FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(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, 1999
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: (480) 585-4500
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 per share New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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 15, 2000 was $1,239,961,913.
The number of shares of the Registrant's $.01 par value common stock as of
February 15, 2000 was 56,241,312.
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 10, 2000, to be filed pursuant to Regulation 14A.
<PAGE>
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 mortgage loans, equipment loans, construction financing and long-term
real estate leases. FFCA was incorporated in the state of Delaware in 1993 and
is the successor to Franchise Finance Corporation of America I, a Delaware
corporation, and eleven public limited partnerships that 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, 1999, FFCA had interests in approximately 5,300 properties operated by over
480 operators in approximately 150 chains located in 49 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 1999, FFCA originated $1.36 billion in new mortgage loan and
sale-leaseback investments. This surpassed FFCA's 1998 investment level of $928
million by 46%. 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 $918 million, or 68% of the new investments in 1999. FFCA
invested in over 1,900 properties during 1999, and cumulative investment
activity now totals nearly $3.5 billion since the formation of FFCA as a REIT in
June 1994.
FFCA's increased volume of investment activity was funded from various
sources of capital. In January 1999, FFCA increased its capital by completing an
equity offering, raising net proceeds of approximately $146 million through the
issuance of 6.7 million shares of FFCA common stock. In February 1999, FFCA
expanded its bank borrowing capacity by entering into a separate one-year $75
million revolving loan facility (which FFCA chose not to renew in February 2000)
on the same terms as its existing $350 million loan facility. Also, FFCA made
use of its existing loan sale facility by selling $1 billion in mortgage loans
to a trust in sixteen separate transactions during 1999. In August 1999, FFCA
increased this committed loan sale facility from $600 million to $900 million to
accommodate the higher level of acquisitions achieved in 1999. The loan sale
facility has since been renewed through December 2000 in the amount of $600
million. On January 14, 2000, FFCA issued $50 million in unsecured notes due in
2002, bearing interest at 8.43%, and $50 million in unsecured notes due in 2004,
bearing interest at 8.68%. Proceeds of the notes were used to pay down FFCA's
revolving line of credit.
In May and October 1999, FFCA completed its fourth and fifth securitization
transactions. Certain mortgage loans originated by FFCA and its affiliates and
sold into the loan sale facility, totaling $1.1 billion, were securitized and
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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 10% of the aggregate mortgage loan principal balance
through the purchase of subordinated investment securities of the securitization
trust.
As 1999 progressed, the stock market's negative perception of REITs meant
that FFCA could not rely on new equity issuances to fund its growth, even though
FFCA's stock outperformed the REIT industry. In April 1999, FFCA adopted a
shareholder rights plan intended to protect FFCA's shareholders in the event of
unfair takeover tactics, or an unsolicited attempt to acquire control of FFCA in
a transaction believed not to be in the best interests of the shareholders. Also
during 1999, FFCA explored a number of strategic options to diversify its
capital sources. After consideration of various options, in December 1999 FFCA
entered into a three-year loan sale agreement with Washington Mutual Bank, FA,
whereby Washington Mutual agreed to purchase loans that FFCA originates and
services. This alliance with the nation's ninth largest financial services
company to be its exclusive provider of chain store loans represents a
significant source of new capital. FFCA anticipates that this will reduce its
reliance on debt and shareholder equity as sources of capital to fund its
continued growth. Under the loan sale agreement, Washington Mutual will purchase
mortgage loans from FFCA at the time the loans are originated; however, there
can be no assurance that Washington Mutual will purchase every loan that FFCA
originates. Therefore, while FFCA will no longer have to rely on accumulating
large amounts of mortgage loans (using its bank lines of credit to carry the
loans) and selling the loans through securitization transactions, it may
continue to securitize loans in some cases.
As a REIT, FFCA's tax status restricts it from taking full advantage of the
opportunities provided by the loan sale agreement with Washington Mutual by
preventing REITs from originating and subsequently selling mortgage loans (other
than through certain structured securitization transactions); therefore, on
January 4, 2000, FFCA established a nonqualified REIT subsidiary, FFCA Funding
Corporation ("Funding Corp."), to originate mortgage loans for sale to
Washington Mutual. These mortgage loans would be serviced by FFCA. FFCA
transferred, among other things, its future mortgage loan origination business
(including a transfer of certain employees and an assignment of the Washington
Mutual loan sale agreement) to Funding Corp. in exchange for 10 shares of
newly-issued, nonvoting preferred stock. The preferred stock, which represents
all of the issued and outstanding stock of such class, entitles FFCA to 99% of
any dividends declared by Funding Corp. Certain executive officers of FFCA own
all of the outstanding voting common stock of Funding Corp.
Other events occurring in 1999 included an increase of 8% in FFCA's
quarterly dividend to $0.53 from $0.49 for the fourth quarter of 1999. In
addition, in December 1999 FFCA's Board of Directors adopted a resolution
authorizing the repurchase of up to 7.5% of the company's outstanding common
stock from time to time in open market or privately negotiated transactions. The
timing of the purchases and the actual number of common shares purchased will
depend on market conditions and available cash flow.
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As of December 31, 1999, FFCA had 159 full-time employees and 5 part-time
employees. FFCA has three-year employment agreements with five of its executive
officers.
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 listed 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. The factors listed below should be carefully
considered when assessing FFCA's plans, intentions and expectations.
Certain risks and uncertainties including the following may affect FFCA's
future results:
* FFCA invests in mortgage loans and other financial instruments that
are subject to various forms of market risk such as interest rate
fluctuations. In a rising interest rate environment, interest rates
may increase to a point that demand for the financing of real estate
is curtailed, which could negatively impact FFCA's growth.
* FFCA uses interest rate agreements to hedge its exposure to changes in
interest rates that could affect the value of its mortgage loans and
investments held for sale; however, there can be no assurance that
these hedges will be effective in all cases. FFCA only enters into
interest rate agreements with creditworthy institutions; however FFCA
is exposed to the risk of credit loss in the event of nonperformance
by the counterparties to the contracts.
* FFCA faces increasing competition from large banks, insurance
companies, finance companies, leasing companies and other real estate
investment trusts in the acquisition, financing and leasing of
properties. Some of these companies may have greater resources or
access to capital at more competitive rates than FFCA. This increasing
competition could negatively affect FFCA's growth.
* In order to continue to grow, FFCA needs adequate access to the
capital markets. Capital sources can include the public debt and
equity markets and the asset-backed securities market, as well as
capital sources such as FFCA's loan sale facility and its loan sale
agreement with Washington Mutual. FFCA is exposed to the risk that
changes in market conditions may limit access to some of the capital
markets, which would adversely affect FFCA's growth. The stock
market's current negative perception of REITs may mean that FFCA
cannot rely on new equity issuances as a source of capital.
Additionally, there can be no assurance that FFCA would be able to
raise sufficient capital through issuance of equity securities to
achieve its growth objectives. In addition, FFCA is subject to debt
financing and refinancing risks, including the ability to refinance
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debt in the future at an acceptable cost of capital. There can be no
assurance that FFCA will be able to raise sufficient capital through
borrowings, or the issuance of debt securities, to achieve its
investment objectives.
* 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's success is dependent
upon the success of these industries in general, and the success of
the specific chains and retail facilities which FFCA finances.
* FFCA may continue to securitize mortgage loans and to have
responsibility for mortgage servicing. 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,
the size and diversification of the loan pools, 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 owns subordinated interests in securitized mortgage loans and may
acquire additional subordinated securities of future mortgage
securitization transactions. To the extent of this 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. In
addition, some of these subordinated securities are adversely impacted
by prepayments of the underlying mortgage loans; therefore, if market
conditions increase the level of prepayments, FFCA may be adversely
impacted.
* 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.
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* 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.
