplied can be made available to Company and
its Subsidiaries, as required for the continued successful operation of Company
and its Subsidiaries, taken as a whole. Company and each of its Subsidiaries
expects to derive benefit (and the Board of Directors of Company and each
Subsidiary
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of Company has determined that such Subsidiary may reasonably be expected to
derive benefit), directly or indirectly, from the credit extended by Lenders
hereunder, both in its separate capacity and as a member of the group of
companies, since the successful operation and condition of Company and each of
its Subsidiaries is dependent on the continued successful performance of the
function of the group as a whole.
4.20 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC All representations
and warranties made under this Agreement shall be deemed to be made at and as of
the Closing Date and at and as of the date of each Advance, and each shall be
true and correct when made, except to the extent (a) previously fulfilled in
accordance with the terms hereof, (b) subsequently inapplicable, or (c)
previously waived in writing by Administrative Agent and Lenders with respect to
any particular factual circumstance. The representations and warranties made
under this Agreement shall be deemed applicable to each Subsidiary as of the
formation or acquisition of such Subsidiary and at and as of each date the
representations and warranties are remade pursuant to this provision. All
representations and warranties made under this Agreement shall survive, and not
be waived by, the execution hereof by Administrative Agent and Lenders, any
investigation or inquiry by Administrative Agent or any Lender, or by the making
of any Advance under this Agreement.
4.21 YEAR 2000 COMPLIANCE. Company 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 Company 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. Company 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.
ARTICLE V.
AFFIRMATIVE COVENANTS
So long as the Commitment, any Advance or any portion of the Obligations is
outstanding, or Company or any of its Subsidiaries owes any other amount
hereunder or under any other Loan Paper:
5.1 COMPLIANCE WITH LAWS AND PAYMENT OF DEBT. Company shall, and shall
cause each Subsidiary of Company to, comply with all Applicable Laws, including
without limitation compliance with ERISA and all applicable federal and state
securities Laws. Company shall, and
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shall cause each of its Subsidiaries to, pay its Indebtedness as and when due
(or within any applicable grace period).
5.2 INSURANCE. Company (a) shall cause, and shall cause each Subsidiary of
Company to cause, the Tenants under Leases and the Mortgagors under Funded
Mortgages to keep the Properties of Company and its Subsidiaries adequately
insured at all times by reputable insurers to such extent and against such
risks, including fire and other risks insured against by extended coverage, as
what is customary with companies similarly situated and in the same or similar
businesses, (b) shall, and shall cause each Subsidiary of Company to, maintain
in full force and effect public liability (including liability insurance for all
vehicles and other insurable Property) and worker's compensation insurance, in
amounts customary for such similar companies to cover normal risks, by insurers
satisfactory to Administrative Agent, and (c) Company shall, and shall cause
each Subsidiary of Company to, maintain other insurance as may be required by
Law or reasonably requested by Administrative Agent. Company shall from time to
time shall deliver to Administrative Agent, upon demand, evidence of the
maintenance of such insurance.
5.3 INSPECTION RIGHTS. Company shall, and shall cause each Subsidiary of
Company to, permit Administrative Agent or any Lender, upon reasonable notice
(provided that no advance notice is required after the occurrence and during the
continuance of an Event of Default), to examine and make copies of and abstracts
from their records and books of account, to visit and inspect their Properties
and to discuss their affairs, finances, and accounts with any of their
directors, officers, employees, accountants, attorneys and other
representatives, all as Administrative Agent or any Lender may reasonably
request.
5.4 RECORDS AND BOOKS OF ACCOUNT; CHANGES IN GAAP. Company shall, and
shall cause each of its Subsidiaries to keep adequate records and books of
account in conformity with GAAP. Company shall make such valuations of its
assets as may be required by the terms of Section 856(c)(5) of the Code. Company
shall not, nor shall Company permit any of its Subsidiaries to change its Fiscal
Year, nor change its method of financial accounting except in accordance with
GAAP. In connection with any such change after the date hereof, Company and
Lenders shall negotiate in good faith to make appropriate alterations to the
covenants set forth in SECTION 6.1 hereof, reflecting such change.
5.5 REPORTING REQUIREMENTS. Company shall furnish to each Lender and
Administrative Agent:
(a) As soon as available and in any event within 45 days after the end of
Company's fiscal quarters, consolidated balance sheets of Company and its
Consolidated Subsidiaries as of the end of such quarter, and consolidated
statements of income, and consolidated statements of changes in cash flow of
Company and its Consolidated Subsidiaries for the portion of the fiscal year
ending with such quarter, setting forth, in comparative form, figures for the
corresponding periods in the previous fiscal year, all in reasonable detail, and
certified by an Authorized Officer as prepared in
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accordance with GAAP, and fairly presenting the financial condition and results
of operations of Company and its Consolidated Subsidiaries (subject to normal,
year-end audit adjustments);
(b) As soon as available and in any event within 90 days after the end of
each fiscal year, consolidated balance sheets of Company and its Consolidated
Subsidiaries as of the end of such fiscal year, and consolidated statements of
income and changes in cash flow of Company and its Consolidated Subsidiaries for
such fiscal year, all in reasonable detail, prepared in accordance with GAAP,
and accompanied by an unqualified opinion of the Auditor, which opinion shall
state that such financial statements were prepared in accordance with GAAP, that
the examination by the Auditor in connection with such financial statements was
made in accordance with generally accepted auditing standards, and that such
financial statements present fairly the financial condition and results of
operations of Company and its Consolidated Subsidiaries;
(c) Promptly upon receipt thereof, copies of all material reports or
letters submitted to Company or any Subsidiary of Company by the Auditor or any
other accountants in connection with any annual, interim, or special audit,
including without limitation the comment letter submitted to management in
connection with any such audit;
(d) Together with each set of financial statements delivered pursuant to
subsections (a) and (b) above, a Compliance Certificate executed by an
Authorized Officer, which such Compliance Certificate must (i) certify that
there has occurred no Default or Event of Default, (ii) compute the Applicable
Margin, (iii) set forth the detailed calculations with respect to the SECTIONS
6.1(A), (B), (C), (D), (E), 6.3, 6.6 and 6.7 hereof and (iv) certify that
Company continues to qualify as a Real Estate Investment Trust under the Code;
(e) As soon as available and in any event not later than 30 days after the
beginning of each fiscal year of Company, the annual operating budgets of
Company and its Subsidiaries for such fiscal year;
(f) Promptly upon knowledge by Company of the occurrence of any Default or
Event of Default, a notice from an Authorized Officer, setting forth the details
of such Default or Event of Default, and the action being taken or proposed to
be taken with respect thereto;
(g) As soon possible and in any event within five Business Days after
knowledge thereof by Company or any of its Subsidiaries, notice of any
Litigation pending or threatened by written demand against Company, any of its
Subsidiaries or any of their respective Property which, if determined adversely,
could reasonably be expected to result in a judgment, penalties, or uninsured
liability or damages in excess of $1,000,000 together with a statement of an
Authorized Officer describing the allegations of such Litigation, and the action
being taken or proposed to be taken with respect thereto;
(h) Promptly following notice or knowledge thereof by Company or any of its
Subsidiaries, notice of any actual or threatened (which threat is evidenced in
writing) loss or
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termination of any Authorization of Company or any such Subsidiary which if lost
or terminated could reasonably be expected to have a Material Adverse Effect,
together with a statement of an Authorized Officer describing the circumstances
surrounding the same, and the action being taken or proposed to be taken with
respect thereto;
(i) Promptly after filing or receipt thereof, copies of all reports and
notices that Company or any of its Subsidiaries (i) files or receives in respect
of any Plan with or from the Internal Revenue Service, the PBGC, or the United
States Department of Labor, or (ii) furnishes to or receives from any holders of
any Indebtedness or Contingent Liability, if in either case, any information or
dispute referred to therein either causes a Default or Event of Default, or
could reasonably be expected to cause or result in a Default or an Event of
Default;
(j) Within 120 days after the close of each fiscal year, a statement of
the Insufficiencies of each Plan (but only if the aggregate amount of all
Insufficiencies for all Plans exceeds $100,000), certified as correct by an
actuary enrolled under ERISA;
(k) As soon as possible and in any event within 10 days after Company or
any of its Subsidiaries knows that any Reportable Event has occurred with
respect to any Plan, a statement, signed by an Authorized Officer, describing
said Reportable Event and the action which the such Person proposes to take with
respect thereto;
(l) Promptly upon their becoming available, copies of all registration
statements and regularly provided reports, if any, filed by Company with the
Securities and Exchange Commission (of any governmental agency substituted
therefor) or any national securities exchange;
(m) Promptly upon the mailing thereof to the shareholders of Company
generally, copies of all financial statements, reports and proxy statements so
mailed;
(n) As soon as possible and in any event within 5 days after Company's
knowledge thereof, written notice of any change in the Index Debt Rating; and
(o) From time to time, such other information regarding the business,
affairs or financial condition of Company or any of its Subsidiaries as any
Lender may reasonably request, including consolidating financial statements of
Company and its Consolidated Subsidiaries pursuant to subsections (a) and (b)
above.
5.6 USE OF PROCEEDS. The proceeds of the Advances shall be available (and
Company and its Subsidiaries shall use such proceeds) to (a) finance
acquisitions of, and making loans secured by, Property and (b) use for other
general working capital purposes; provided that no Lender shall have any
responsibility as to use by Company or any of its Subsidiaries of any such
proceeds.
5.7 MAINTENANCE OF EXISTENCE AND ASSETS. Except as provided by SECTION 6.7
of this Agreement, Company shall maintain, and shall cause each of its
Subsidiaries to maintain, its
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corporate existence, authority to do business in the jurisdictions in which it
is necessary for Company or such Subsidiary of Company to do so, and all
Authorizations necessary for the operation of any of their businesses. Company
shall maintain, and shall cause each of its Subsidiaries to maintain, the assets
necessary for use in their respective businesses in good repair, working order
and condition, and make all such repairs, renewals and replacements thereof as
may be reasonably required by Company and its Subsidiaries.
5.8 PAYMENT OF TAXES. Company will and will cause each of its Subsidiaries
to, promptly pay and discharge all lawful Taxes imposed upon it or upon its
income or profit or upon any Property belonging to it, unless such Tax shall not
at the time be due and payable, or if the validity thereof shall currently be
contested on a timely basis in good faith by appropriate proceedings (provided
that the enforcement of any Liens arising out of any such nonpayment shall be
stayed or bonded during the proceedings) and adequate reserves with respect to
such Tax shall have been established in accordance with GAAP.
5.9 INDEMNITY.
(a) Company agrees to defend, protect, indemnify and hold harmless
Administrative Agent and each Lender, each of their respective Affiliates, and
each of their respective (including such Affiliates') officers, directors,
employees, agents, attorneys, shareholders and consultants (including, without
limitation, those retained in connection with the satisfaction or attempted
satisfaction of any of the conditions set forth herein) of each of the foregoing
(collectively, "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitees shall be designated a party thereto
or such proceeding shall have actually been instituted), imposed on, incurred
by, or asserted against such Indemnitees (whether direct, indirect or
consequential and whether based on any federal, state, or local laws and
regulations, under common law or at equitable cause, or on contract, tort or
otherwise), arising from or connected with the past, present or future
operations of Company, any Subsidiary of Company, any Affiliate of Company or
any predecessors in interest, or the past, present or future environmental
condition of property of Company, any Subsidiary of Company, any Affiliate of
Company or any predecessors in interest, in each case relating to or arising out
of this Agreement, the Loan Papers, or any act, event or transaction or alleged
act, event or transaction relating or attendant thereto and the management of
the Advances by Administrative Agent, expressly including in connection with, or
as a result, in whole or in part, of the ordinary or mere negligence of
Administrative Agent or any Lender, or the use or intended use of the proceeds
of the Advances hereunder, or in connection with any investigation of any
potential matter covered hereby, but excluding any claim or liability to the
extent it arises as the result of the gross negligence or willful misconduct of
any Indemnitee, as finally judicially determined by a court of competent
jurisdiction (collectively, "Indemnified Matters").
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(b) In addition, Company shall periodically, upon request, reimburse each
Indemnitee for its reasonable legal and other actual reasonable expenses
(including the cost of any investigation and preparation) incurred in connection
with any Indemnified Matter. If for any reason the foregoing indemnification is
unavailable to any Indemnitee or insufficient to hold any Indemnitee harmless
with respect to Indemnified Matters, then Company shall contribute to the amount
paid or payable by such Indemnitee as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by Company and the holders of the Capital Stock of Company on
the one hand and such Indemnitee on the other hand but also the relative fault
of Company and such Indemnitee, as well as any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations under
this SECTION shall be in addition to any liability which Company may otherwise
have, shall extend upon the same terms and conditions to each Indemnitee, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of Company, Administrative Agent, Lenders and all
other Indemnitees. The obligations of Company under this SECTION 5.9 shall
survive (i) the execution of this Agreement and (ii) any termination of this
Agreement and payment of the Obligations.
5.10 AUTHORIZATIONS AND MATERIAL AGREEMENTS. Company shall, and shall cause
its Subsidiaries to, obtain, maintain and comply in all material respects with
all Authorizations and agreements necessary or appropriate for any of them to
own, maintain, or operate any of their businesses or Properties.
5.11 INTERCOMPANY NOTES. Any portion of any Advance under the Facility
which is loaned by Company to any Subsidiary of Company shall be evidenced by
Intercompany Notes in form and substance acceptable to Administrative Agent, and
there shall be no prohibition on the ability of Company to pledge to
Administrative Agent each such Intercompany Note. Company shall cause all
Intercompany Notes to be subject to a Subordination Agreement.
5.12 FURTHER ASSURANCES. Company and each Subsidiary of Company will
execute all such additional agreements and take any and all such other action,
as Administrative Agent may, from time to time, deem reasonably necessary or
proper in connection with the obligations of Company and each Subsidiary of
Company under any of the Loan Papers.