* FFCA is dependent on the efforts of its directors, officers and key
personnel and, although FFCA has employment agreements with certain
officers, 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 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 operational efficiencies
and economies of scale, (iii) through the receipt of contractual lease
escalations and (iv) by increasing its use of internally generated cash flow for
investments or other transactions that promote growth in shareholder wealth.
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's primary business strategy is to become the dominant single financing
source for the chain store industry. Over time, FFCA developed its strategic
position in response to the capital markets and the changing needs of its
customers. When FFCA became a REIT in 1994, its main focus was providing a
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long-term lease product to the chain restaurant industry. Then, in order to
serve those potential customers who wanted to own (rather than lease) property,
FFCA began providing mortgage loan financing in 1995. To further increase its
product flexibility, FFCA started offering variable rate mortgages and developed
a construction-financing program for its customers. As these products were being
developed, FFCA also began exploring the idea of expanding from chain restaurant
financing to address the financing needs of the convenience store and automotive
aftermarket industries. 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. After extensive
research on these industries, FFCA began financing convenience stores and
automotive services and parts outlets in 1997. These industries are now an
increasing part of FFCA's total market. For the year ended December 31, 1999,
78% of the revenues generated by the portfolio reflect restaurant investments,
17% reflect convenience store investments and 5% reflect automotive services and
parts investments. During 1999, FFCA made a strategic decision to focus on
offering mortgage loan products, rather than long-term leases, because they
provided better shareholder returns. As a result, mortgage loans represented
over 80% of FFCA's new investments in 1999 and this trend is likely to continue.
With increasing demand for FFCA's mortgage financing products, FFCA began
exploring alternative sources of capital. The result was an alliance with
Washington Mutual Bank, FA, the nation's ninth largest financial services
company, which decreases FFCA's dependence on the public capital markets (both
debt and equity) by providing a consistent source of capital to fund mortgage
loan products. This new alliance, along with FFCA's traditional capital sources,
including the mortgage loan securitization market, has increased FFCA's
financial flexibility while providing an attractive return on equity to its
shareholders. FFCA will continue to consider appropriate new investment
opportunities in the future.
FFCA now provides financing to the nation's three largest chain store
industries: restaurant, convenience store, and automotive aftermarket. These
three chain store industries have so many established locations that the markets
are consolidating more often than growing through new store creation. Because of
this continuing trend, financing existing store locations, and not new store
construction, has accounted for over 90% of FFCA's growth in the past five
years.
FFCA controls investment risk by financing real estate diversified by
geographical area, by concept and by operator. As of December 31, 1999, FFCA had
investments in more than 5,300 locations throughout the United States and Canada
(though investments in Canada are not significant). Much of FFCA's new financing
business comes from existing customers. The financing transactions are with
approximately 480 operators represented within FFCA's investment portfolio. Most
of these are multi-unit operators, though no single operator represented more
than 8% of FFCA's total portfolio revenues in 1999. These experienced multi-unit
operators conduct business under nationally or regionally recognized brand
names. FFCA's portfolio includes over 150 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, Long John Silver's, Midas
Muffler Shops, Pizza Hut, 7-Eleven, Taco Bell, Texaco, Valvoline Instant Oil
Change and Wendy's. As FFCA continues to grow, management expects the portfolio
to continue to become more diversified. As a result, FFCA believes it is able to
achieve a better risk-adjusted return for its shareholders.
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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 under the recently negotiated Washington
Mutual agreement with FFCA retaining the mortgage servicing rights. Mortgages
also may be sold in securitized offerings where FFCA retains the mortgage
servicing rights as well as interests in the securitized loan pool in the form
of subordinated securities.
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 inspects FFCA's properties to assess
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 a current vacancy rate of less than 1% and
the vacancy level in the portfolio maintained at less than 2% since FFCA became
a REIT in 1994.
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.
* 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.
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* 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 an environmental insurance policy from a
third-party insurance carrier or a Phase I environmental assessment
(and a Phase II environmental assessment or other environmental tests,
if recommended by the related Phase I).
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
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.
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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 over 5,300
locations throughout the United States and Canada (though investments in Canada
are not significant). During the year ended December 31, 1999, 78% of the
revenues generated by the portfolio reflect restaurant investments, 17% reflect
convenience store investments and 5% reflect automotive services and parts
investments. FFCA's portfolio includes over 150 different chains. The following
table sets forth FFCA's revenues generated from its portfolio of chain store
properties during the year ended December 31, 1999.
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CHAIN DIVERSIFICATION BY REVENUE
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
Percentage
of
Chain Total Revenues* Total
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Burger King $ 28,323 13%
Arby's 17,427 8%
Jack in the Box 13,680 7%
Hardee's 10,982 5%
Wendy's 10,745 5%
Quincy's 9,643 5%
Pizza Hut 8,957 4%
Taco Bell 5,445 3%
Applebee's 5,114 2%
KFC 4,953 2%
Long John Silver's 4,690 2%
Clark/On the Go 4,271 2%
7-Eleven 4,085 2%
Denny's 3,569 2%
Flying J Travel Plaza 3,435 2%
Black-Eyed Pea 3,380 2%
Fuddrucker's 3,174 2%
Checker Auto Parts 2,747 1%
E-Z Serve 2,696 1%
Midas Muffler Shops 2,687 1%
Dairy Mart 2,679 1%
Popeye's 2,543 1%
Max & Erma's 2,408 1%
Conoco 2,106 1%
All other chains 51,296 25%
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TOTALS $211,035 100%
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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 480 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 1999,
1998 or 1997.
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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'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 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 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. In 1998, FFCA first published its research on convenience store
industry observations and trends. FFCA employs its client and collections data
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 continues to invest in its information systems technology. During
1999, FFCA implemented improvements to its underwriting and origination systems
to accommodate a higher volume of transactions. The design and implementation of
these new systems was necessary to develop a more efficient loan and lease
origination system that would permit a high level of growth in FFCA's
origination activity while containing operating costs. In addition, investments
in information systems infrastructure made during the year, such as high
bandwidth Internet access, position FFCA to be able to take advantage of new and
emerging technologies in communications and commerce.
FFCA encountered no system or facilities-related problems during the
rollover to the year 2000. FFCA performed extensive system verification and
testing during the period January 1st through January 3rd, and determined that
its systems were operating normally. FFCA is not aware of any significant
problems related to the Year 2000 issue and is operating on a "business as
usual" status. FFCA will continue to monitor the status of its clients and
vendors for any potentially significant business interruptions that may arise
from difficulties they may experience as a result of the Year 2000 issue. Costs
incurred to date in addressing Year 2000 issues have not been material. Based on
current estimates, FFCA believes any additional costs of addressing Year 2000
issues will not be material.
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COMPETITIVE CONDITIONS
The financing of chain store real estate for multi-unit chain store
operating companies continues to be 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. FFCA's large market capitalization 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.
FOODSERVICE INDUSTRY
In 1999, the foodservice industry achieved sales of nearly $360 billion, or
3.9% of the Gross Domestic Product, making it one of the largest sectors of the
nation's economy as defined by the Department of Commerce. The foodservice
industry includes three major segments: commercial (for example, restaurants,
bars and taverns, lodging, food contractors and other commercial), institutional
(for example, colleges, universities and hospitals) and military. The
foodservice industry, in its ninth year of real expansion, tracks the growth of
the U.S. economy, which is entering its 10th year of growth. Average daily sales
in the foodservice industry exceed $1 billion, and nearly half of all adults are
restaurant patrons on any given day.
The foodservice industry as a whole grew 5.2% in 1999 according to the
National Restaurant Association (NRA), with the greatest growth in the other
commercial and the full service restaurant segments. In real terms (constant
dollars), the industry grew 2.9%, outpacing inflation (2.2%). Overall sales for
eating places (i.e. restaurant industry) increased 3.1% in real terms, while
commercial sales for the foodservice industry increased 3.0% in real terms. The
largest increase in real terms for the foodservice industry (5.3%) was in the
other commercial segment, led by significant increases in food sales at other
retail outlets, recreation and sports events, vending and non-store retailers.
The fastest-growing areas of the U.S., the Southwest/Mountain states (such as
Arizona, Nevada, Colorado and Texas), are expected to show the most growth in
restaurant sales (6.2%) between 1999 and 2000, while the slow-growing
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Mid-Atlantic states (such as New York, New Jersey and Pennsylvania) are expected
to show only 3.8% growth. The booming economy, coupled with increases in
disposable personal income, is contributing to the industry's growth, which is
anticipated to reach $576.9 billion by the year 2010. However, projections for
the foodservice industry would be dramatically revised if the U.S. experienced
an economic downturn.
In 2000, total industry sales are expected to grow 5%, or 2.2% in real
terms. Estimates for real Gross Domestic Product growth in 2000 range from
3.3%-3.8%, while inflation, measured by the Consumer Price Index (CPI) is
expected to remain moderate at 2.2%-2.4%. Economists are forecasting continued
growth and stable prices with no economic downturn in 2000, which would be
beneficial for the industry. Wholesale food prices, however, are expected to
increase 1.5% in 2000 (compared to relatively flat growth between 1997 and
1999), which increases the cost of doing business. Accordingly, 2000 menu prices
are anticipated to increase 2.8%. Menu prices increased 2.5% in 1999, driven by
increasing labor costs, compared to a 2.2% increase in CPI. Labor costs rose
4.1% in 1999, versus 4.8% in 1998, and are expected to increase another 4.5% in
2000. Restaurants are already offering $8-$9 per hour starting wages in this
tight labor market. The industry employs over 7.9 million people, or 6.1% of the
non-farm workforce, according to the Bureau of Labor Statistics. The top
challenge in the year 2000, according to the NRA, is finding qualified and
motivated labor. Full service operators are in a better position with their wide
menu variety to pass price increases onto customers. The limited menu of most
fast food operators, as well as heavy competition and discounting, make it more
difficult for these operators to pass along the increase.
Expenditures on food away from home are replacing purchases for food at
home, according to the Bureau of Labor Statistics. Growth in the industry
reflects that more than 44% of total food dollars are spent on food away from
home, which is projected to reach 53% by 2010, compared to 25% in 1955. In
addition, 42% of adults cook fewer meals than they did just two years ago and
78% of households purchase takeout or delivery food at least once a month.
Full service sales increased 6.7% between 1998 and 1999, 3.1% on a real
basis. For 2000, full service sales are projected to increase 5.9% in total, or
3.1% in real terms. A lack of growth in the number of restaurant units implies
that full service restaurants are increasing either their average ticket sales
or customer count. The 1999 average ticket increased for both fast food and full
service operations with an average ticket per person under $10. The wide variety
of tastes and experiences available at full service locations are drawing
customers and driving sales. Many full service operators are beginning to
heavily target takeout food, which would increase customer count. In addition,
full service operators, who traditionally do not heavily discount, can raise
menu prices more easily than fast food operators. In 1999, fast food sales
increased 5.0% (2.3% in real dollars). For 2000, fast food sales are projected
to increase 4.4%, only 1.6% in real terms. In addition, margins for fast food
are expected to be squeezed in 2000, with the anticipated increase in beef
prices and labor costs.
Growth in the number of restaurants has slowed in the past two years, but
particularly in 1999 to just 0.2% versus approximately 5.0% growth in 1995, 1996
and 1997. The lack of growth is attributable to increased competition, scarcity
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of prime real estate, saturation and the capital markets' general lack of
confidence in the industry. In addition, newer concepts are growing more slowly
than others have in the past to avoid mistakes and problems caused by too rapid
expansion.
Despite the upward trend in sales, the industry is facing a number of
challenges. These challenges include consolidation, increased competition,
increased cost of doing business, tight labor markets and demanding consumers.
Heightened competition has led to a divergence in how operators respond. Some
companies are divesting non-core chains, while others are acquiring new
concepts. There are an increasing number of multi-concept operators as companies
attempt to diversify (many having both fast food and casual locations) and
spread costs over more units. Many franchisors own more than one concept to
offer selections to franchisees, test products in various chains and secure
growth for their company. There are also, however, several multi-concept
operators who have reverted to operating only one concept. Even though this
divergence exists, there appears to be a common trend - operators and restaurant
companies are focusing heavily on their primary brands and operational
fundamentals. Some companies are consolidating to gain economies of scale or to
increase sales. Consolidation should continue as operators strive to grow,
capital is available and increasing size offers a meaningful operational
advantage. Chains will continue to find ways to reduce costs, through technology
and other means. Presenting a further challenge to the industry, consumers are
demanding consistency, quality and freshness from all operators in addition to
fast, convenient service from fast food operators.
Overall, in 1999, FFCA saw very little new unit expansion. Instead,
operators focused on operations and improving same-store sales. While customers
ate out more, much of the market share gains attained by chains were largely at
the expense of other chains. In addition, the industry is learning to cope with
one of its major challenges - the labor shortage. Operators are increasing their
use of technology and developing innovative ways to retain workers and limit
employee turnover. Many restaurant companies have realized that the economic
boom, which has caused the labor shortage, is also responsible for the increase
in disposable personal income. If the unemployment rate were to rise and labor
became abundant, disposable personal income would decrease, resulting in lower
industry sales.
THE CONVENIENCE STORE INDUSTRY
The convenience store and petroleum marketing industry is defined as those
retailers primarily engaged in the retail sale of gasoline and/or convenience
products. Using various government and industry sources, FFCA estimates the
total size of the industry to be $216 billion, which equates to 2.5% of Gross
Domestic Product. This industry total encompasses convenience store ("c-store")
merchandise, c-stores selling gasoline, and gasoline sold apart from c-stores.
The growth in the convenience store and petroleum marketing industry has largely
been driven by six factors: 1) disposable personal income; 2) increased desire
for convenience; 3) increased travel; 4) increased number of vehicles on the
road; 5) trends in the industry designed to increase c-store demand; and 6)
price increases in key categories.
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C-store operators and marketers are becoming stronger retailers in response
to changes in the marketplace. Operators are using consumer research techniques
and scanned data to understand their customer base. This understanding is
enhancing their merchandising and marketing skills and focusing their attention
on meeting consumer needs. Recent changes in the industry include: image
improvements, brand differentiation focus, improved customer service, a wide
variety of ancillary services offered and tested, technology improvements to
enhance and expedite service, volatile oil prices, new location designs,
consolidation among large oil companies, relationship changes between the oil
companies and their distributors, and other channels of trade targeting the
convenience and gasoline businesses. With people on the move, convenience will
play more of a part in choosing where to shop, and c-stores have an advantage
over other channels in this area. In addition, with increasing regulation,
c-stores may become the de facto outlet for certain products, such as
cigarettes.
Many of these changes are a reaction to volatile gasoline margins and fear
of decreased tobacco profits. Falling oil prices from late 1997 to early 1999
and volatile gasoline margins have led the majors (i.e. large, fully-integrated
oil companies such as Exxon, Mobil, BP Amoco, Shell, Texaco, and Chevron) to
consolidate and streamline refining and marketing (downstream) operations. At
the retail level, customer service, economies of scale, upgraded image, new
facilities, ancillary services, and technology are the basis of competition, as
retailers attempt to decrease their reliance on gasoline and tobacco profits.