5.13 SUBSIDIARIES AND OTHER OBLIGORS. Company shall cause each of its
Subsidiaries to comply with each provision of this ARTICLE V.
5.14 INTEREST HEDGE AGREEMENTS. Company shall maintain an Interest Hedge
Agreement or Agreements such that, after giving effect to such Interest Hedge
Agreements, at least 50% of the aggregate Indebtedness of Company and its
Subsidiaries outstanding at any time is subject to a fixed interest rate per
annum for a term of at least two years.
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5.15 YEAR 2000 COMPLIANCE. Company will promptly notify the Administrative
Agent in the event Company 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.
ARTICLE VI.
NEGATIVE COVENANTS
So long as the Commitment, any Advance or any portion of the Obligations is
outstanding, or Company or any of its Subsidiaries owes any other amount
hereunder or under any other Loan Paper:
6.1 FINANCIAL COVENANTS. Company and its Consolidated Subsidiaries shall
comply with the following covenants:
(a) MINIMUM NET WORTH. At all times during the term hereof, Net Worth shall
not be less than the sum of (i) $425,000,000, PLUS (ii) an amount equal to 75%
of the aggregate Net Cash Proceeds received by Company and its Consolidated
Subsidiaries after April 15, 1997 from the offering, sale or other disposition
of Capital Stock of Company or any Subsidiary of Company, PLUS (iii) an amount
equal to the net worth of any Person that becomes a direct or indirect
Subsidiary of Company or is merged into or consolidated with Company or any
Subsidiary of Company or substantially all of the assets of which are acquired
by Company or any Subsidiary of Company to the extent the purchase price paid
therefor is paid in Capital Stock of Company or any of its Subsidiaries.
(b) TOTAL INDEBTEDNESS TO ADJUSTED NET WORTH. At all times during the term
hereof, the ratio of Total Indebtedness to Adjusted Net Worth shall not be
greater than 0.90 to 1.
(c) FIXED CHARGE COVERAGE RATIO. At all times during the term hereof, the
Fixed Charge Coverage Ratio shall not be less than 2.0 to 1.
(d) MAXIMUM TOTAL SECURED INDEBTEDNESS. At all times during the term
hereof, the aggregate amount of Total Secured Indebtedness shall not exceed 10%
of Total Assets.
(e) TOTAL UNENCUMBERED ASSETS TO TOTAL UNSECURED INDEBTEDNESS. At all times
during the term hereof, the ratio of Total Unencumbered Assets to Total
Unsecured Indebtedness shall not be less than 1.75 to 1.
6.2 INDEBTEDNESS. Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume, become or be liable in any manner in
respect of, or suffer to exist, any
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Indebtedness, except (a) Indebtedness under the Loan Papers, (b) Indebtedness in
existence on the date hereof, as shown on SCHEDULE 4.8 hereto, (c) Indebtedness
of a Subsidiary of Company to Company or to another Subsidiary of Company in
compliance with SECTION 6.17 hereof evidenced by Intercompany Notes evidencing
loans made by Company or such Subsidiary with the proceeds of Advances, and (d)
other Indebtedness, provided that (i) immediately prior thereto and after the
occurrence thereof there shall be no Default or Event of Default and (ii) the
covenants, terms and provisions with respect to such Indebtedness are no more
restrictive than the terms of this Agreement and the other Loan Papers.
6.3 CONTINGENT LIABILITIES. Company shall not, and shall not permit any of
its Subsidiaries to, create, incur, assume, become or be liable in any manner in
respect of, or suffer to exist, any Contingent Liabilities, except (a)
Contingent Liabilities under or relating to the Loan Papers (as defined in this
Agreement) and the Loan Papers (as defined in the Amended and Restated Credit
Agreement), (b) Contingent Liabilities in existence on the Closing Date, as
shown on SCHEDULE 4.8 hereto, (c) Contingent Liabilities resulting from the
endorsement of negotiable instruments for collection in the ordinary course of
business, (d) Contingent Liabilities in respect of Interest Hedge Agreements of
Company or any of its Subsidiaries, and (e) other Contingent Liabilities not to
exceed $5,000,000 in aggregate principal amount.
6.4 LIENS. Company shall not, and shall not permit any of its Subsidiaries
to, create or suffer to exist any Lien upon any of its Properties, except
Permitted Liens. In case any Property shall be subject to a Lien in violation of
this SECTION 6.4, Company or its Subsidiary, as the case may be, shall
immediately make or cause to be made provision whereby the Notes will be secured
equally and ratably with all other obligations secured thereby pursuant to such
agreements and instruments as shall be approved by Majority Lenders, and in such
case the Notes shall have the benefit, to the full extent that, and with such
priority as, Lenders may be entitled under Applicable Law, of an equitable Lien
on such Property securing the Notes. Such violation of SECTION 6.4 shall
constitute an Event of Default hereunder, whether or not such provision is made
pursuant to the immediately preceding sentence.
6.5 PROHIBITION OF FUNDAMENTAL CHANGES. Company will not, and will not
cause or permit any of its Subsidiaries to, enter into any transaction of sale,
transfer, merger or consolidation or amalgamation, except for sales in the
ordinary course of business, or liquidate, wind up or dissolve itself, or suffer
any liquidation or dissolution, except (a) for the liquidation or dissolution of
any Subsidiary and (b) a Subsidiary of Company may merge into, or consolidate
with, Company (provided Company is the survivor) or another Subsidiary of
Company. Company will not, and will not cause or permit any of its Subsidiaries
to, acquire any business or assets from, or capital stock of, or be a party to
any acquisition of, any Person except for purchases of assets to be sold or used
in the ordinary course of business. Company will not transfer any of the issued
and outstanding Capital Stock of any Subsidiary which is a qualified REIT
Subsidiary within the meaning of Section 865(i) of the Code and will not permit
the issuance of any additional shares of such Capital Stock if the issuance
thereof would cause such Subsidiary to fail to be characterized as a qualified
REIT Subsidiary.
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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.
6.7 DISTRIBUTIONS AND RESTRICTED PAYMENTS. Company shall not, and shall
not permit any Subsidiary to, make any Restricted Payments, except that,
notwithstanding the immediately preceding subsection, Company may (a) pay
Permitted Distributions unless a Default or Event of Default shall exist or
would be caused thereby, in which case Company may only pay such Distributions
as may be required to maintain the status of Company as a Real Estate Investment
Trust under the Code and (b) establish a stock option plan for employees and
directors of Company and, provided no Default or Event of Default shall exist or
would be caused thereby, Company may repurchase Capital Stock of Company for the
purpose of matching employee stock purchases in connection with Company's
retirement plans.
6.8 BUSINESS. Company shall not, and shall not permit any of its
Subsidiaries to, engage to any substantial extent in any line or lines of
business activity other than the lines of business activity engaged in by
Company and its Subsidiaries as of the Closing Date.
6.9 TRANSACTIONS WITH AFFILIATES. Company shall not, and shall not permit
any of its Subsidiaries to, enter into or be party to a transaction with any
Affiliate, including, but not limited to, (a) dispositions of such assets in an
Affiliate, (b) a loan or advance to an Affiliate, unless such Investment is
evidenced by an Intercompany Note, and (c) mergers into, consolidations with, or
purchases or acquisitions of assets from, any Affiliate; provided, (i) that
Company may enter into such transactions if the value of the consideration for
all such transactions (other than Asset Securitizations) entered into after
April 15, 1997 does not exceed $10,000,000 in aggregate amount; (ii) that an
Affiliate who is an individual may serve as a director, officer or employee of
Company, and (iii) that Company and its Subsidiaries may (A) enter into Asset
Securitizations with Asset
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Securitization Affiliates, subject to the restrictions in SECTION 6.6 hereof and
the requirements of SECTION 2.5(B) hereof, and (B) purchase or acquire Retained
Securities.
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.
6.11 FISCAL YEAR AND ACCOUNTING METHOD. Company shall not, and shall not
permit any of its Subsidiaries to, change its fiscal year or method of
accounting, except as may be required by GAAP.
6.12 AMENDMENT OF CORPORATE DOCUMENTS. Company shall not amend its articles
of organization or bylaws and Company shall not permit any of its Subsidiaries
to amend its articles of organization, bylaws or partnership agreement in any
manner which could reasonably be expected to be materially adverse to the
interests of Lenders.
6.13 COMPLIANCE WITH ERISA. Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, or permit any member of such
Person's Controlled Group to directly or indirectly, (a) terminate any Plan so
as to result in any material (in the opinion of Administrative Agent) liability
to Company, any Subsidiary of Company or any member of its Controlled Group, (b)
permit to exist any ERISA Event, or any other event or condition, which presents
the risk of any material (in the opinion of Administrative Agent) liability of
Company, any Subsidiary of Company or any member of its Controlled Group, (c)
make a complete or partial withdrawal (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan so as to result in any material (in the
opinion of Administrative Agent) liability to Company, any Subsidiary of Company
or any member of its Controlled Group, (d) enter into any new Plan or modify any
existing Plan so as to increase its obligations thereunder (except in the
ordinary course of business consistent with past practice) which could result in
any material (in the opinion of Administrative Agent) liability to Company, any
Subsidiary of Company or any member of its Controlled Group, or (e) permit the
present value of all benefit liabilities, as defined in Title IV of ERISA, under
each Plan of Company and each Subsidiary of Company or any member of its
Controlled Group (using the actuarial assumptions utilized by the PBGC upon
termination of a Plan) to materially (in the opinion of Administrative Agent)
exceed the fair market value of Plan assets allocable to such benefits all
determined as of the most recent valuation date for each such Plan.
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6.14 SUBSIDIARIES AND OTHER OBLIGORS. Company shall not permit any of its
Subsidiaries to violate any provision of this ARTICLE VI.
6.15 AMENDMENTS TO MATERIAL AGREEMENTS. Company shall not, nor shall
Company permit any of its Subsidiaries to, amend or change any Loan Paper other
than with the prior written consent of Lenders pursuant to SECTION 9.1 hereof,
nor shall Company or any of its Subsidiaries change or amend (or take any action
or fail to take any action the result of which is an effective amendment or
change), or accept any waiver or consent with respect to, any Intercompany Note
other than with the prior written consent of Lenders pursuant to SECTION 9,1
hereof.
6.16 PROHIBITED TRANSACTIONS. Company shall not, and shall not permit any
Subsidiary to, sell or otherwise transfer any Property in a transaction which
constitutes a prohibited transaction within the meaning of Section 857(b)(6) of
the Code if such prohibited transaction would cause Company or such Subsidiary
to fail to satisfy any of the requirements of Section 856 of the Code.
6.17 NO NEW SUBSIDIARIES. Company shall not, and shall not permit any of
its Subsidiaries to, acquire, incorporate or otherwise organize any Subsidiary
which was not in existence on the Closing Date unless such Subsidiary (a)
executes a Guaranty Agreement, a Subordination Agreement and an Intercompany
Note and (b) delivers to Administrative Agent (i) the executed Guaranty
Agreement, Subordination Agreement and an Officer's Certificate containing
Articles of Incorporation, Bylaws, corporate resolutions, and incumbency of
officers, all in form and substance reasonably satisfactory to Administrative
Agent, and (ii) an opinion of legal counsel of such Subsidiary in form and
substance reasonably satisfactory to Administrative Agent.
6.18 ASSET SECURITIZATION AFFILIATES. Company will not permit any Asset
Securitization Affiliate to conduct any active trade or business other than
directly in respect of an Asset Securitization. Without limiting the generality
of the foregoing, Company shall not permit any Asset Securitization Affiliate to
directly or indirectly, other than in conjunction with an Asset Securitization,
(a) incur, assume, guaranty or otherwise create or become liable in respect of
any Indebtedness, (b) make, or permit to remain outstanding, an Investment in
any Person, (c) create or suffer to be created or exist a Lien upon any part of
its property or upon any income, revenues, issues and profits thereof, (d) sell,
transfer, exchange or otherwise dispose of any part of its property, (e) create,
organize or establish any Person, including, without limitation, any Subsidiary,
or (f) maintain, contribute to or assume any liability with respect to any
Person.
6.19 REPAYMENT OF ADVANCES UNDER THE AMENDED AND RESTATED CREDIT AGREEMENT.
At any time that Advances are outstanding hereunder, Company shall not, and
shall not permit any Subsidiary to, repay or prepay any Advances (as defined in
the Amended and Restated Credit Agreement) under the Amended and Restated Credit
Agreement except as otherwise required pursuant to SECTION 2.5(B) of the Amended
and Restated Credit Agreement.
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ARTICLE VII.