Another profound change in the c-store marketplace is heightened
competition from new entrants from other retail channels, such as supermarkets
and mass merchandisers. These circumstances, as well as other market pressures,
are changing the way operators do business. To increase sales, operators are
adding ancillary services such as car washes, lube shops, financial services and
expanded foodservice. To increase demand, the industry is focusing on c-store
operations to attract new demographic groups (including women and upscale
customers) through upgraded facilities, improved technology, new service
offerings, more competitive merchandise prices, brand enhancement and improved
customer service. Like most other retail sectors, the industry is becoming more
consumer-focused in the face of competition. Competition, technology, facilities
upgrades and new services are increasing the cost of doing business and
requiring a larger initial and on-going investment per store. Government
regulation and labor issues also contribute to the growing cost of doing
business. In 1998, several judgments against tobacco companies in private
lawsuits and the landmark settlement with the states, which resulted in five
wholesale price increases on cigarettes (totaling nearly 50%), impacted sales
and margins. These circumstances suggest further company and operator
consolidations to provide increased buying power and other economies of scale.
Through consolidation, the larger chains are becoming larger and more cost
efficient, while others are refocusing on core markets and divesting assets
outside those markets, as well as closing unprofitable locations. These market
dynamics place even more pressure on smaller operators, increasing their
likelihood of closure or sale to larger operators.
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At c-stores, in-store sales increased, as did total gasoline gallons sold.
In-store sales were driven by the strong economy, the increase in total number
of c-stores, increased tobacco prices and increased foodservice sales. Total
c-store sales have increased every year since 1971, according to the National
Association of Convenience Stores, (prior years were estimated and not
considered). The top product category in 1998 was cigarettes at 28.9% of
in-store sales, followed by foodservice at 13.9%, beer at 12.7%, and packaged
beverages at 12.3%. These four categories comprise over 67% of in-store sales.
Gross margin for foodservice at 55.2% (category average) was the highest in the
top 10 categories, and was second only to ice over all categories. Within
foodservice, food prepared on site (53.2%), cold fountain drinks (60.6%) and hot
beverages (68.5%) had gross margins at or above 50% in 1998. For the industry,
both in-store and gasoline cents per gallon margins decreased in 1998. Gasoline
prices reached the lowest inflation-adjusted level in history during the price
slump that lasted from late 1997 to early 1999. The decline in price is
attributed to the warm winters in the past two years, which led to a drop in
heating oil demand and carried over into gasoline prices. In addition,
overproduction and lower demand in Asia contributed to an oversupply of crude.
Other contributors to lower oil prices include enhanced upstream (exploration
and production) technology, and the United Nation's raising of Iraq's
oil-for-food allowance. In February 1999, when gasoline prices hit inflation
adjusted historic lows, OPEC members announced their agreement to cut production
by approximately 2.7% of world supply, and non-OPEC producers followed suit,
contributing to the decrease in supply. Refinery fires and pipeline problems
compounded the decrease in supply and the recovering Asian and Latin American
economies increased demand for crude. Gasoline prices rapidly went from their
lowest levels in history (inflation adjusted) to record highs (not inflation
adjusted) in some areas, most notably the west. Tremendous pressure was put on
marketers in 1999 by rapidly rising gasoline prices. According to industry
experts, every dollar increase in crude prices per barrel translates to a
2.5-cent increase in retail gasoline prices. Marketers saw their margins
squeezed as they were prevented from passing along all of the wholesale price
increase to consumers.
Similar to many other retail industries, the convenience store and
petroleum marketing industry is facing a shortage of employees; which is
especially acute in areas saturated with retail, such as the northeast. The
cause of the shortage is the decline in teenagers and the low unemployment
level. In addition, OSHA's 1998 safety guidelines recommend maintaining two
employees on duty at all times, and operators' cleanliness and customer service
focus require additional employees. Unemployment remains low (around 4.3% in
mid-1999), and competition for labor is high. With the increase in services
offered (most prominently foodservice), the number of employees per store has
grown significantly. The industry, which typically pays higher than minimum
wage, will need to continue to do so to attract employees. Because of image
upgrades, operators are now looking for customer-service oriented employees,
which puts more pressure on operators to find qualified workers. In the face of
the difficulty in recruiting labor, c-store operators routinely compete for
labor and hire from one another's staff. In addition, c-store operators are
competing with all other retail segments and with entry-level white collar and
technical jobs for employees. With the increasing need for retail skills,
competition for quality employees is getting even steeper.
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The industry is facing new challenges as well as volatile gasoline margins.
Most companies in the industry are changing operations to be competitive and
adding services to counteract volatile gasoline margins and tobacco's uncertain
future. C-stores have become the prevailing channel for cigarette sales, though
with the price increases seen in 1998, margins on this category may be
pressured. Many additional areas are causing concern among industry executives.
The top concern is availability of labor. Tied for second place are government
regulation and employee theft. Rounding out the top 6 concerns are technology,
tobacco legislation and competition within the industry. Many concerns pertain
to the increasing cost of doing business: competition, attracting new employees,
upgrading technology, employee theft, and looking for new sources of capital.
Despite all the urgency placed on brand differentiation through facilities and
ancillary service offerings, location and customer service are still viewed to
be the key success factors for a c-store. Convenient location and customer
service, coupled with competitive gasoline prices, are ways to generate sales.
To increase the bottom line, operators need to become more efficient, taking
advantage of economies of scale and scope where possible.
THE AUTOMOTIVE AFTERMARKET INDUSTRY
The automotive aftermarket industry is defined as products and services
sold after the initial purchase of a new motor vehicle, including
non-manufacturer options at the time of original sale. FFCA estimates the
automotive aftermarket reached $160 billion in product and service sales in
1998, up from $155 billion in 1997, based on several sources of industry
information available. This represents 1.8% of gross domestic product and 2.7%
of personal consumption expenditures in 1998. Total aftermarket sales are
heavily correlated with gross domestic product, disposable personal income,
vehicle miles driven and vehicle age. Total sales of $160 billion encompasses
aftermarket product sales and service (including labor) charges for all cars,
light trucks and heavy trucks, but does not include auto body parts, crash
parts, communication equipment, sound accessories, audio equipment, fuel and
miscellaneous accessories or the cost of labor performed in-house by fleets in
their own repair facilities.
Consumers have three basic choices for repairing or personalizing their
vehicle: 1) take the vehicle to an automobile dealer; 2) select an independent
mechanic or specialty chain; and 3) perform the repair themselves. Thus, the
aftermarket is divided into two segments based on these decisions: Parts and
Service. The Parts segment is comprised of accessories and replacement parts
that are sold to consumers who typically perform their own vehicle maintenance.
The Service segment encompasses the sale of professionally installed parts and
labor to consumers. The Service segment includes such functions as fluids (lube
shops), under-the-car (brake shops), under-the-hood (tune-up shops and
transmission shops), tires, auto body and paint, and combinations of these
sectors. Both specialty chains and dealers are included in the Service segment.
Most major chains generally specialize in one segment or the other. In the
Service segment, some locations are focusing on single services while others are
developing a menu of services to increase the average ticket per customer.
There are approximately 370,000 outlets that compete in the automotive
aftermarket. Most are owned by independent operators, as evidenced by the fact
that the top 50 chains in the aftermarket account for approximately 9% of all
outlets. On the other hand, according to the Automotive Parts and Accessories
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Association, general repair shops and service stations (i.e. independents)
perform nearly 45% of all services on light cars and trucks. This implies that
chains are more efficient, capturing a large share of the market despite their
fewer number of units. Competitive factors in the industry (for both parts and
service) include location, quality of service, quality of products, price,
concept name and recognition, and speed of service.
Competitors within the aftermarket include: 1) full service gasoline
stations; 2) auto dealerships; 3) general repair garages; 4) tire outlets; 5)
discounters/mass retail merchandisers; 6) parts retailers; and 7) specialty
repair shops. Specialty repair shops have been a driving factor behind the
growth in the aftermarket. The specialty service business encompasses the
service of specific automotive needs such as mufflers, tune-ups, transmissions,
paint and bodywork, oil changes, and auto glass. Some companies adopt a single
service/product line while others have expanded to multiple lines.