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. Any one or more of the following shall be an "EVENT
OF DEFAULT" hereunder, if the same shall occur for any reason whatsoever,
whether voluntary or involuntary, by operation of Law, or otherwise:
(a) Company shall fail to pay any (i) principal under any Loan Paper when
due or (ii) any interest, fees, or other amounts under any Loan Paper within two
Business Days when due;
(b) Any representation or warranty made or deemed made by Company or any
Subsidiary of Company (or any of its officers or representatives) under or in
connection with any Loan Papers shall prove to have been incorrect or misleading
in any material respect when made or deemed made;
(c) Company or any Subsidiary of Company shall fail to perform or observe
any term or condition contained in ARTICLE V (other than SECTION 5.12 hereof)
and such failure shall not be remedied within fifteen days after written notice
thereof shall have been given to Company by Administrative Agent;
(d) Company or any Subsidiary of Company shall fail to perform or observe
SECTION 5.12 hereof or any term or covenant contained in ARTICLE VI;
(e) Company or any Subsidiary of Company shall fail to perform or observe
any other term or covenant contained in any Loan Paper, other than those
described in SECTIONS 7.1(A), (B), (C) and (D), and such failure shall not be
remedied within fifteen days after written notice thereof shall have been given
to Company by Administrative Agent;
(f) Any material provision of any Loan Paper shall, for any reason, not be
valid and binding on Company or any Subsidiary of Company, or not be in full
force and effect, or shall be declared to be null and void; the validity or
enforceability of any Loan Paper shall be contested by Company or any Subsidiary
of Company; Company or any Subsidiary of Company shall deny that it has any or
further liability or obligation under its respective Loan Papers;
(g) Any of the following shall occur: (i) Company or any Subsidiary of
Company shall make an assignment for the benefit of creditors or be unable to
pay its debts generally as they become due; (ii) Company or any Subsidiary of
Company shall petition or apply to any Tribunal for the appointment of a
trustee, receiver, or liquidator of it, or of any substantial part of its
assets, or shall commence any proceedings relating to Company or any Subsidiary
of Company under any Debtor Relief Law, whether now or hereafter in effect;
(iii) any such petition or application shall be filed, or any such proceedings
shall be commenced, against Company or any Subsidiary of Company, or an order,
judgment or decree shall be entered appointing any such trustee, receiver, or
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liquidator, or approving the petition in any such proceedings; (iv) any final
order, judgment, or decree shall be entered in any proceedings against Company
or any Subsidiary of Company decreeing its dissolution; (v) any final order,
judgment, or decree shall be entered in any proceedings against Company or any
Subsidiary of Company decreeing its split-up which requires the divestiture of a
substantial part of its assets; or (vi) Company or any Subsidiary of Company
shall petition or apply to any Tribunal for the appointment of a trustee,
receiver, or liquidator of it, or of any substantial part of its assets, or
shall commence any proceedings relating to Company or any Subsidiary of Company
under any Debtor Relief Law, whether now or hereafter in effect;
(h) Company or any Subsidiary of Company shall fail to pay any Indebtedness
or Contingent Liability in an aggregate amount of $1,000,000 or more when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Indebtedness
or Contingent Liability; or Company or any Subsidiary of Company shall fail to
perform or observe any term or covenant contained in any agreement or instrument
relating to any such Indebtedness or Contingent Liability, when required to be
performed or observed, and such failure shall continue after the applicable
grace period, if any, specified in such agreement or instrument, and can result
in acceleration of the maturity of such Indebtedness or Contingent Liability; or
any such Indebtedness or Contingent Liability shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof;
(i) Company or any Subsidiary of Company shall have any final judgment(s)
outstanding against it for the payment of $500,000 or more, and such judgment(s)
shall remain unstayed, in effect, and unpaid for a period of 60 days;
(j) A Change of Control shall occur;
(k) Company, any Subsidiary of Company, or any ERISA Affiliate shall have
committed a failure described in Section 302(f)(l) of ERISA, and the amount
determined under Section 302(f)(3) of ERISA is equal to or greater than
$100,000;
(l) Company, any Subsidiary, or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result thereof the aggregate annual contributions to all Multiemployer
Plans in reorganization or being terminated is increased over the amounts
contributed to such Plans for the preceding Plan year by an amount exceeding
$50,000;
(m) Company or any Subsidiary of Company shall be required under any
Environmental Law to implement any remedial, neutralization, or stabilization
process or program, the cost of which could constitute a Material Adverse
Change;
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(n) Company shall fail or cause to qualify, or be unable to certify to
Lenders its continuing status, as a Real Estate Investment Trust pursuant to
Sections 856 through 860 of the Code; or any Subsidiary which is a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code shall fail to
qualify as a qualified REIT subsidiary within the meaning of Section 856(i) of
the Code; or
(o) An Event of Default (as defined in the Amended and Restated Credit
Agreement) shall occur and be continuing under the Amended and Restated Credit
Agreement.
7.2 REMEDIES UPON DEFAULT. If an Event of Default described in SECTION
7.1(G) shall occur, the Commitment shall be immediately terminated and the
aggregate unpaid principal balance of and accrued interest on all Advances
shall, to the extent permitted by applicable Law, thereupon become due and
payable concurrently therewith, without any action by Administrative Agent or
any Lender, and without diligence, presentment, demand, protest, notice of
protest or intent to accelerate, or notice of any other kind, all of which are
hereby expressly waived. Subject to the foregoing sentence, if any Event of
Default shall occur and be continuing, Administrative Agent may at its election
(provided (i) Administrative Agent has sent notice to all Lenders of its
intention to do any one ore more of the following and within five Business Days
of such notice Majority Lenders have not notified Administrative Agent not to
take such action or (ii) Administrative Agent in good faith determines that
immediate action is necessary to be taken to protect the Rights of Lenders), and
shall at the discretion of Majority Lenders, do any one or more of the
following:
(a) Declare the entire unpaid balance of all Advances immediately due and
payable, whereupon it shall be due and payable without diligence, presentment,
demand, protest, notice of protest or intent to accelerate, or notice of any
other kind (except notices specifically provided for under SECTION 7.1), all of
which are hereby expressly waived (except to the extent waiver of the foregoing
is not permitted by applicable Law);
(b) Terminate the Commitment;
(c) Reduce any claim of Administrative Agent and Lenders to judgment;
(d) Exercise any Rights afforded under any Loan Papers, by Law, including
but not limited to the UCC, at equity, or otherwise.
7.3 CUMULATIVE RIGHTS. All Rights available to Administrative Agent and
Lenders under the Loan Papers shall be cumulative of and in addition to all
other Rights granted thereto at Law or in equity, whether or not amounts owing
thereunder shall be due and payable, and whether or not Administrative Agent or
any Lender shall have instituted any suit for collection or other action in
connection with the Loan Papers. Nothing contained herein or in any other Loan
Papers shall limit the Right of any Lender to collect its Note upon acceleration
of the Obligations pursuant to the terms of this Agreement.
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7.4 WAIVERS. The acceptance by Administrative Agent or any Lender at any
time and from time to time of partial payment of any amount owing under any Loan
Papers shall not be deemed to be a waiver of any Default or Event of Default
then existing. No waiver by Administrative Agent or any Lender of any Default or
Event of Default shall be deemed to be a waiver of any Default or Event of
Default other than such Default or Event of Default. No delay or omission by
Administrative Agent or any Lender in exercising any Right under the Loan Papers
shall impair such Right or be construed as a waiver thereof or an acquiescence
therein, nor shall any single or partial exercise of any such Right preclude
other or further exercise thereof, or the exercise of any other Right under the
Loan Papers or otherwise.
7.5 PERFORMANCE BY ADMINISTRATIVE AGENT OR ANY LENDER. Should any covenant
of Company or any Subsidiary of Company fail to be performed in accordance with
the terms of the Loan Papers, Administrative Agent may, at its option, perform
or attempt to perform such covenant on behalf of Company or such Subsidiary.
Notwithstanding the foregoing, it is expressly understood that neither
Administrative Agent nor any Lender assumes, and shall not ever have, except by
express written consent of Administrative Agent or such Lender, (a) any
liability or responsibility for the performance of any duties or covenants of
Company or any Subsidiary of Company or (b) any implied or fiduciary duties
whatsoever to Company or any Subsidiary of Company.
7.6 EXPENDITURES. Company shall reimburse Administrative Agent and each
Lender for any reasonable sums spent by it in connection with the exercise of
any Right provided herein. Such sums shall bear interest at the lesser of (a)
the Base Rate in effect from time to time, plus 3.0% and (b) the Highest Lawful
Rate, from the date spent until the date of repayment by Company.
7.7 CONTROL. None of the covenants or other provisions contained in this
Agreement shall, or shall be deemed to, give Administrative Agent or any Lender
any Rights to exercise control over the affairs and/or management of Company or
any Subsidiary of Company, the power of Administrative Agent and each Lender
being limited to the Rights to exercise the remedies provided in this Article.
ARTICLE VIII.
ADMINISTRATIVE AGENT
8.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes
Administrative Agent to take such action as Administrative Agent on its behalf
and to exercise such powers under this Agreement and the other Loan Papers as
are delegated to Administrative Agent by the terms of the Loan Papers, together
with such powers as are reasonably incidental thereto. As to any matters not
expressly provided for by this Agreement and the other Loan Papers (including
without limitation enforcement or collection of the Notes), Administrative Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of
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Majority Lenders (or all Lenders, if required under SECTION 9.1), and such
instructions shall be binding upon all Lenders; PROVIDED, HOWEVER, that
Administrative Agent shall not be required to take any action which exposes
Administrative Agent to personal liability or which is contrary to any Loan
Papers or applicable Law. Administrative Agent agrees to distribute promptly to
each Lender copies of any notices, requests and other information received from
Company pursuant to the terms of this Agreement, and to distribute to each
applicable Lender in like funds all amounts delivered to Administrative Agent by
Company for the Ratable or individual account of any Lender, with such funds to
be distributed on the date of receipt by Administrative Agent provided such
funds are received by the time prescribed in SECTION 2.12(A), or the immediately
following Business Day if such funds are received after such time (any funds not
so distributed by Administrative Agent shall bear interest payable by
Administrative Agent at a rate per annum equal to the Federal Funds Rate to but
not including the date of receipt by such Lender). Functions of Administrative
Agent are administerial in nature and in no event shall Administrative Agent
have a fiduciary or trustee relationship in respect of any Lender by reason of
this Agreement or any other Loan Paper.
8.2 ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither Administrative Agent,
nor any of its directors, officers, agents, employees, Affiliates, or
representatives shall be liable for any action taken or omitted to be taken by
it or them under or in connection with this Agreement or any other Loan Paper,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, Administrative Agent (a) may
treat the payee of any Note as the holder thereof until Administrative Agent
receives written notice of the assignment or transfer thereof signed by such
payee and in form satisfactory to Administrative Agent; (b) may consult with
legal counsel (including counsel for Company or any of its Subsidiaries),
independent public accountants, and other experts selected by it, and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants, or experts; (c) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties, or representations made in or in
connection with this Agreement or any other Loan Papers; (d) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants, or conditions of this Agreement or any other Loan Papers
on the part of Company or its Subsidiaries or to inspect the Property (including
the books and records) of Company or its Subsidiaries; (e) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency, or value of this Agreement, any other
Loan Papers, or any other instrument or document furnished pursuant hereto; and
(f) shall incur no liability under or in respect of this Agreement or any other
Loan Papers by acting upon any notice, consent, certificate, or other instrument
or writing believed by it to be genuine and signed or sent by the proper party
or parties.
8.3 NATIONSBANK, N.A. AND AFFILIATES. With respect to its Commitment, its
Advances, and any Loan Papers, NationsBank, N.A. has the same Rights under this
Agreement as any other Lender and may exercise the same as though it were not
Administrative Agent. NationsBank, N.A. and its Affiliates may accept deposits
from, lend money to, act as trustee under indentures of, and generally engage in
any kind of business with, Company or any Subsidiary of Company, any
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Affiliate thereof, and any Person who may do business therewith, all as if
NationsBank, N.A. were not Administrative Agent and without any duty to account
therefor to any Lender.
8.4 LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon Administrative Agent or any other
Lender, and based on the financial statements referred to in SECTION 4.4 hereof
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Papers.
8.5 INDEMNIFICATION BY LENDERS. Lenders shall indemnify Administrative
Agent, pro rata, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against Administrative Agent in any way relating to or arising out of
any Loan Papers or any action taken or omitted by Administrative Agent
thereunder, including mere or ordinary negligence of Administrative Agent;
PROVIDED, HOWEVER, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements resulting from Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, Lenders
shall reimburse Administrative Agent, pro rata, promptly upon demand for any
out-of-pocket expenses (including reasonable attorneys' fees) incurred by
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment, or enforcement (whether through
negotiation, legal proceedings or otherwise) of, or legal and other advice in
respect of rights or responsibilities under, the Loan Papers. The indemnity
provided in this SECTION 8.5 shall survive the termination of this Agreement.
8.6 SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign at any
time by giving written notice thereof to Lenders and Company, and may be removed
at any time with cause by the Majority Lenders or without cause by action of all
Lenders (other than Administrative Agent, if it is a Lender); PROVIDED, HOWEVER,
so long as (a) NationsBank, N.A. is a Lender and (b) no Default or Event of
Default has occurred and is continuing, NationsBank, N.A. shall not have the
right to resign as Administrative Agent. Upon any such resignation, Majority
Lenders shall have the right, with the consent of Company (which consent shall
not be unreasonably withheld) so long as no Event of Default has occurred and is
continuing, to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed and shall have accepted such
appointment within thirty days after the retiring Administrative Agent's giving
of notice of resignation, then the retiring Administrative Agent may, on behalf
of Lenders, with the consent of Company (which consent shall not be unreasonably
withheld), appoint a successor Administrative Agent, which shall be a commercial
bank organized under the Laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $250,000,000. Upon
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the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the Rights and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under the Loan Papers, provided that
(a) if the retiring or removed Administrative Agent is unable to appoint a
successor Administrative Agent and (b) a Default or Event of Default shall have
occurred and be continuing, Administrative Agent shall, after the expiration of
a sixty day period from the date of notice, be relieved of all obligations as
Administrative Agent hereunder. Notwithstanding any Administrative Agent's
resignation or removal hereunder, the provisions of this Article shall continue
to inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement.
ARTICLE IX.