Maintainers are persons responsible for the repair and maintenance of an
automobile, truck, sport utility vehicle, or van. A maintainer can be a vehicle
owner, lessee, or caretaker. There are two types of maintainers - vehicle owners
that prefer to repair or accessorize their vehicle (or for a friend, relative,
etc.) themselves (do-it-yourselfer or DIYer) and those that prefer to have a
professional work on their vehicle (do-it-for-me or DIFM). These two groups are
not mutually exclusive. Many light DIY consumers (for example, those who change
their own oil) prefer to take their vehicles to the shop for more difficult or
time-consuming maintenance/repairs. While DIY sales grew slowly over the past
decade, purchased services and product sales at DIFM establishments increased at
a faster rate. The booming economy and aging population are changing many DIY
customers into DIFM customers.
There are over 330,000 service outlets in the U.S., including specialty
repair shops, tire stores, and independent garages and service stations. The top
40 chains account for approximately 8% of the total outlets in the Service
segment. However, the Automotive Service Industry Association estimates that
chain repair shops were responsible for 42.1% of sales, while independent
garages captured 57.9% of sales. By far, the largest group in the industry is
independent repair shops. The top 50 companies (in terms of units) account for
8.9% of the estimated 370,000 locations that compete in the industry. The number
of service station and garages that perform auto repair declined significantly
between 1980 and 1999, slipping from 227,000 to 148,000. Only an estimated
40,000 gasoline stations still perform some form of automotive repair. In
addition, their market share of products installed by mechanics in light cars
and trucks has dropped as well. Most chains in this industry are comprised of
small franchisees (1-5 stores) rather than large franchise operators such as
those found in the restaurant industry. As a result, franchisees in this
industry rely heavily on the franchisor for such services as inventory,
training, site selection, and even financing. Independent shop owners and small
franchisees often work in their shops. This fact, in combination with the growth
of chains, increasing competition, increasing cost of technology, and increasing
cost of labor, is forcing a change in the industry. Chains, especially quick
lube chains, are purchasing independents. With industry growth slowing, many
independents are fighting for survival. This has lead them to 1) specialize in
services (for example, electrical and engine rebuilds) that chains choose not to
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perform because they are either too hard to estimate correctly, too hard to
perform to consumer's satisfaction or unprofitable; and 2) join service program
groups being created by parts warehouse distributors and jobbers.
The face of the Service segment is changing through specialization,
consolidation, assimilation and teaming. Most chains specialize in one or more
services. There are no real general repair shop chains in the aftermarket.
Specialization, the concentration of efforts in a particular field or activity,
occurs when companies focus on one area of business, rather than being all
things to all people. Quick lubes are an example of chains that specialize in
one service, while tune-up shops typically offer several services, including
tune-ups and oil changes. Chains specialize for many reasons including:
decreasing bay downtime, increasing profitability, reducing labor, and
increasing brand awareness. Consolidation is also occurring in the mature
industry. Larger chains are acquiring smaller chains and independents to
increase store size and spread costs over more locations. Assimilation of
independents through jobber and warehouse program groups is allowing
independents to have brand awareness and legitimacy (i.e. customer confidence)
through the program's brand name, as well as discounts or rebates on purchases.
Teaming/co-branding typically occurs to save construction costs or gain brand
acceptance for a concept new to an area.
Specialty stores, a growth area in the DIFM market, have increased business
because customers believe these outlets perform more efficient and accurate work
than themselves or the local garage. These chains have developed brand
awareness, and with it, customer expectations of quality. Customers' trust in
specialty stores has grown, as well as trust in the gas stations that have
survived. Quality is the number one factor affecting consumers' choice of where
to get their car serviced, according to a Lang Marketing study, with a 44%
significance rating. Following quality is convenience at 29%, price at 14%,
service at 8% and products at 5%. Quality and convenience have both increased in
significance since 1987, with quality increasing 5% and convenience increasing
6%, at the expense of service and products.
Approximately 46% of vehicle owners desert dealerships, choosing non-dealer
maintenance options once vehicle warranties expire, according to J.D. Power &
Associates. However, extended warranties and automobile leasing have
strengthened consumers bond with automobile dealers. The dealer service market
product share has increased since 1990 and is expected to continue to increase
in the foreseeable future. Dealers are exploring several new strategies to lure
customers in for service, including freestanding neighborhood repair shops and
convenience services at the dealerships. Some dealers began selling tires in
1999 in an effort to keep DIFM service dollars flowing to dealerships. In
addition, new car manufacturers are adding options that used to be exclusively
sold in the aftermarket, such as window tinting and auto alarms, to increase
sales.
A challenge to the industry is that most consumers have a "general lack of
desire" to have routine maintenance performed on their vehicles, and the leasing
trend is encouraging more of this attitude. Many industry participants are
focusing on consumer education, to ensure that consumers understand the benefits
of performing scheduled maintenance (as defined by both the manufacturer and
industry averages), such as higher resale value and giving their vehicle a
longer useful life. On the other hand, neglecting regular maintenance can cost
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money, through such problems as corroded brakes from not changing brake fluid,
engine seizure from not changing the oil, and replacing tires more often because
they were not rotated.
REGULATION
FFCA, through its ownership and financing of real estate, is subject to a
variety of environmental, health, land-use, fire and safety, and other
regulation by federal, state and local governments that affects the development
and regulation of chain 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. In
connection with the origination and servicing of mortgage loans, FFCA is
required to be licensed in numerous jurisdictions and is subject to various
lending 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. FFCA does not
believe that its business is particularly seasonal.
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, 1999, FFCA had interests in 5,339 properties consisting of
investments in 3,386 chain restaurants, 1,637 convenience stores, 307 automotive
outlets and nine other retail properties. FFCA's portfolio included 2,451 chain
store properties represented by investments in real estate mortgage loans and
properties subject to leases and 2,888 properties represented by securitized
mortgage loans in which FFCA holds a residual interest.
Of the 2,451 properties included in FFCA's investment portfolio at December
31, 1999, FFCA has an ownership interest in 2,264 properties on a fee-simple
basis in which FFCA holds title to the property (the "owned" properties). The
real estate owned by FFCA at December 31, 1999 consists of the land and
buildings comprising each chain property, except for 17 properties 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 30 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
nine, 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 95,000 square feet and from $480,000 to $1,100,000 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 $725,000 for each property. Full service restaurant building
averages range from 4,500 to 9,500 square feet and from $550,000 to $1.5 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
$1,050,000 for a rural convenience store (approximately 27% land, 39% building
and 33% equipment) and $1,556,000 million for an urban convenience store
(approximately 35% land, 34% building 31% 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.
The financing agreements with FFCA require each chain 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. 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
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investment and anticipated revenue from the affected property. 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 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
a property's compliance with environmental standards, which could reasonably be
expected to have a material adverse effect upon FFCA.
In the case of properties to be acquired or financed in which underground
storage tanks are present or 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 outstanding principal balance due under the applicable mortgage loan, less a
deductible amount. With regard to certain of the policies that were purchased
prior to 1999, in the event of a loss, the insurer must pay the lesser of (a)
the cost of remediation and other clean-up costs and expenses, or (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
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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
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.
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. There were no capital expenditures on properties in 1999 or
1997.
As of February 15, 2000, FFCA owned or had financed 5,388 properties in 49
states and Canada and all but 17 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 15 are currently held for sale after
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, 1999. 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 $140 million at December 31, 1999. 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
3% located in the Pacific region of the United States to 27% located in the
Southeast region.
During 1999, approximately 69% 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 terms of FFCA's leases extends through 2019, with a
weighted term of such investments of 13.5 years as of December 31, 1999. Ten
percent of FFCA's investments in properties subject to operating leases have
terms that expire in the year 2005, 11% expire in 2018 and 10% expire in 2019.
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.