MISCELLANEOUS
9.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement or any other Loan Papers, nor consent to any departure by Company
or any Subsidiary of Company therefrom, shall be effective unless the same shall
be in writing and signed by Administrative Agent with the consent of Majority
Lenders, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; PROVIDED,
HOWEVER, that no amendment, waiver, or consent shall (and the result of action
or failure to take action shall not) unless in writing and signed by all of
Lenders and Administrative Agent, (a) increase the Commitment, (b) reduce any
principal, interest, fees, or other amounts payable hereunder, or waive or
result in the waiver of any Event of Default under SECTION 7.1(A), (c) extend
the Maturity Date or otherwise postpone any date fixed for any payment of
principal, interest, fees, or other amounts payable hereunder, (d) release any
Guaranties securing the Obligations, other than releases contemplated hereby and
by the Loan Papers, (e) change the definition of Specified Percentage or the
number of Lenders required to take any action hereunder, (f) amend SECTION 2.16,
(g) amend this SECTION 9.1, or (h) release or amend any Subordination Agreement;
PROVIDED, FURTHER, HOWEVER, notwithstanding anything herein to the contrary, no
consent of any Lender is required for any increase in the Commitment, change in
the number of Lenders required to take any action hereunder, or change in the
Specified Percentage as a result of SECTION 2.16 hereof. No amendment, waiver,
or consent shall affect the Rights or duties of Administrative Agent under any
Loan Papers, unless it is in writing and signed by Administrative Agent in
addition to the requisite number of Lenders.
9.2 NOTICES.
(a) MANNER OF DELIVERY. All notices communications and other materials to
be given or delivered under the Loan Papers shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
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telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Agent, any Lender or Company has acted in reliance on such
telephonic notice.
(b) ADDRESSES. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
If to Company:
Franchise Finance Corporation of America
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
Telephone No.: (602) 585-4500
Facsimile No.: (602) 585-2225
Attention: John R. Barravecchia
Executive Vice President and Chief Financial Officer
With a copy to:
Franchise Finance Corporation of America
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
Telephone No.: (602) 585-4500
Facsimile No.: (602) 585-2225
Attention: Dennis L. Ruben, Esq.
Executive Vice President and General Counsel
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If to Administrative Agent:
NationsBank, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Telephone No.: (214) 508-0193
Facsimile No.: (214) 508-0980
Attention: Tom Blake
Senior Vice President
(c) If to any Lender, to its address set forth below opposite its signature
or on any Assignment and Acceptance or amendment to this Agreement;
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(d) EFFECTIVENESS. Each notice, communication and any material to be given
or delivered to any party pursuant to this Agreement shall be effective or
deemed delivered or furnished (i) if sent by mail, on the fifth day after such
notice, communication or material is deposited in the mail, addressed as above
provided, (ii) if sent by telecopier, when such notice, communication or
material is transmitted to the appropriate number determined as above provided
in this SECTION 9.2 and the appropriate receipt is received or otherwise
acknowledged, (iii) if sent by hand delivery or overnight courier, when left at
the address of the addressee addressed as above provided, and (iv) if given by
telephone, when communicated to the individual or any member of the department
specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices of
a change of address, telecopier or telephone number or individual or department
to whose attention notices, communications and materials are to be given or
delivered shall not be effective until received; provided, HOWEVER, that notices
to Administrative Agent pursuant to ARTICLE II shall be effective when received.
Company agrees that Administrative Agent shall have no duty or obligation to
verify or otherwise confirm telephonic notices given pursuant to ARTICLE II, and
agrees to indemnify and hold harmless Administrative Agent and Lenders for any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, and expenses resulting, directly or indirectly,
from acting upon any such notice.
9.3 PARTIES IN INTEREST. All covenants and agreements contained in this
Agreement and all other Loan Papers shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto. Each Lender may from
time to time assign or transfer its interests hereunder pursuant to SECTION 9.4
hereof. Neither Company nor any Subsidiary of Company may assign or transfer its
Rights or obligations under any Loan Paper without the prior written consent of
Administrative Agent.
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9.4 ASSIGNMENTS AND PARTICIPATIONS.
(a) Subject to the following sentence, each Lender (an "ASSIGNOR") may
assign its Rights and obligations as a Lender under the Loan Papers to one or
more Eligible Assignees pursuant to an Assignment and Acceptance, so long as (i)
each assignment shall be of a constant, and not a varying percentage of all
Rights and obligations thereunder, (ii) each Assignor shall in each case pay a
$3,500 processing fee to Administrative Agent, and (iii) no such assignment is
for an amount less than $10,000,000. Within five Business Days after
Administrative Agent receives notice of any such assignment, Company shall
execute and deliver to Administrative Agent, in exchange for the Notes issued to
Assignor, new Notes to the order of such Assignor and its assignee in amounts
equal to their respective Specified Percentages of the Commitment, if the
Commitment is outstanding. Such new Notes shall be dated the effective date of
the assignment. It is specifically acknowledged and agreed that on and after the
effective date of each assignment, the assignee shall be a party hereto and
shall have the Rights and obligations of a Lender under the Loan Papers.
(b) Each Lender may sell participations to one or more Persons in all or
any of its Rights and obligations under the Loan Papers; PROVIDED, HOWEVER, that
(i) such Lender's obligations under the Loan Papers shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the holder of
its Notes for all purposes of the Loan Papers, (iv) the participant shall be
granted the Right to vote on or consent to only those matters described in
SECTIONS 9.1(A), (B), (C) and (D), (v) Company and each Subsidiary of Company,
Administrative Agent, and other Lenders shall continue to deal solely and
directly with such Lender in connection with its Rights and obligations under
the Loan Papers and (vi) no such participation is for an amount less than
$5,000,000.
(c) Any Lender may, in connection with any assignment or participation, or
proposed assignment or participation, disclose to the assignee or participant,
or proposed assignee or participant, any information relating to Company or any
Subsidiary of Company furnished to such Lender by or on behalf of Company or any
Subsidiary of Company, provided such Person executes a Confidentiality
Agreement.
(d) Notwithstanding any other provision set forth in this Agreement, each
Lender may at any time create a security interest in all or any portion of its
Rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
9.5 SHARING OF PAYMENTS. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any Right of set-off, or
otherwise) on account of its Advances in excess of its pro rata share of
payments made by Company, such Lender shall forthwith purchase participations in
Advances made by the other Lenders as shall be necessary to share the excess
payment pro rata with each of them; PROVIDED, HOWEVER, that if any of such
excess payment is thereafter recovered from the purchasing Lender, its purchase
from each Lender shall be rescinded
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and each Lender shall repay the purchase price to the extent of such recovery
together with a pro rata share of any interest or other amount paid or payable
by the purchasing Lender in respect of the total amount so recovered. Company
agrees that any Lender so purchasing a participation from another Lender
pursuant to this SECTION 9.5 may, to the fullest extent permitted by Law,
exercise all its Rights of payment (including the Right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of
Company in the amount of such participation.
9.6 RIGHT OF SET-OFF Upon the occurrence and during the continuance of any
Event of Default, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by Law, to set-off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of Company against any and all of the obligations of
Company now or hereafter existing under this Agreement and the other Loan
Papers, whether or not Administrative Agent or any Lender shall have made any
demand under this Agreement or the other Loan Papers, and even if such
obligations are unmatured. Each Lender shall promptly notify Company after any
such set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The Rights of
each Lender under this SECTION 9.6 are in addition to other Rights (including,
without limitation, other Rights of set-off) which such Lender may have.
9.7 COSTS, EXPENSES, AND TAXES.
(a) Company agrees to pay on demand (i) all reasonable costs and expenses
of Administrative Agent and its Affiliates in connection with the preparation
and negotiation of all Loan Papers, including without limitation the reasonable
fees and out-of-pocket expenses of Special Counsel, and the reasonable costs and
expenses of Administrative Agent and its Affiliates in connection with the
syndication of the Commitment and (ii) all costs and expenses (including
reasonable attorneys' fees and expenses) of Administrative Agent and each Lender
in connection with administration, interpretation, modification, amendment,
waiver, or release of any Loan Papers and any restructuring, work-out, or
collection of any portion of the Obligations or the enforcement of any Loan
Papers.
(b) In addition, Company shall pay any and all stamp, debt, and other Taxes
payable or determined to be payable in connection with any payment hereunder
(other than Taxes on the overall net income of Administrative Agent or any
Lender or franchise Taxes or Taxes on capital or capital receipts of
Administrative Agent or any Lender), or the execution, delivery, or recordation
of any Loan Papers, and agrees to save Administrative Agent and each Lender
harmless from and against any and all liabilities with respect to, or resulting
from any delay in paying or omission to pay any Taxes in accordance with this
SECTION 9.7, including any penalty, interest, and expenses relating thereto. All
payments by Company or any Subsidiary of Company under any Loan Papers shall be
made free and clear of and without deduction for any present or future Taxes
(other than Taxes on the overall net income of Administrative Agent or any
Lender of any nature now or hereafter existing, levied, or withheld, or
franchise Taxes or Taxes on capital or capital receipts of Administrative Agent
or any Lender), including all interest, penalties, or similar liabilities
relating
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thereto. If Company shall be required by Law to deduct or to withhold any Taxes
from or in respect of any amount payable hereunder, (i) the amount so payable
shall be increased to the extent necessary so that, after making all required
deductions and withholdings (including Taxes on amounts payable to
Administrative Agent or any Lender pursuant to this sentence), Administrative
Agent or any Lender receives an amount equal to the sum it would have received
had no such deductions or withholdings been made, (ii) Company shall make such
deductions or withholdings, and (iii) Company shall pay the full amount deducted
or withheld to the relevant taxing authority in accordance with applicable Law.
Without prejudice to the survival of any other agreement of Company hereunder,
the agreements and obligations of Company contained in this SECTION 9.7 shall
survive the execution of this Agreement, termination of the Commitment,
repayment of the Obligations, satisfaction of each agreement securing or
assuring the Obligations and termination of this Agreement and each other Loan
Paper.
(c) Within 30 days after the date of any payment of Taxes, Company will
furnish to Administrative Agent the original or a certified copy of a receipt
evidencing payment thereof. If no Taxes are payable in respect of any payment
hereunder, Company will furnish to Administrative Agent a certificate from each
appropriate taxing authority, or an opinion of counsel acceptable to
Administrative Agent, in either case stating that such payment is exempt from or
not subject to Taxes, PROVIDED, HOWEVER, that such certificate or opinion need
only be given if: (i) Company makes any payment from any account located outside
the United States, or (ii) the payment is made by a payor that is not a United
States Person. For purposes of this SECTION 9.7 the terms "United States" and
"United States Person" shall have the meanings set forth in Section 7701 of the
Code.
(d) Each Lender which is not a United States Person (as defined in Section
7701 of the Code) hereby agrees that:
(i) it shall, no later than the Closing Date (or, in the case of a Lender
which becomes a party hereto pursuant to SECTION 9.4 after the Closing Date, the
date upon which such Lender becomes a party hereto) deliver to Company through
Administrative Agent, with a copy to Administrative Agent:
(A) if any lending office is located in the United States of America,
two (2) accurate and complete signed originals of Internal Revenue Service
Form 4224 or any successor thereto ("Form 4224"),
(B) if any lending office is located outside the United States of
America, two (2) accurate and complete signed originals of Internal Revenue
Service Form 1001 or any successor thereto ("Form 1001").
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the account of
such lending office or lending offices under this Agreement free from
withholding of United States Federal income tax;
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(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time or
reasonably promptly thereafter but only to the extent the forms previously
delivered by it hereunder are no longer effective, deliver to Company through
Administrative Agent, with a copy to Administrative Agent, in replacement for
the forms previously delivered by it hereunder:
(A) if such changed or additional lending office is located in the
United States of America, two (2) accurate and complete signed originals of
Form 4224; or
(B) otherwise, two (2) accurate and complete signed originals of Form
1001,
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the account of
such changed or additional lending office under this Agreement free from
withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of any event
(including the passing of time but excluding any event mentioned in clause (ii)
above) requiring a change in the most recent Form 4224 or Form 1001 previously
delivered by such Lender and if the delivery of the same be lawful, deliver to
Company through Administrative Agent with a copy to Administrative Agent, two
(2) accurate and complete original signed copies of Form 4224 or Form 1001 in
replacement for the forms previously delivered by such Lender;
(iv) it shall, promptly upon the request of Company to that effect, deliver
to Company such other forms or similar documentation as may be required from
time to time by any applicable law, treaty, rule or regulation in order to
establish such Lender's tax status for withholding purposes; and
(v) it shall notify Company within 30 days after any event (including an
amendment to, or a change in any applicable law or regulation or in the written
interpretation thereof by any regulatory authority or any judicial authority, or
by ruling applicable to such Lender of any governmental authority charged with
the interpretation or administration of any law) shall occur that results in
such Lender no longer being capable of receiving payments without any deduction
or withholding of United States federal income tax.
9.8 RATE PROVISION. It is not the intention of any party to any Loan
Papers to make an agreement violative of the Laws of any applicable jurisdiction
relating to usury. In no event shall Company or any other Person be obligated to
pay any amount in excess of the Maximum Amount. If Administrative Agent or any
Lender ever receives, collects or applies, as interest, any such excess, such
amount which would be excessive interest shall be deemed a partial repayment of
principal and treated hereunder as such; and if principal is paid in full, any
remaining excess shall be paid to Company or the other Person entitled thereto.
In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Maximum Amount, Company, each Subsidiary of Company,
Administrative Agent and each Lender shall, to the maximum extent permitted
under
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Applicable Law, (a) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (b) exclude voluntary prepayments and the
effect thereof, and (c) amortize, prorate, allocate and spread in equal parts,
the total amount of interest throughout the entire contemplated term of the
Obligations so that the interest rate is uniform throughout the entire term of
the Obligations; PROVIDED that if the Obligations are paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Amount,
Administrative Agent or Lenders, as appropriate, shall refund to Company the
amount of such excess or credit the amount of such excess against the total
principal amount owing, and, in such event, neither Administrative Agent nor any
Lender shall be subject to any penalties provided by any Laws for contracting
for, charging or receiving interest in excess of the Maximum Amount. This
SECTION 9.8 shall control every other provision of all agreements among the
parties to the Loan Papers pertaining to the transactions contemplated by or
contained in the Loan Papers.
9.9 CONFIDENTIALITY. Each Lender and Administrative Agent agrees (on
behalf of itself and each of its Affiliates, directors, officers, employees and
representatives) to (a) keep confidential in accordance with its customary
procedures for handling such information any non-public information supplied to
it by Company pursuant to this Agreement which is identified by Company as being
confidential at the time the same is delivered to Lenders or Administrative
Agent, including, without limitation, written information and information
transferred visually or electronically, together with all notes, analyses,
compilations, studies or other documents that contain all or a portion of such
information (collectively, "CONFIDENTIAL INFORMATION") and (b) use the
Confidential Information solely in connection with the Loan Papers and the
evaluation of Company and its Subsidiaries, provided that nothing herein shall
limit the disclosure of any Confidential Information (a) to the extent required
by Law or judicial process, (b) to counsel for any Lender or Administrative
Agent, (c) to bank examiners, auditors or accountants of any Lender, (d) to
Administrative Agent or any other Lender, (e) in connection with any Litigation
to which any one or more of Lenders is a party, provided, further, that, unless
specifically prohibited by applicable Law or court order, each Lender shall,
prior to disclosure thereof, give prompt notification to Company of any request
for disclosure of any such non-public information (i) by any governmental agency
or representative thereof (other than any such request in connection with an
examination of such Lender's financial condition by such governmental agency) or
(ii) pursuant to legal process, or (f) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) executes a Confidentiality Agreement. With
respect to any disclosure of any Confidential Information set forth in subclause
(i) or (ii) of clause (e) above, each Lender agrees, to the extent not
prohibited by applicable law or court order, to (a) cooperate with Company so
that Company may seek a protective order or other appropriate remedy and (b) use
its best efforts to obtain an order or reasonable assurance that confidential
treatment will be afforded such Confidential Information. At the earlier of such
time as (a) a Person is no longer a Lender or participant under this Agreement,
or (b) all Advances under this Agreement are paid in full and the Commitment is
terminated, upon written request by Company and subject to any restrictions or
regulations of any Tribunal having supervisory authority over Lenders, such
Lender or participant shall return to Company the Confidential Information which
is in tangible form, including any copies
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which such Lender or participant or any Persons to whom such Lender or
participant transmitted the Confidential Information may have made, and such
Lender or participant or such Person will destroy all abstracts, summaries
thereof or references thereto in such Lender's or participant's or such Person's
documents, and after written request by Company, shall promptly provide Company
reasonable assurance in writing that such Lender or participant or such Person
have complied with this paragraph. Each Lender acknowledges that Company is in
the business of financing commercial real estate, equipment and enterprises and
from time to time such Lender and Company may be in direct competition with each
other for business. This Agreement does not constitute a license for any Lender
to use, employ or exploit the Confidential Information to gain any advantage in
the marketplace against Company; it being expressly understood and agreed that
any use, employment or exploitation of the Confidential Information for a
purpose not expressly permitted herein is strictly prohibited.
9.10 SEVERABILITY. If any provision of any Loan Papers is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there
shall be added automatically as a part of such Loan Paper a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.
9.11 EXCEPTIONS TO COVENANTS. Neither Company nor any of its Subsidiaries
shall be deemed to be permitted to take any action or to fail to take any action
that is permitted as an exception to any covenant in any Loan Papers, or that is
within the permissible limits of any covenant, if such action or omission would
result in a violation of any other covenant in any Loan Papers.
9.12 COUNTERPARTS. This Agreement and the other Loan Papers may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
9.13 GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE AND PERFORMABLE IN DALLAS, TEXAS, AND 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. WITHOUT EXCLUDING
ANY OTHER JURISDICTION, COMPANY AGREES THAT THE STATE AND FEDERAL COURTS OF
TEXAS LOCATED IN DALLAS, TEXAS, WILL HAVE JURISDICTION OVER
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PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
COMPANY HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER
OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS,
AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A
JURY.
(b) COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT.
COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL
(RETURN RECEIPT REQUESTED) DIRECTED TO COMPANY AT ITS ADDRESS DESIGNATED FOR
NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION 9.13
SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
9.14 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND
THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first
set forth above.
COMPANY:
FRANCHISE FINANCE CORPORATION OF AMERICA
By: /s/ John R. Barravecchia
------------------------------
John R. Barravecchia
Executive Vice President and
Chief Financial Officer
LENDERS:
NATIONSBANK, N.A., individually and as
Specified Percentage: Administrative Agent
66.66666667%
By: /s/ Frank M. Johnson
-----------------------------------
Frank M. Johnson
Senior Vice President
Address:
901 Main, 67th Floor
Dallas, Texas 75202
Facsimile: (214) 508-0980
Attention: Tom Blake
Telephone: (214) 508-0193
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION
Specified Percentage:
20.00000000%
By: /s/ Jaclyn Noel
-----------------------------------
Name: JACLYN NOEL
Title: VICE PRESIDENT
Address:
c/o Wells Fargo Bank (Phoenix)
3300 North Central Avenue
Mail Station 9004
Phoenix, Arizona 85012
Facsimile: (602) 248-2333
Attention: Jaclyn Noel
Telephone: (602) 248-3652
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BANK ONE, ARIZONA, N.A.
Specified Percentage:
13.33333333%
By: /s/ Michael V. McCann
-----------------------------------
Name: MICHAEL V. MCCANN
Title: VICE PRESIDENT
Address:
241 North Central Avenue
Phoenix, Arizona 85004
Facsimile: (602) 221-1259
Attention: Mike McCann
Telephone: (602) 221-2830
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EXHIBIT A
PROMISSORY NOTE
$____________________ Dallas, Texas _______________
FOR VALUE RECEIVED, the undersigned, FRANCHISE FINANCE CORPORATION OF
AMERICA, a Delaware corporation ("BORROWER"), HEREBY PROMISES TO PAY to the
order of _______________ ("LENDER") _______________, payable at such times, and
in such amounts, as are specified in the Credit Agreement as hereinafter
defined. The books and records of Administrative Agent shall be PRIMA FACIE
evidence of all sums due Lender.
Borrower promises to pay interest on the unpaid principal amount of the
Advances from the date made until such principal amount is paid in full, at such
interest rates, and payable at such times, as are specified in the Credit
Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Administrative Agent (as defined in the Credit Agreement)
(for the account of Lender) at its principal banking house at NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, or such other place as Administrative
Agent may direct, in immediately available funds.
This Note is one of the Notes evidencing Obligations under the Loans
referred to in, and is entitled to the benefits of, the Credit Agreement dated
as of February 11, 1999, among Borrower, NationsBank, N.A., as Administrative
Agent, and certain other lenders (as from time to time amended, modified or
supplemented, the "Credit Agreement"). The Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of an Event of Default (as defined in the Credit Agreement) and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Borrower and each guarantor, surety and endorser waives demand,
presentment, notice of dishonor, protest and diligence in collecting sums due
hereunder; agrees to application of any debt of Lender to the payment hereof;
agrees that extensions and renewals without limit as to number, acceptance of
any number of partial payments, releases of any party liable hereon, and
releases or substitutions of collateral, before or after maturity, shall not
release or discharge its obligation under this Note; and agrees to pay in
addition to all other sums due hereunder reasonable attorney's fees if this Note
is placed in the hands of an attorney for collection or if it is collected
through bankruptcy or other judicial proceeding.
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This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
FRANCHISE FINANCE CORPORATION
OF AMERICA, a Delaware corporation
By: /s/ John R. Barravecchia
---------------------------------
John R. Barravecchia
Executive Vice President and
Chief Financial Officer
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EXHIBIT B
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (this "Guaranty"), dated as of __________, 1999
(this "Guaranty"), is made by FFCA Acquisition Corporation, a Delaware
corporation, FFCA Institutional Advisors, Inc., a Delaware corporation, and FFCA
Capital Holding Corporation, a Delaware corporation (collectively, the
"Guarantors"), of the obligations of Franchise Finance Corporation of America, a
Delaware corporation ("Company"), under the Credit Agreement (defined below)
among the Company, NationsBank, N.A. as Administrative Agent ("Administrative
Agent"), and the lenders parties to the Credit Agreement (singly, a "Lender" and
collectively, the "Lenders").
BACKGROUND
1. The Company, the Administrative Agent, and the Lenders have entered into
a Credit Agreement, dated as of February 11, 1999 (said Credit Agreement, as it
may hereafter be amended or otherwise modified from time to time, being the
"Credit Agreement"). The capitalized terms not otherwise defined herein have the
meanings specified in the Credit Agreement.
2. Pursuant to the Credit Agreement, the Company may, subject to the terms
of the Credit Agreement and the other Loan Papers, request that the Lenders make
Advances.
3. It is a condition precedent to the obligation of the Lenders to make
such Advances that each Guarantor guarantee repayment thereof upon the terms and
conditions set forth herein.
4. Each of the Guarantors is a Subsidiary of the Company, and the Company
and each of the Guarantors are members of the same consolidated group of
companies and are engaged in related businesses.
5. The Board of Directors of each Guarantor has determined that (i) the
execution, delivery, and performance of this Guaranty is necessary and
convenient to the conduct, promotion, and attainment of each Guarantor's
business and (ii) the Advances may reasonably be expected to benefit, directly
or indirectly, each Guarantor.
6. The Guarantors desire to induce the Lenders to make such Advances.
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NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances under the Credit Agreement, the Guarantors hereby agree
as follows:
1. GUARANTY.
(1) Each Guarantor, jointly and severally, hereby unconditionally
guarantees the full and punctual payment of, and promises to pay, when due,
whether at stated maturity, by mandatory prepayment, by acceleration or
otherwise, the Obligations, and agrees to pay any and all reasonable
expenses (including reasonable counsel fees and expenses) incurred in
enforcement or collection of all or any part thereof, whether such
obligations, indebtedness and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several, and any rights under this
Guaranty.
(2) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of each Guarantor hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that
would not render its obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of title 11 of the
United States Code or any applicable provisions of comparable state law
(collectively, the "Fraudulent Transfer Laws"), in each case after giving
effect to all other liabilities of such Guarantor, contingent or otherwise,
that are relevant under the Fraudulent Transfer Laws (specifically
excluding, however, any liabilities of such Guarantor in respect of
intercompany indebtedness to the Company or other Affiliates of the Company
to the extent that such indebtedness would be discharged in an amount equal
to the amount paid by such Guarantor hereunder) and treating as assets,
subject to Paragraph 4(a) hereof, to the value (as determined under the
applicable provisions of the Fraudulent Transfer Laws) of any rights to
subrogation or contribution of such Guarantor pursuant to (i) Applicable
Law or (ii) any agreement providing for an equitable allocation among such
Guarantor and other Affiliates of the Company of obligations arising under
guaranties by such parties.
2. GUARANTY ABSOLUTE. The Guarantors guarantee that the Obligations will be
paid strictly in accordance with the terms of the Credit Agreement, the Notes,
and the other Loan Papers, regardless of any Applicable Law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of such terms or
the rights of the Lender with respect thereto; provided, however, nothing
contained in this Guaranty shall require the Guarantors to make any payment
under this Guaranty in violation of any Applicable Law, regulation or order now
or hereafter in effect. The obligations and liabilities of each Guarantor
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hereunder are independent of the obligations of the Company under the Credit
Agreement and any Applicable Law. The liability of each Guarantor under this
Guaranty shall be absolute and unconditional irrespective of:
(1) the taking or accepting of any other security or guaranty for any
or all of the Obligations, including any reduction or termination of the
Commitment;
(2) any increase, reduction or payment in full at any time or from
time to time of any part of the Obligations;
(3) any lack of validity or enforceability of the Credit Agreement,
the Notes, or any other Loan Paper or other agreement or instrument
relating thereto, including but not limited by the unenforceability of all
or any part of the Obligations by reason of the fact that (i) the
Obligations, and/or the interest paid or payable with respect thereto,
exceeds the amount permitted by Applicable Law, (ii) the act of creating
the Obligations, or any part thereof, is ULTRA VIRES, (iii) the officers
creating same acted in excess of their authority, or (iv) for any other
reason;
(4) any lack of corporate power of the Company or any other Person at
any time liable for the payment of any or all of the Obligations;
(5) any Debtor Relief Laws involving the Company, any Guarantor or any
other Person obligated on any of the Obligations;
(6) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligations; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or the Administrative
Agent to the Company, any Guarantor, or any Person at any time liable for
the payment of any or all of the Obligations; or any other modification,
amendment, or waiver of or any consent to departure from the Credit
Agreement, the Notes, or any other Loan Paper and other agreement or
instrument relating thereto without notification of any Guarantor (the
right to such notification being herein specifically waived by Guarantors);
(7) any exchange, release, sale, subordination, or non-perfection of
any collateral or Lien therein or any lack of validity or enforceability or
change in priority, destruction, reduction, or loss or impairment of value
of any collateral or Lien therein;
(8) any release or amendment or waiver of or consent to departure from
any other guaranty for all or any of the Obligations;
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(9) the failure by any Lender or the Administrative Agent to make any
demand upon or to bring any legal, equitable, or other action against the
Company or any other Person (including without limitation any other
Guarantor), or the failure or delay by any Lender or the Administrative
Agent to, or the manner in which any Lender or the Administrative Agent
shall, proceed to exhaust rights against any direct or indirect security
for the Obligations;
(10) the existence of any claim, defense, set-off, or other rights
which the Company or any Guarantor may have at any time against the
Company, the Lenders, or any Guarantor, or any other Person, whether in
connection with this Guaranty, the other Loan Papers, the transactions
contemplated thereby, or any other transaction;
(11) any failure of any Lender or the Administrative Agent to notify
any Guarantor of any renewal, extension, or assignment of the Obligations
or any part thereof, or the release of any security, or of any other action
taken or refrained from being taken by any Lender or the Administrative
Agent, it being understood that the Lenders and the Administrative Agent
shall not be required to give any Guarantor any notice of any kind under
any circumstances whatsoever with respect to or in connection with the
Obligations;
(12) any payment by the Company to the Lenders or the Administrative
Agent is held to constitute a preference under any Debtor Relief Law or if
for any other reason the Lenders or the Administrative Agent is required to
refund such payment or pay the amount thereof to another Person; or
(13) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Company, any Guarantor, any other
guarantor or other Person liable on the Obligations, including without
limitation any defense by reason of any disability or other defense of the
Company, or the cessation from any cause whatsoever of the liability of the
Company, or any claim that the Guarantors' obligations hereunder exceed or
are more burdensome than those of the Company.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of the Company, any Guarantor or otherwise, all as
though such payment had not been made.