The FFCA corporate headquarters is 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
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corporate headquarters were sold to an affiliate of FFCA in January 2000. FFCA
leases a portion of the building, with the remaining space occupied by its
affiliate. 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, 1999.
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 1999 HIGH LOW DECLARED
----------- ------- ------- -------
Fourth Quarter $24.500 $20.813 $ .53
Third Quarter 24.188 21.188 .49
Second Quarter 25.250 20.750 .49
First Quarter 25.563 20.125 .49
-----
$2.00
=====
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
=====
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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 15,681 holders of record of FFCA's shares of common stock as of
February 15, 2000; however, FFCA believes the total number of shareholders of
FFCA to be approximately 65,000 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 16, 2000, shareholders owning approximately 6% of the outstanding
shares participate in the Plan.
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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 for
the five years in the period ended December 31, 1999.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
In thousands, except per share data 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
Total revenues $ 218,475 $ 169,568 $ 134,988 $121,166 $102,583
Income before gain (loss) on sale of
property and other 107,744 85,182 65,707 60,036 52,816
Gain (loss) on sale of property (a) 40,983 10,535 5,471 9,899 977
Income before extraordinary item (b) 148,727 95,717 72,897 68,539 53,793
Net income 148,727 95,717 72,897 68,539 51,329
Dividends/Distributions declared 115,275 93,004 75,004 72,846 72,471
Earnings Per share, assuming dilution:
Income before gain (loss) on sale
of property and other costs $ 1.94 $ 1.78 $ 1.59 $ 1.48 $ 1.31
Income before extraordinary item (b) $ 2.68 $ 2.00 $ 1.76 $ 1.69 $ 1.33
Net income $ 2.68 $ 2.00 $ 1.76 $ 1.69 $ 1.27
Dividends/Distributions declared
per share $ 2.00 $ 1.90 $ 1.82 $ 1.80 $ 1.80
Weighted average common and common
equivalent shares outstanding 55,505 47,908 41,333 40,603 40,294
BALANCE SHEET DATA
Real estate owned, at cost $1,474,758 $1,274,600 $ 951,305 $868,215 $794,580
Mortgage loans receivable 57,996 43,343 35,184 57,808 199,486
Mortgage loans held for sale 139,703 163,172 251,622 -- --
Note receivable from affiliate (c) -- -- -- 147,616 --
Other investments 199,381 127,923 82,303 37,836 --
Total assets 1,710,796 1,460,429 1,179,198 988,776 843,504
Notes payable 501,859 500,168 309,360 298,956 198,702
Borrowings under line of credit 238,000 188,000 302,000 150,500 110,000
Other debt 8,500 8,500 8,500 8,500 8,500
Shareholders' equity $ 903,632 $ 716,434 $ 522,996 $495,370 $493,817
</TABLE>
- ----------
(a) 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
1999, 1998 and 1997 gain on the sale of property, $36.1 million, $7.1
million and $430,000, respectively, related to the securitization
transaction completed in that year.
(b) Income before extraordinary item excludes debt extinguishment charges of
$2.5 million in 1995.
(c) 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, 1999, FFCA had interests in 5,339
properties representing approximately $1.9 billion in gross investments in chain
store properties located throughout the United States and in Canada. In addition
to this geographic diversification, more than 480 different operators in
approximately 150 retail chains comprise the portfolio. FFCA's portfolio
included 2,451 chain store properties represented by investments in real estate
mortgage loans and properties subject to leases and 2,888 properties represented
by securitized mortgage loans in which FFCA holds a residual interest.
LIQUIDITY AND CAPITAL RESOURCES
In 1999, FFCA originated $1.36 billion in new sale-leaseback and mortgage
loan investments, an increase of 46% over the $928 million invested in 1998. The
1998 investment level represented an increase of 84% over 1997's investments of
$504 million. With over 1,900 properties financed during 1999, FFCA's portfolio
represents over 5,300 locations throughout the United States and in Canada and
cumulative investment activity now totals nearly $3.5 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. By 1999, mortgage loans had grown to represent over 80% of new
investments as compared to 48% in 1995. Aside from growth generated by new
restaurant financings, investment growth is also attributable to FFCA's
expansion into the convenience store and automotive services and parts
industries that accounted for 68% (over $918 million) of the investments made
during 1999 as compared to 46% ($426 million) in 1998 and 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 6.36% in 1999 as compared to 6.57%
in 1998 and 6.63% in 1997. 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 $887
million in 1999 (as compared to $738 million in 1998 and $503 million in 1997).
During 1999, FFCA's financing activities were also funded by cash proceeds from
securitization transactions ($1 billion), including the use of a loan sale
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<PAGE>
facility, and proceeds from the issuance of common stock ($154 million). 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 $85 million in 1999 (as compared to $101 million in
1998 and $64 million in 1997), were also available to fund new investments.
To accommodate FFCA's portfolio growth, FFCA increased its capital by
entering into various equity transactions. FFCA raised a total of $146 million
through the sale of 6.7 million shares of common stock in 1999 as compared to
$183 million raised through the sale of 6.9 million shares in 1998 and $23
million raised through the sale of 956,000 shares in 1997. FFCA used the cash
proceeds from the sale of stock to reduce amounts outstanding on its revolving
credit facility.
FFCA also accessed the debt markets by issuing unsecured notes. In January
2000, FFCA issued $100 million in unsecured notes at a weighted average interest
rate of 8.6%. FFCA issued $197.5 million in unsecured notes in 1998 at a
weighted average rate of 7.95% and $60 million in unsecured notes in 1997 at a
weighted average rate of 6.2%. FFCA's cost of debt increased during 1999 as
compared to 1998, commensurate with overall changes in the interest rate
environment. Turbulence in the capital markets during 1998 impacted FFCA's cost
of borrowings that year, which rose despite prevailing lower long-term home
mortgage and government borrowing rates during that period. FFCA's cost of debt
will continue to be impacted by changes in the capital markets and the overall
interest rate environment; therefore, the 7% Senior Notes that mature in
November 2000 may be paid off with available cash flow or refinanced with other
debt depending, among other things, on the cost of capital.
In order to diversify its capital sources, FFCA entered into a loan sale
facility during 1998 with a third party, who committed to purchase up to $600
million of loans from FFCA. 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. During 1999, the maximum
commitment on this loan sale facility was increased to $900 million. FFCA sold
mortgage loans with an aggregate principal balance of $1 billion in sixteen
separate transactions during 1999 and $264 million in 1998 through this loan
sale facility, receiving $862 million and $225 million, respectively, in cash
proceeds plus trust certificates representing the remaining 15%-20% of the loan
sale price. The trust certificates are held until the loans are sold by the
trust at which time FFCA receives subordinated certificates of the subsequent
securitization and any excess proceeds received by the trust from the loan sale.
The loan sale facility was renewed at a commitment level of $600 million through
December 31, 2000. As of February 16, 2000, FFCA had $362 million available on
this loan sale facility and $183 million available on its $350 million bank
revolving loan facility.
Throughout 1999, FFCA explored a number of strategic options to further
diversify its capital sources. After consideration of various options, FFCA
entered into a three-year loan sale agreement with Washington Mutual Bank, FA in
December 1999, whereby Washington Mutual agreed to purchase loans that FFCA
originates and services. This alliance with the nation's ninth largest financial
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<PAGE>
services company to be its exclusive provider of chain store loans represents a
significant source of new capital. FFCA anticipates that this will reduce its
reliance on debt and shareholder equity as sources of capital to fund its
continued growth. Under the loan sale agreement, Washington Mutual will purchase
mortgage loans from FFCA at the time the loans are originated; therefore, FFCA
will no longer need to accumulate large amounts of mortgage loans (using its
bank lines of credit to carry the loans) before selling the loans through a
securitization transaction.