3. WAIVER. To the extent not prohibited by Applicable Law, each Guarantor
hereby waives: (a) promptness, protests, diligence, presentments, acceptance,
performance, demands for performance, notices of nonperformance, notices of
protests, notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation or incurrence of new or additional indebtedness, and any of
the events described in SECTION 2 and of any other occurrence or matter with
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respect to any of the Obligations, this Guaranty or any of the other Loan
Papers; (b) any requirement that the Administrative Agent or any Lender protect,
secure, perfect, or insure any Lien or security interest or any property subject
thereto or exhaust any right or take any action against the Company or any other
Person or any collateral or pursue any other remedy in the Administrative
Agent's or any Lender's power whatsoever; (c) any right to assert against the
Administrative Agent or any Lender as a counterclaim, set-off or cross-claim,
any counterclaim, set-off or claim which it may now or hereafter have against
the Company or other Person liable on the Obligations; (d) any right to seek or
enforce any remedy or right that the Administrative Agent or any Lender now has
or may hereafter have against the Company (to the extent permitted by Applicable
Law); (e) any right to participate in any collateral or any right benefitting
the Administrative Agent or the Lenders in respect of the Obligations; and (f)
any right by which it might be entitled to require suit on an accrued right of
action in respect of any of the Obligations or require suit against the Company
or any other Person, whether arising pursuant to Section 34.02 of the Texas
Business and Commerce Code, as amended, Section 17.001 of the Texas Civil
Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil
Procedure, as amended, or otherwise.
4. SUBROGATION AND SUBORDINATION. Notwithstanding any reference to
subrogation contained herein to the contrary, each Guarantor hereby irrevocably
waives any claim or other rights which it may have or hereafter acquire against
the Company that arise from the existence, payment, performance or enforcement
of such Guarantor's obligations under this Guaranty, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
indemnification, any right to participate in any claim or remedy of any Lender
against the Company or any collateral which any Lender now has or hereafter
acquires, whether or not such claim, remedy or right arises in equity, or under
contract, statutes or common law, including without limitation, the right to
take or receive from the Company, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of
such claim or other rights. If any amount shall be paid to any Guarantor in
violation of the preceding sentence and the Obligations shall not have been paid
in full, such amount shall be deemed to have been paid to such Guarantor for the
benefit of, and held in trust for the benefit of, the Lenders, and shall
forthwith be paid to the Administrative Agent to be credited and applied upon
the Obligations, whether matured or unmatured, in accordance with the terms of
the Credit Agreement. Each Guarantor acknowledges that it will receive direct
and indirect benefits from the financing arrangements contemplated by the Credit
Agreement and that the waiver set forth in this Paragraph 4 is knowingly made in
contemplation of such benefits.
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5. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents and
warrants that all representations and warranties as they apply to such Guarantor
only set forth in Article IV of the Credit Agreement (each of which is hereby
incorporated by reference) is true and correct.
6. COVENANTS. Each Guarantor hereby expressly assumes, confirms, and agrees
to perform, observe, and be bound by all conditions and covenants set forth in
the Credit Agreement, to the extent applicable to it, as if it were a signatory
thereto. Each Guarantor further covenants and agrees (a) punctually and properly
to perform all of such Guarantor's covenants and duties under any other Loan
Papers; (b) from time to time promptly to furnish the Administrative Agent with
any information or writings which the Administrative Agent may reasonably
request concerning this Guaranty; and (c) promptly to notify the Administrative
Agent of any claim, action, or proceeding affecting this Guaranty.
7. AMENDMENTS, Etc. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by any Guarantor therefrom shall in any
event be effective unless the same shall be in writing and signed by the Lenders
as required pursuant to Section 9.1 of the Credit Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
8. ADDRESSES FOR NOTICES. Unless otherwise provided herein, all notices,
requests, consents and demands shall be in writing and shall be delivered by
hand or overnight courier service, mailed or sent by telecopy to the respective
addresses specified herein and to the attention of the individuals listed
thereunder, or, as to any party, to such other addresses as may be designated by
it in written notice to all other parties. All notices, requests, consents and
demands hereunder shall be deemed to have been given on the date of receipt if
delivered by hand or overnight courier service or sent by telecopy, or if
mailed, effective on the earlier of actual receipt or three (3) days after being
mailed by certified mail, return receipt requested, postage prepaid, addressed
as aforesaid.
9. NO WAIVER; REMEDIES. No failure on the part of the Administrative Agent
or any Lender to exercise, and no delay in exercising, any right hereunder or
under any of the other Loan Papers shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder or under any of the other
Loan Papers preclude any other or further exercise thereof or the exercise of
any other right. Neither the Administrative Agent nor any Lender shall be
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required to (a) prosecute collection or seek to enforce or resort to any
remedies against the Company or any other Person liable on any of the
Obligations, (b) join the Company or any other Person liable on any of the
Obligations in any action in which Lender prosecutes collection or seeks to
enforce or resort to any remedies against the Company or other Person liable on
any of the Obligations, or (c) seek to enforce or resort to any remedies with
respect to any Liens granted to (or benefitting, directly or indirectly) the
Administrative Agent or any Lender by the Company or any other Person liable on
any of the Obligations. Neither the Administrative Agent nor any Lender shall
have any obligation to protect, secure or insure any of the Liens or the
properties or interests in properties subject thereto. The remedies herein
provided are cumulative and not exclusive of any remedies provided by Applicable
Law.
10. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any
Event of Default, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by Law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of any Guarantor against any and all of the obligations of
any Guarantor now or hereafter existing under this Guaranty, irrespective of
whether or not such Lender shall have made any demand under this Guaranty. Each
Lender agrees promptly to notify such Guarantor after any such set-off and
application, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender under this
Section 10 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which such Lender may have.
11. CONTINUING GUARANTY; TRANSFER OF NOTES. This Guaranty is an irrevocable
continuing guaranty of payment and shall (a) remain in full force and effect
until termination of the Commitment and final payment in full (after the
Maturity Date) of the Obligations and all other amounts payable under this
Guaranty, (b) be binding upon each Guarantor, its successors and assigns, and
(c) inure to the benefit of and be enforceable by each Lender and its
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), to the extent permitted by Section 9.4 of the Credit
Agreement, each Lender may assign or otherwise transfer its rights under the
Credit Agreement, the Notes or any of the other Loan Papers or any interest
therein to any other Person, and such other Person shall thereupon become vested
with all the rights or any interest therein, as appropriate, in respect thereof
granted to the Lender herein or otherwise.
12. INFORMATION. Each Guarantor acknowledges and agrees that it shall have
the sole responsibility for obtaining from the Company such information
concerning the Company's financial condition or business operations as such
Guarantor may require, and that neither the Administrative Agent nor any Lender
has any duty at any time to disclose to any Guarantor any information relating
to the business operations or financial conditions of the Company.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA.
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WITHOUT EXCLUDING ANY OTHER JURISDICTION, EACH GUARANTOR AGREES THAT THE STATE
AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, SHALL HAVE JURISDICTION
OVER PROCEEDINGS IN CONNECTION HEREWITH.
14. WAIVER OF JURY TRIAL. EACH GUARANTOR, THE ADMINISTRATIVE AGENT, AND THE
LENDERS HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE
LOAN PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THE CREDIT AGREEMENT.
15. Ratable Benefit. This Guaranty is for the ratable benefit of the
Lenders, each of which shall share any proceeds of this Guaranty pursuant to the
terms of the Credit Agreement.
16. Guarantor Insolvency. Should any Guarantor become insolvent, fail to
pay its debts generally as they become due, voluntarily seek, consent to, or
acquiesce in the benefits of any Debtor Relief Law or become a party to or be
made the subject of any proceeding provided for by any Debtor Relief Law (other
than as a creditor or claimant) that could suspend or otherwise adversely affect
the rights of any Lender granted hereunder, then, the obligations of such
Guarantor under this Guaranty shall be, as between such Guarantor and such
Lender, a fully-matured, due, and payable obligation of such Guarantor to such
Lender (without regard to whether there is a Default or Event of Default under
the Credit Agreement or whether any part of the Obligations is then due and
owing by the Company to such Lender), payable in full by such Guarantor to such
Lender upon demand, which shall be the estimated amount owing in respect of the
contingent claim created hereunder.
17. ENTIRE AGREEMENT. THIS GUARANTY, TOGETHER WITH THE OTHER LOAN PAPERS,
REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES REGARDING THE SUBJECT MATTER
HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
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IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
FFCA ACQUISITION CORPORATION
Address for each Guarantor:
c/o Franchise Finance Corporation of America
The Perimeter Center
17207 North Perimeter Drive By: /s/ John R. Barravecchia
Scottsdale, Arizona 85255 ------------------------
Telephone No.: (602) 585-4500 John R. Barravecchia
Facsimile No.: (602)585-2225 Executive Vice President
Chief Financial Officer
Attention: John R. Barravecchia
Executive Vice President and
Chief Financial Officer
FFCA INSTITUTIONAL ADVISORS, INC.
with a copy to:
Franchise Finance Corporation of America
The Perimeter Center By: /s/ John R. Barravecchia
17207 North Perimeter Drive ------------------------
Scottsdale, Arizona 85255 John R. Barravecchia
Telephone No.:(602) 585-4500 Executive Vice President
Facsimile No.:(602) 585-2225 and Chief Financial
Officer
Attention: Dennis L. Ruben, Esq.
Executive Vice President
and General Counsel
FFCA CAPITAL HOLDING CORPORATION
Address for Administrative Agent:
NationsBank, N.A. By: /s/ John R. Barravecchia
901 Main Street, 67th Floor ------------------------
Dallas, Texas 75202 John R. Barravecchia
Telephone No.: (214) 508-0193 Executive Vice President
Facsimile No.: (214) 508-0980 and Chief Financial
Officer
Attention: Tom Blake
Senior Vice President
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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 Credit Agreement dated as of
February 11, 1999 ("CREDIT AGREEMENT"), among Borrower, NationsBank, N.A.,
individually and as Administrative Agent, and each other 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, 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 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) $__________
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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
Notes and which is subject to a
Subordination Agreement $__________
(iii) Total Indebtedness [(i) - (ii)] $__________
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(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 [(iii)/(iv)] _____ to 1
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 Indebted-
ness (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 $__________
(vii) [(iv) + (v) + (vi)] $__________
(viii) Fixed Charge Coverage Ratio
[(iii)/(vii)] _____ to 1
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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
(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 $__________
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IN WITNESS WHEREOF, I have executed this Certificate as of the _____
day of _____________, ___.
FRANCHISE FINANCE CORPORATION
OF AMERICA
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
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EXHIBIT D
CONVERSION/CONTINUANCE NOTICE
[Date]
NationsBank, N.A.
Administrative Agent
NationsBank Plaza
901 Main Street, 13th Floor
Dallas, Texas 75202
Attention: Marie Lancaster
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement dated as of February 11,
1999 (the "Credit Agreement", the terms defined therein being used herein as
therein defined) among Franchise Finance Corporation of America, NationsBank,
N.A., as Administrative Agent, and each Lender party thereto, and hereby gives
you notice pursuant to Section 2.9 of the Credit Agreement that the undersigned
hereby requests Borrowing[s] [a continuation/conversion of an existing Advance]
[continuations/conversions of existing Advances] under the Credit Agreement, and
in that connection sets forth below the information relating to [each] such
Advance as required by Section 2.9 of the Credit Agreement:
(1) The principal amount of existing [LIBOR Advances] [Base Rate
Advances] to be [converted] [continued] is $_____________.
(2) The Business Day of such [continuation] [conversion] is ______,
_________________.
(3) The Type of Advance[s] comprising such [continuation] [conversion]
of Loans is [are] [Base Rate Advance [to the extent of an aggregate amount
of $______]] [LIBOR Advance [to the extent of an aggregate amount of
$________________]].
(4) The initial Interest Period for each LIBOR Advance made as part of
such [continuation] [conversion] is _______ months.
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the [continuation]
[conversion], before and after giving effect thereto and to the application of
the proceeds therefrom:
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(1) the conditions precedent specified in ARTICLE III of the Credit
Agreement have been satisfied with respect to the [continuation]
[conversion] and will remain satisfied on the date of such [continuation]
[conversion];
(2) the representations and warranties specified in ARTICLE IV of the
Credit Agreement are true and correct in all material respects as though
made on and as of such date; and
(3) no event has occurred and is continuing or would result from such
[continuation] [conversion], which constitutes a Default or Event of
Default.
Very truly yours,
FRANCHISE FINANCE CORPORATION
OF AMERICA, a Delaware corporation
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
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EXHIBIT E
BORROWING NOTICE
[Date]
NationsBank, N.A.,
Administrative Agent
NationsBank Plaza
901 Main Street, 14th Floor
Dallas, Texas 75202
Attention: Teresa Balk
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement dated as of February 11,
1999 (the "CREDIT AGREEMENT", the terms defined therein being used herein as
therein defined) among Franchise Finance Corporation of America, NationsBank,
N.A., as Administrative Agent, and each Lender, and hereby gives you notice
pursuant to SECTION 2.2 of the Credit Agreement that the undersigned hereby
requests ______ Borrowing[s] under the Credit Agreement, and in that connection
sets forth below the information relating to [each] such Advance (a "PROPOSED
BORROWING") as required by SECTION 2.2 of the Credit Agreement:
Proposed Borrowing:
(1) The Business Day of such Proposed Borrowing is ______________,
____.
(2) The Type of Advance[s] comprising such Proposed Borrowing of Loans
is [are] [Base Advance [to the extent of an aggregate amount of $_______ ]]
[LIBOR Advance [to the extent of an aggregate amount of
$____________________]].
(3) The aggregate amount of such Proposed Borrowing is $____________.
(4) The initial Interest Period for each LIBOR Advance made as part of
such Proposed Borrowing is _______ months.]
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The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing,
before and after giving effect thereto and to the application of the proceeds
therefrom:
(1) the conditions precedent specified in Article III of the Credit
Agreement have been satisfied with respect to the Proposed Borrowing and
will remain satisfied on the date of such Proposed Borrowing;
(2) the representations and warranties specified in Article IV of the
Credit Agreement are true and correct in all material respects as though
made on and as of such date; and
(3) no event has occurred and is continuing or would result from such
Proposed Borrowing, which constitutes a Default or Event of Default.
Very truly yours,
FRANCHISE FINANCE CORPORATION
OF AMERICA, a Delaware corporation
By:
-----------------------------------
Name:
------------------------------
Title:
----------------------------
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EXHIBIT F
ASSIGNMENT AND ACCEPTANCE AGREEMENT
THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT ("ASSIGNMENT AND ACCEPTANCE") is
dated ________________, _____, among ________________________ ("ASSIGNOR") and
_____________________ ("ASSIGNEE") and NationsBank, N.A., as Administrative
Agent ("ADMINISTRATIVE AGENT").
BACKGROUND.
1. Reference is made to the Credit Agreement dated as of February 11, 1999
(as it may hereafter be amended or otherwise modified from time to time, being
referred to as the "CREDIT AGREEMENT") among Franchise Finance Corporation of
America (the "COMPANY"), the financial institutions parties thereto as Lenders
thereunder, and Administrative Agent for Lenders under the Credit Agreement.
Unless otherwise defined, terms are used herein as defined in the Credit
Agreement.
2. This Assignment and Acceptance is made with reference to the following
facts:
(1) Assignor is a Lender under and as defined in the Credit Agreement
and, as such, presently holds a percentage of the rights and obligations of
Lenders under the Credit Agreement.
(2) As of the date hereof, the Commitment is $______________, and
Assignor's Specified Percentage is ___%.
(3) On the terms and conditions set forth below, Assignor desires to
sell and assign to Assignee, and Assignee desires to purchase and assume
from Assignor, as of the Transfer Date (as defined below), a portion of
Assignor's Specified Percentage of the Commitment equal to ______% [express
as a percentage of Commitment] (the "ASSIGNED PERCENTAGE").
AGREEMENT.
NOW, THEREFORE, Assignor and Assignee hereby agree as follows:
1. Assignor hereby sells and assigns to Assignee, without recourse and,
except as provided in PARAGRAPH 2 of this Assignment and Acceptance, without
representation and warranty, and Assignee hereby purchases and assumes from
Assignor, Assignor's rights and obligations under the Credit Agreement, to the
extent of the Assigned Percentage (including without limitation, (a) the
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Assigned Percentage of the Commitment as in effect as of the Transfer Date and
(b) _____% of each of the Advances owing to Assignor on the Transfer Date).
2. Assignor (a) represents and warrants that it is the legal and beneficial
owner of the interest being assigned by it hereunder and that such interest is
free and clear of any adverse claim; (b) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement, any other
Loan Paper or any other instrument or document furnished pursuant thereto, or
with respect to the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement or any other Loan Paper or any
other instrument or document furnished pursuant thereto or any collateral; and
(c) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Company or any Person the performance
or observance by the Company or any Person of any of its obligations under the
Loan Papers or any other instrument or document furnished pursuant thereto.
3. Assignee (a) confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered to Assignor pursuant to SECTION 5.5 of the Credit Agreement, and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance; (b)
agrees that it will, independently and without reliance upon the Administrative
Agent, Assignor or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit Agreement and the
other Loan Papers; (c) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement and the other Loan Papers as are delegated to the Administrative Agent
by the terms thereof, together with such powers as are reasonably incidental
thereto; (d) agrees that it will perform in accordance with their terms all of
the obligations which by the terms of the Credit Agreement and the other Loan
Papers are required to be performed by it as a Lender; (e) specifies, as its
address for notice and Lending Office, the office set forth beneath its name on
the signature pages hereof; (f) confirms that it is an Eligible Assignee[; AND
(G) ATTACHES THE FORMS PRESCRIBED BY THE IRS CERTIFYING AS TO ASSIGNEE'S STATUS
FOR PURPOSES OF DETERMINING EXEMPTION FROM UNITED STATES WITHHOLDING TAXES WITH
RESPECT TO ALL PAYMENTS TO BE MADE TO ASSIGNEE UNDER THE CREDIT AGREEMENT, THE
OTHER LOAN PAPERS AND THIS ASSIGNMENT OR ACCEPTANCE OR SUCH OTHER DOCUMENTS AS
ARE NECESSARY TO INDICATE THAT ALL SUCH PAYMENTS ARE SUBJECT TO TAXES AT A RATE
REDUCED BY APPLICABLE TREATY].
4. The effective date for this Assignment and Acceptance (the "TRANSFER
DATE") shall be the date following execution by the parties hereto on which
Assignor receives from Assignee an amount in same day funds equal to _____% of
the aggregate principal amount of Advances owing to Assignor on such date,
together with the $3,500 processing fee required under SECTION 9.4 of the Credit
Agreement, and Administrative Agent and the Company receive notice thereof and
an executed copy of this Assignment and Acceptance. The Company acknowledges its
obligations under the Credit Agreement, and agrees, within five Business Days
after receiving an executed copy of this Assignment and Acceptance to execute
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and deliver to Administrative Agent, in exchange for the Note originally
delivered to Assignor, new Notes to the order of Assignor and Assignee in
amounts equal to their respective Specified Percentages of the Commitment.
5. As of the Transfer Date, (a) Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder, (b) Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement and other Loan Papers,
and (c) Assignor's Specified Percentage shall be _______%, and Assignee's
Specified Percentage shall be ________%.
6. From and after the Transfer Date, Administrative Agent shall make all
payments under the Credit Agreement in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and fees
with respect thereto) to Assignee. Assignor and Assignee shall make all
appropriate adjustments in payments under the Credit Agreement for periods prior
to the Transfer Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the state of Texas, without reference to principles
of conflict of laws.
ASSIGNOR:
----------------------------------
By:
------------------------------
Name:
------------------------
Title:
-----------------------
Address: ASSIGNEE:
------------------------------------
Attn: By:
------------------------------ --------------------------------
Telephone No.: ( ) ___-____ Name:
-------------------------------
Telecopier No.: ( ) ___-____ Title:
------------------------------
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LIBOR Lending Office:
Attn:
------------------------------
Telephone No.: ( ) ___-____
Telecopier No.: ( ) ___-____
ADMINISTRATIVE AGENT
NATIONSBANK, N.A.,
Administrative Agent
By:
--------------------------------
Name:
--------------------------
Title:
--------------------------
[IF REQUIRED BY CREDIT AGREEMENT]
Accepted and approved this _____ day of ___________, ___:
FRANCHISE FINANCE CORPORATION OF AMERICA
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
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EXHIBIT G
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT, dated as of ____________________, _____ (as
amended, supplemented, or otherwise modified from time to time, this
"AGREEMENT") made by ______________________, a _____________ (the "COMPANY"),
Franchise Finance Corporation of America, a Delaware corporation ("FFCA"),
__________________, a ______________, and __________________, a _______________
(collectively, the "SUBORDINATED CREDITORS") for the benefit of the Lenders
(each a "LENDER") party to the Credit Agreement (as defined below), and
NationsBank, N.A., as the Administrative Agent (the "ADMINISTRATIVE AGENT") for
itself and the Lenders.
BACKGROUND:
(1) The Lenders and the Administrative Agent have entered into a Credit
Agreement dated as of February 11, 1999, with FFCA (as amended, supplemented, or
otherwise modified from time to time, the "CREDIT AGREEMENT"). Unless otherwise
defined herein, defined terms used herein shall have the meanings ascribed to
them in the Credit Agreement.
(2) The Company is or may be indebted to one or more of the Subordinated
Creditors in the aggregate principal amount of $100,000,000 or such lesser
amount as shall equal the aggregate unpaid principal amount of Intercompany
Loans made by one or more of the Subordinated Creditors to the Company evidenced
by the promissory note of even date herewith in such principal amount (as the
same may hereafter be amended, supplemented, or otherwise modified from time to
time, the "DEBT AGREEMENT"). All such obligations of the Company now or
hereafter existing under the Debt Agreement, whether for principal, interest
(including, without limitation, interest accruing after the filing of a petition
initiating any Proceeding (as defined below), whether or not such interest
accrues after the filing of such petition for purposes of the Bankruptcy Code of
1978, 11 U.S.C. ss.101 et seq. (the "BANKRUPTCY CODE") or is an allowed claim in
such Proceeding), fees, expenses or otherwise are hereinafter referred to as
"SUBORDINATED DEBT". For purposes of this Agreement, "PROCEEDING" means any
bankruptcy, insolvency, arrangement, reorganization, receivership, relief or
other similar case or proceeding under any federal or state bankruptcy or
similar law or an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of a Person.
(3) It is a condition precedent to the making of Advances by the Lenders
under the Credit Agreement that the Subordinated Creditors shall have executed
and delivered this Agreement.
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<PAGE>
NOW, THEREFORE, in consideration of the premises, the Company and the
Subordinated Creditors hereby agree as follows:
SECTION 1. AGREEMENT TO SUBORDINATE. Each of the Subordinated Creditors and
the Company agrees that the Subordinated Debt is and shall be subordinate, to
the extent and in the manner hereinafter set forth, to the prior payment in full
of all obligations of the Company now or hereafter existing under the Credit
Agreement and the other Loan Papers, whether for principal, interest (including,
without limitation, interest, as provided in the Notes, accruing after the
filing of a petition initiating any Proceeding, whether or not such interest
accrues after the filing of such petition for purposes of the Bankruptcy Code or
is an allowed claim in such Proceeding), fees, expenses or otherwise (such
obligations and all Obligations, as defined in the Credit Agreement, being
herein collectively called the "OBLIGATIONS"). For the purposes of this
Agreement, the Obligations shall not be deemed to have been paid in full until
(a) all maturity dates therefor shall have elapsed, (b) the Commitment shall
have been terminated, and (c) the Lenders shall have received indefeasible
payment of the Obligations in full in cash (such date that the conditions
described in (a), (b), and (c) herein are satisfied shall be the "CREDIT
AGREEMENT TERMINATION DATE").
SECTION 2. EVENTS OF SUBORDINATION.
(1) In the event of any dissolution, winding up, liquidation, arrangement,
reorganization, adjustment, protection, relief or composition of the Company or
any Subsidiary of the Company or any of their respective debts, whether
voluntary or involuntary, in any Proceeding of the Company or any Subsidiary of
the Company or otherwise, the Lenders shall be entitled to receive indefeasible
payment in full in cash of the Obligations before the Subordinated Creditors are
entitled to receive any payment of all or any of the Subordinated Debt, and any
payment or distribution of any kind (whether in cash, property or securities)
that otherwise would be payable or deliverable upon or with respect to the
Subordinated Debt in any such Proceeding (including any payment that may be
payable by reason of any other indebtedness of the Company being subordinated to
payment of the Subordinated Debt) shall, subject to the following sentence, be
paid or delivered directly to the Administrative Agent for the account of the
Lenders for application (in the case of cash) to, or as collateral (in the case
of non-cash property or securities) for, the payment or prepayment of the
Obligations until the Obligations shall have been paid indefeasibly in full in
cash and the Credit Agreement Termination Date to have occurred.
(2) Upon the occurrence of a Default or Event of Default and during the
continuance thereof, no payment (including any payment that may be payable by
reason of any other indebtedness of the Company being subordinated to payment of
the Subordinated Debt) shall be made by the Company for or on account of any
Subordinated Debt, and the Subordinated Creditors shall not take or receive from
the Company or any Subsidiary of the Company, directly or indirectly, in cash or
other property or by set-off or in any other manner, including, without
limitation, from or by way of collateral, any payment of all or any of the
Subordinated Debt, unless and until the Obligations shall have been paid
indefeasibly in full in cash and the Credit Agreement Termination Date has
occurred.
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(3) During the continuance of a Default or Event of Default, the Lenders
shall be entitled to receive payment in full of all amounts due or to become due
on or in respect of all Obligations before the Subordinated Creditors are
entitled to receive any payment (including any payment which may be payable by
reason of the payment of any other indebtedness of the Company being
subordinated to the payment of the Subordinated Debt) by the Company on account
of the Subordinated Debt.
SECTION 3. IN FURTHERANCE OF SUBORDINATION. Each of the Subordinated
Creditors agrees as follows:
(1) All payments or distributions upon or with respect to the Subordinated
Debt which are received by such Subordinated Creditor contrary to the provisions
of this Agreement shall be received in trust for the benefit of the Lenders,
shall be segregated from other funds and property held by such Subordinated
Creditor and shall be forthwith paid over to the Administrative Agent for the
account of the Lenders in the same form as so received (with any necessary
endorsement) to be applied (in the case of cash) to, or held as collateral (in
the case of non-cash property or securities) for, the payment or prepayment of
the Obligations in accordance with the terms of the Credit Agreement.