As a REIT, FFCA's tax status restricts it from taking full advantage of the
opportunities provided by the loan sale agreement with Washington Mutual by
preventing REITs from originating and subsequently selling mortgage loans (other
than through certain structured securitization transactions); therefore, on
January 4, 2000, FFCA established a nonqualified REIT subsidiary, FFCA Funding
Corporation ("Funding Corp."), to originate mortgage loans for sale to
Washington Mutual. FFCA transferred, among other things, its future mortgage
loan origination business (including a transfer of certain employees and an
assignment of the Washington Mutual loan sale agreement) to Funding Corp. in
exchange for 10 shares of newly-issued, nonvoting preferred stock. The preferred
stock, which represents all of the issued and outstanding stock of such class,
entitles FFCA to 99% of any dividends declared by Funding Corp. Certain
executive officers of FFCA own all of the outstanding voting common stock of
Funding Corp.
At December 31, 1999, FFCA's outstanding commitments to extend credit
aggregated approximately $500 million. These commitments were made to 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 560 chain store properties over the next year. FFCA
anticipates funding these specific commitments, and other investments in chain
store properties, through amounts available on its bank line of credit and loan
sale facility, the issuance of mortgage-backed securities through securitization
and through the transfer of the financing commitments to Funding Corp. for the
sale of loans to Washington Mutual.
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 16, 2000, shareholders owning approximately 6% of the
outstanding shares of FFCA common stock participate in the dividend reinvestment
plan and dividends reinvested during 1999 totaled $7.2 million, as compared to
$6.1 million in 1998 and $5.8 million in 1997. For the fourth quarter, the Board
of Directors approved raising FFCA's quarterly dividend to $0.53 from $0.49.
This dividend is payable on February 18, 2000 to shareholders of record on
February 10, 2000. 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.
Cash generated from operations may also be used to repurchase FFCA stock.
In December 1999, FFCA's Board of Directors adopted a resolution authorizing the
repurchase of up to 7.5% of the company's outstanding common stock from time to
time in open market or privately negotiated transactions. The timing of the
purchase and the actual number of common shares purchased will depend on market
conditions and available cash flow.
30
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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
matching the use of variable-rate and fixed-rate debt with variable-rate and
fixed-rate investments. FFCA initially funds its investments in chain store
properties with borrowings on its variable-rate 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 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, 1999, FFCA had interest rate swap contracts outstanding
with a notional amount aggregating $26 million. 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. 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. FFCA intends to terminate these contracts upon sale or
securitization of the fixed-rate mortgage loans in 2000, 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 sale 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, 1999 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
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<PAGE>
credit spread risk). Therefore, although it gives an indication of FFCA's
exposure to interest rate changes at December 31, 1999, 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.
YEAR 2000 STATUS
FFCA encountered no system or facilities-related problems during the
rollover to the year 2000. FFCA performed extensive system verification and
testing during the period January 1st through January 3rd, and determined that
its systems were operating normally. FFCA is not aware of any significant
problems related to the Year 2000 issue and is operating on a "business as
usual" status. FFCA will continue to monitor the status of its clients and
vendors for any potentially significant business interruptions that may arise
from difficulties they may experience as a result of the Year 2000 issue. Costs
incurred to date in addressing Year 2000 issues have not been material. Based on
current estimates, FFCA believes any additional costs of addressing Year 2000
issues will not be material.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEARS ENDED DECEMBER 31, 1998 AND 1997
FFCA had net income of $148.7 million ($2.68 per share, assuming dilution)
in 1999 as compared to $95.7 million ($2.00 per share) in 1998 and $72.9 million
($1.76 per share) in 1997. The increases in net income each year resulted from
increased revenues due to the continued growth in FFCA's real estate investment
portfolio and from increased gains on the sale of assets. Revenues rose to $218
million in 1999 from $170 million in 1998 and $135 million in 1997. Gains on the
sale of assets rose to $41 million in 1999 from $11 million in 1998 and $5
million in 1997.
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 69% of total revenues in 1999 as
compared to 72% in 1998 and 75% in 1997. 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 $258 million in 1999, $365 million
in 1998 and $140 million in 1997. Generally, property purchases occur throughout
the year, resulting in weighted average balances for these new investments of
$129 million in 1999, $145 million in 1998 and $43 million in 1997. Weighted
average base lease rates on the new investments were 9.9% in 1999 as compared to
9.9% in 1998 and 9.3% in 1997. Partially offsetting the revenue increases
generated by the new investments were decreases in rent revenues related to
properties sold.
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Approximately one-half of the properties in FFCA's portfolio provide for a
base rental plus contingent rentals based on a percentage of the operator's
gross sales of the related chain stores. In addition, a small percentage of the
mortgages originated by FFCA provide for additional interest based on a
percentage of the operator's gross sales of the related chain stores. Such
contingent rentals and additional interest aggregated $8.3 million in 1999 as
compared to $7.9 million in 1998 and $6.7 million in 1997. The increases relate
primarily to increases in individual store-level sales volumes and to chain
stores whose sales levels have, for the first time, exceeded the threshold where
contingent rentals or additional interest are due. Generally, leases without the
contingent rental provision provide for rent increases during the lease term
based on increases in the consumer price index or other rent escalation
features.
A growing portion of FFCA's income relates to the origination and
subsequent sale of mortgage loans through securitization transactions. Mortgage
interest income amounted to 13% of revenues in 1999 as compared to 15% of
revenues in 1998 and 1997 (including related party interest income in 1997 from
indirect investments in mortgage loans through an unconsolidated taxable
affiliate, FFCA Mortgage Corporation). FFCA originated $1.1 billion in mortgage
loans in 1999, $534 million in 1998 and $362 million in 1997. Rates achieved on
the loans originated during 1999 averaged 9.6% as compared to 8.9% achieved
during 1998 and 9.2% in 1997. This change in rates is reflective of the overall
changes in the interest rate environment over the years. The amount of mortgage
interest income generated each year has been 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 through securitization transactions, 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 14% of total revenues in 1999
as compared to 8% in 1998 and 6% in 1997. Mortgage prepayments represented 126
chain store properties in 1999, 49 chain store properties in 1998 and 60 chain
store properties in 1997. A portion of FFCA's investment portfolio,
approximating $58 million in 1999 and $43 million in 1998, represents mortgage
loans receivable that are not being held for sale. These loans generally have
short terms or other loan features that make them less marketable for sale or
securitization transactions. FFCA plans to hold these loans to maturity.
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 over 5,300
locations throughout the United States and Canada (though investments in Canada
are not significant). During the year ended December 31, 1999, 78% of the
revenues generated by the portfolio reflect restaurant investments, 17% reflect
convenience store investments and 5% reflect automotive services and parts
investments, as compared to 91%, 7% and 2%, respectively, in 1998. With the
addition of the convenience store and automotive services and parts industries
in 1997, FFCA's portfolio has expanded to include over 150 different chains,
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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, Long John
Silver's, 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 480 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 1999, 1998 or 1997. 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 $110.7 million in 1999 as compared to $84.4 million in 1998 and
$69.3 million in 1997, primarily due to increases in interest expense each year.
Interest expense rose by $13.5 million in 1999 and $8.1 million in 1998 due to
the use of borrowings for investments in chain store properties. FFCA's weighted
average debt outstanding increased to $742 million in 1999 from $590 million in
1998 and $470 million in 1997. In addition, FFCA's borrowing rate has changed
over the past several years due to changes in FFCA's mix of long-term and
short-term debt, together with overall changes in the interest rate environment.
FFCA's effective borrowing rate increased from 6.93% during 1997 to 7.01% during
1998 and 7.30% during 1999.
Operating, general and administrative expenses in 1999 included consulting
and other costs aggregating $2.975 million, incurred in connection with the
exploration of strategic alternatives. Excluding these non-routine costs,
operating, general and administrative expenses for 1999 increased 24% from 1998,
as compared to 1998's increase of 28% over 1997, and remain constant over the
past three years at approximately 8% of revenues. The increase in operating
expenses between 1997 and 1999 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 continued 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 at
approximately 1% of revenues.