(2) Each of the Subordinated Creditors hereby waives and agrees not to
assert against Administrative Agent or any Lender any rights which a guarantor
or surety with respect to any indebtedness of the Company or any obligor could
exercise. The Subordinated Creditors shall not assert, enforce, or otherwise
exercise (a) any right of subrogation to any of the rights or Liens of
Administrative Agent or any Lender or any other Person against the Company or
any of its Subsidiaries or any other obligor on all or any part of the
Obligations or any collateral or other security, or (b) any right of recourse,
reimbursement, contribution, indemnification, or similar right against the
Company or any of its Subsidiaries or any other obligor on all or any part of
the Obligations or any collateral or any security, and the Subordinated
Creditors hereby waive any and all of the foregoing rights and the benefit of,
and any right to participate in, any collateral or other security given to
Administrative Agent or any Lender or any other Person to secure payment of the
Obligations, however any such Rights arise, whether hereunder or any other Loan
Paper or by operation of Law until after the Credit Agreement Termination Date
has occurred.
(3) Each of the Subordinated Creditor hereby irrevocably appoints
Administrative Agent, such Subordinated Creditor's attorney-in-fact, with full
authority in the place and stead of such Subordinated Creditor and in the name
of such Subordinated Creditor or otherwise to, after the occurrence of a Default
or Event of Default and during the continuance thereof, (a) file any claims,
proofs of claim, or other instruments of similar character necessary to enforce
the obligations of the Company and its Subsidiaries with respect to the
Subordinated Debt and (b) collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Subordinated Debt. Such power of attorney is coupled with an interest and is
irrevocable prior to final indefeasible payment in full of the Obligations.
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(4) The Administrative Agent is hereby authorized to demand specific
performance of this Agreement, whether or not the Company shall have complied
with any of the provisions hereof applicable to it, at any time when any of the
Subordinated Creditors shall have failed to comply with any of the provisions of
this Agreement applicable to it. Each of the Subordinated Creditors hereby
irrevocably waives any defense based on the adequacy of a remedy at law, which
might be asserted as a bar to such remedy of specific performance.
(5) No assets or Properties of the Company or its Subsidiaries shall secure
the Subordinated Debt, except to the extent of Liens which are assigned to the
Administrative Agent on behalf of the Lenders.
SECTION 4. REMEDIES OF THE SUBORDINATED CREDITOR. Each of the Subordinated
Creditor agrees that, so long as the Obligations shall not have been paid
indefeasibly in full in cash and the Credit Agreement Termination Date has
occurred, such Subordinated Creditor will not take, sue for, ask or demand from
the Company or its Subsidiaries, payment of all or any of the Subordinated Debt,
or exercise any remedy against the Company or its Subsidiaries available
contractually, by law or otherwise, or commence in its capacity as a creditor,
or join with any creditor in commencing, or directly or indirectly cause in its
capacity as creditor to the Company or its Subsidiaries to commence, or assist
the Company or its Subsidiaries in commencing, any Proceeding or any other
remedy against the Company or its Subsidiaries.
SECTION 5. AGREEMENTS IN RESPECT OF SUBORDINATED DEBT.
(1) No Subordinated Creditor will:
(1) Sell, assign, pledge, encumber or otherwise dispose of any of the
Subordinated Debt; or
(2) Permit any of the terms of any of the Subordinated Debt to be
changed or amended (or issue any consent, waiver or approval which has the
effect of resulting in any change or amendment) in any manner which could
reasonably be expected to be materially adverse to the interests of the
Lenders.
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<PAGE>
(2) The Subordinated Creditors shall immediately notify the Administrative
Agent of the occurrence of any breach or default under the Subordinated Debt
beyond any grace period provided with respect thereto.
SECTION 6. AGREEMENT BY THE COMPANY. The Company agrees that it will not
make any payment of any of the Subordinated Debt (or take any other action) in
contravention of the provisions of this Agreement.
SECTION 7. OBLIGATIONS HEREUNDER NOT AFFECTED. All rights and interests of
the Administrative Agent and the Lenders hereunder, and all agreements and
obligations of the Subordinated Creditors and the Company under this Agreement,
shall remain in full force and effect irrespective of:
(1) any lack of validity or enforceability of the Credit Agreement,
the Notes, the Loan Papers or any other agreement or instrument relating
thereto;
(2) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Credit Agreement, the
Loan Papers or the Notes, including, without limitation, any increase in
the Obligations resulting from the extension of additional credit to the
Company or otherwise;
(3) any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations; or
(4) any change, restructuring or termination of the corporate
structure or existence of the Company or its Subsidiaries.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of the Company or otherwise, all as
though such payment had not been made.
SECTION 8. WAIVER. Each of the Subordinated Creditors and the Company
hereby waive promptness, diligence, notice of acceptance and any other notice
with respect to any of the Obligations and this Agreement and any requirement
that the Administrative Agent or any Lender or exhaust any right or take any
action against the Company, its Subsidiaries or any other Person or entity.
SECTION 9. REPRESENTATIONS AND WARRANTIES. Each Subordinated Creditor and
the Company each hereby represent and warrant as follows:
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(1) The Subordinated Debt now outstanding, true and complete copies of
instruments evidencing which have been furnished to the Administrative Agent,
has been duly authorized, issued and delivered by the Company, and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. There exists no default in respect of the
Subordinated Debt.
(2) Such Subordinated Creditor has, independently and without reliance upon
the Administrative Agent or any Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement.
SECTION 10. AMENDMENTS TO THIS AGREEMENT. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by any of the
Subordinated Creditors or the Company herefrom, shall in any event be effective
unless the same shall be in writing and signed as provided in the Credit
Agreement, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 11. EXPENSES. Each of the Subordinated Creditors and the Company
agree, jointly and severally, upon demand to pay to the Administrative Agent the
amount of any and all reasonable out-of-pocket expenses, including the
reasonable fees and expenses of its counsel and of any experts or agents, which
the Administrative Agent or any Lender may incur in connection with the (a) the
administration of this Agreement, (b) the exercise or enforcement of any of the
rights of the Administrative Agent or the Lenders hereunder or (c) the failure
by any Subordinated Creditor to perform or observe any of the provisions hereof.
SECTION 12. ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered to it, if to the Subordinated Creditors, at its respective
address specified in the Credit Agreement or the Guaranty Agreement, and if to
the Administrative Agent or any Lender, at its address specified in the Credit
Agreement, or as to each party, at such other address as shall be designated by
such party in a written notice to each other party. All such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective as provided in the Credit Agreement.
SECTION 13. NO WAIVER; REMEDIES. No failure on the part of the
Administrative Agent or any Lender to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
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partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by Law.
SECTION 14. CONTINUING AGREEMENT; Assignments Under the Credit Agreement.
This Agreement is a continuing agreement and shall (a) remain in full force and
effect until the indefeasible payment in full in cash of the Obligations and
until the Commitment has terminated, (b) be binding upon each Subordinated
Creditor and its successors and assigns, and (c) inure to the benefit of, and be
enforceable by, the Administrative Agent, the Lenders and their respective
permitted successors, transferees and assigns. Without limiting the generality
of the foregoing clause (c), any Lender may assign or otherwise transfer all or
any portion of its rights and obligations under, and in accordance with the
terms of, the Credit Agreement to any other Person, and such other Person shall
thereupon become vested with all the rights in respect thereof granted to such
Lender herein or otherwise. Notwithstanding any other provision of this
Agreement, this Agreement shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Obligations is
rescinded or must otherwise be returned by the Administrative Agent or any
Lender upon the insolvency, bankruptcy or reorganization of the Company or its
Subsidiaries or otherwise, all as though such payment had not been made. In any
such event, all payments and distributions upon or with respect to the
Subordinated Debt which have been theretofore received by any Subordinated
Creditor shall be deemed to have been received in trust for the benefit of the
Lenders, shall be segregated from other funds and property held by such
Subordinated Creditor and shall be forthwith paid over to the Administrative
Agent for the account of the Lenders in the same form as so received (with any
necessary indorsement) to be applied (in the case of cash) to, or held as
collateral (in the case of non-cash property or securities) for, the payment or
prepayment of the Obligations in accordance with the terms of the Credit
Agreement.
SECTION 15. GOVERNING LAW.
(1) THIS AGREEMENT AND ALL OTHER LOAN PAPERS RELATED HERETO SHALL BE DEEMED
CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE EXTENT FEDERAL
LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF ALL OR
ANY PART OF THIS AGREEMENT AND ALL LOAN PAPERS. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, EACH SUBORDINATED CREDITOR AGREES THAT THE COURTS OF TEXAS WILL
HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
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(2) THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON
IT. IN ADDITION, THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT
BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE COMPANY AT ITS
ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED UPON RECEIPT BY THE COMPANY. NOTHING IN THIS SECTION
SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 16. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
THE PARTIES HERETO HEREBY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY
OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING
UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED
MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING
WITHOUT A JURY.
SECTION 17. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS
RELATED HERETO REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SECTION 18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument. In making proof of any such agreement, it shall not be necessary to
produce or account for any counterpart other than one signed by the party
against which enforcement is sought.
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REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized 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
(OTHER SUBORDINATED CREDITOR)
By: /s/
-------------------------------
Name:
------------------------
Title:
------------------------
(OTHER SUBORDINATED CREDITOR)
By: /s/
-------------------------------
Name:
------------------------
Title:
------------------------
(THE COMPANY)
By: /s/
-------------------------------
Name:
------------------------
Title:
------------------------
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<PAGE>
_________, 199___
Page 1
EXHIBIT H
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and Address
of Prospective Participant
or Assignee]
Re: Credit Agreement dated as of February 11, 1999, among Franchise
Finance Corporation of America ("FFCA"), the lenders named therein
(the "Lenders"), and NationsBank, N.A., as Administrative Agent
Dear ______________:
As a Lender under the above-referenced Credit Agreement (the "Credit
Agreement"), we have agreed with FFCA pursuant to Section 9.9 of the Credit
Agreement to use reasonable precautions to keep confidential, except as
otherwise provided therein, all non-public information identified by FFCA as
being confidential at the time the same is delivered to us pursuant to the
Credit Agreement, including, without limitation, written information and
information transferred visually or electronically, together with all notes,
analyses, compilations, studies or other documents that contain all or a portion
of such information (collectively, "Confidential Information").
As provided in said Section 9.9, we are permitted to provide you, as a
prospective [participant] [assignee Lender], with certain Confidential
Information subject to the execution and delivery by you, prior to receiving
Confidential Information, of a Confidentiality Agreement in this form. No
Confidential Information will be made available to you until your execution and
return to us of this Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees, agents and
representatives) that (A) the Confidential Information will not be used by you
except in connection with the proposed [participation] [assignment] mentioned
above and (B) you shall keep all Confidential Information confidential, provided
that nothing herein shall limit the disclosure of any Confidential Information
(i) to the extent required by statute, rule, regulation or judicial process,
(ii) to your counsel or to counsel for any of the other Lenders or the
Administrative Agent, (iii) to your bank examiners, auditors or accountants,
(iv) to the Administrative Agent or any other Lender, (v) in connection with any
<PAGE>
_________, 199___
Page 2
litigation to which you or any one or more of the Lenders are a party; provided,
further, that, unless specifically prohibited by applicable law or court order,
you agree, prior to disclosure thereof, to give prompt notification to FFCA of
any request for disclosure of any Confidential Information (x) by any
governmental agency or representative thereof (other than any such request in
connection with an examination of your financial condition by such governmental
agency) or (y) pursuant to legal process. With respect to any disclosure of any
Confidential Information set forth in subclause (x) or (y) of clause (v) above,
you agree, to the extent not prohibited by applicable law or court order, to (i)
cooperate with FFCA so that FFCA may seek a protective order or other
appropriate remedy and (ii) use its best efforts to obtain an order or
reasonable assurance that confidential treatment will be afforded such
information.
At the earlier of such time as (i) you are no longer a Lender, an assignee
or participant under the Credit Agreement, or (ii) all Advances (as defined in
the Credit Agreement) under the Credit Agreement are paid in full and the
Commitment (as defined in the Credit Agreement) is terminated, upon written
request by FFCA and subject to any restrictions or regulations of any Tribunal
having supervisory authority over you, you shall return to FFCA the Confidential
Information which is in tangible form, including any copies which you or any
persons to whom you transmitted the Confidential Information may have made, and
you and they will destroy all abstracts, summaries thereof or references thereto
in your and their documents, and after written request by FFCA, shall promptly
provide FFCA reasonable assurance in writing that you have destroyed such
documents.
It is acknowledged that FFCA is in the business of financing commercial
real estate, equipment and enterprises and from time to time you and FFCA may be
in direct competition with each other for business. This Confidentiality
Agreement does not constitute a license for you to use, employ or exploit the
Confidential Information to gain any advantage in the marketplace against FFCA;
it being expressly understood and agreed that any use, employment or
exploitation of the Confidential Information for a purpose not expressly
permitted herein is strictly prohibited.
This Confidentiality Agreement contains the entire understanding of the
parties to this Confidentiality Agreement with respect to the matters addressed
in this Confidentiality Agreement and may be amended, modified, supplemented or
altered only by a writing duly executed by you and us which is consented in
writing to by FFCA and any prior agreements or understandings, whether oral or
written, are entirely superseded by this Confidentiality Agreement.
<PAGE>
_________, 199___
Page 3
The covenants, conditions and agreements contained in this Confidentiality
Agreement shall bind you and use and inure to the benefit of you, us and FFCA
and their respective parent corporations, affiliated companies, subsidiaries,
officers, employees, partners, agents and successors and assigns.
Would you please indicate your agreement to the foregoing by signing at the
place provided below the enclosed copy of this Confidentiality Agreement.
Very truly yours,
----------------------------------------
By:
------------------------------------
Title:
---------------------------------
THE FOREGOING IS AGREED TO AS
OF THE DATE OF THIS LETTER.
By:
---------------------------------
Title:
------------------------------