During 1999, FFCA continued to originate loans held for sale through
securitization transactions. Certain mortgage loans originated by FFCA, its
predecessors and affiliates totaling $1.1 billion in 1999, $335 million in 1998
and $261 million in 1997 were securitized and Secured Franchise Loan 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. FFCA also retained the servicing rights on the mortgage loans it
sold.
The retained securities, totaling $185 million and $114 million at December
31, 1999 and 1998, respectively, generated $31.1 million, $14.4 million and $7.7
million of revenue in 1999, 1998 and 1997, 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,
34
<PAGE>
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, delinquencies in the securitized loan pools represent less
than 1% of the total mortgage loan pool balance.
FFCA recorded net gains of $41 million on the sale of property during 1999
as compared to $10.5 million during 1998 and $5.5 million in 1997. Of these
gains, the sale of mortgages generated gains totaling approximately $36.1
million in 1999, $6.2 million in 1998 and $430,000 in 1997. 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 adjusted 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 occur
primarily through the disposition of underperforming properties and through the
lessee's exercise of purchase options. Approximately 60% of FFCA's land and
building leases provide for purchase options and approximately one-half of these
options are currently exercisable. During 1999, FFCA sold 87 properties and
related equipment as compared to 57 properties sold in 1998 and 55 properties
sold in 1997; however, only 13 properties were sold through purchase options in
1999 and only nine and 12 such properties were sold through purchase options in
1998 and 1997, 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, 1999, 1998 and 1997 is net of approximately $1.6 million, $4
million and $1.9 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 less than 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".
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and related financial information
required to be filed are attached to this Report. Reference is made to page F-1
of this Report for an index to the consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 10, 2000, 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 10, 2000, 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 10, 2000, 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 10, 2000, 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.
36
<PAGE>
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.
37
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.01 Second Amended and Restated Certificate of Incorporation of Franchise
Finance Corporation of America (1)
3.02 Certificate of Designation of Franchise Finance Corporation of
America, classifying and designating the Series A Junior Participating
Preferred Stock (2)
3.03 Third Amended and Restated Bylaws of Franchise Finance Corporation of
America *
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 the 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)
4.07 Rights Agreement, dated as of April 7, 1999, between Franchise Finance
Corporation of America and Gemisys Corporation, as Rights Agent (2)
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 Amendment No. 1 to the 1995 Stock Option and Incentive Plan of
Franchise Finance Corporation of America (10)
10.05 Stock Purchase Agreement between Franchise Finance Corporation of
America and Colony Investors III, L.P. dated February 13, 1998 (11)
38
<PAGE>
10.06 Master Loan Purchase Agreement, dated as of December 14, 1999, between
FFCA Acquisition Corporation, as Seller and Washington Mutual Bank,
FA, as Purchaser (12)
10.07 Guaranty by Franchise Finance Corporation, dated as of December 14,
1999, of certain obligations of FFCA Acquisition Corporation for the
benefit of Washington Mutual (12)
10.08 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and Morton H.
Fleischer *
10.09 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and Christopher
H. Volk *
10.10 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and John R.
Barravecchia *
10.11 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and Dennis L.
Ruben *
10.12 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and Stephen G.
Schmitz *
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. (13)
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 (14)
99.03 Second Amended and Restated Sale and Servicing Agreement dated as of
January 1, 2000, among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Loan Warehouse Corporation, FFCA Acquisition Corporation, Franchise
Finance Corporation of America and LaSalle Bank National Association
f/k/a LaSalle National Bank *
99.04 Loan Purchase Agreement dated as of August 14, 1998, between FFCA Loan
Warehouse Corporation and FFCA Acquisition Corporation (15)
99.05 Amendment No. 1, dated as of March 18, 1999, to the Loan Purchase
Agreement between FFCA Loan Warehouse Corporation and FFCA Acquisition
Corporation *
39
<PAGE>
99.06 Amendment No. 2, dated as of January 1, 2000, to the Loan Purchase
Agreement between FFCA Loan Warehouse Corporation and FFCA Acquisition
Corporation *
99.07 Indenture dated as of August 14, 1998, between FFCA Franchise Loan
Owner Trust 1998-1 and LaSalle National Bank. (15)
99.08 Fourth Amended and Restated Indenture Supplement, dated as of January
1, 2000, between FFCA Franchise Loan Owner Trust 1998-1 and LaSalle
Bank National Association f/k/a LaSalle National Bank *
99.09 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. (15)
99.10 Amendment No. 1, dated as of October 30, 1998, to the Note Purchase
Agreement among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Acquisition Corporation, FFCA Loan Warehouse Corporation, and Morgan
Stanley Securitization Funding Inc. *
99.11 Amendment No. 2, dated as of March 18, 1999, to the Note Purchase
Agreement among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Acquisition Corporation, FFCA Loan Warehouse Corporation, and Morgan
Stanley Securitization Funding Inc. *
99.12 Amendment No. 3, dated as of August 27, 1999, to the Note Purchase
Agreement among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Acquisition Corporation, FFCA Loan Warehouse Corporation, and Morgan
Stanley Securitization Funding Inc. (16)
99.13 Amendment No. 4, dated as of January 1, 2000, to the Note Purchase
Agreement among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Acquisition Corporation, FFCA Loan Warehouse Corporation, and Morgan
Stanley Securitization Funding Inc. *
99.14 Credit Agreement dated as of February 11, 1999, among Franchise
Finance Corporation of America, Certain Lenders and NationsBank
N.A.(14)
99.15 Note Purchase Agreement dated April 22, 1999, between FFCA Secured
Lending Corporation, and Morgan Stanley & Co. Incorporated, Salomon
Smith Barney Inc. and Prudential Securities Incorporated, as initial
purchasers of $371,908,000 aggregate principal or notional amount of
Secured Franchise Loan Trust Certificates, Series 1999-1, Class A-1a,
Class A-1b, Class A-2, Class B-1, Class B-2, Class C-1, Class C-2,
Class D-1, Class D-2 and Class IO (17)
- ----------
* 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 Current Report on Form 8-K,
dated April 7, 1999, 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.
40
<PAGE>
(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 Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1999, as filed with the
Securities and Exchange Commission.
(11) 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.
(12) Incorporated by reference from the Registrant's Current Report on Form 8-K,
dated December 14, 1999, as filed with the Securities and Exchange
Commission.
(13) 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.
(14) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, as filed with the Securities
and Exchange Commission.
(15) 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.
(16) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999, as filed with the
Securities and Exchange Commission.
(17) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1999, as filed with the
Securities and Exchange Commission.
(b) REPORTS OF FORM 8-K.
During the quarter ended December 31, 1999, FFCA filed the following report
on Form 8-K:
Form 8-K dated December 14, 1999, filed December 22, 1999, reporting the
Master Loan Purchase Agreement entered into between FFCA Acquisition
Corporation and Washington Mutual Bank, FA ("Washington Mutual") for the
origination and sale of commercial loans to Washington Mutual, and the
Servicing Agreement entered into between FFCA and Washington Mutual, under
Item 5, Other Events, and Item 7, Financial Statements and Exhibits.
41
<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 23, 2000 By /s/ M. H. Fleischer
-------------------------------------
M. H. Fleischer, 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 23, 2000 By /s/ M. H. Fleischer
-------------------------------------
M. H. Fleischer, Chairman of the
Board, and Chief Executive Officer
Date: March 23, 2000 By /s/ John Barravecchia
-------------------------------------
John Barravecchia, Executive Vice
President, Chief Financial Officer
and Treasurer
Date: March 23, 2000 By /s/ Catherine F. Long
-------------------------------------
Catherine F. Long, Senior Vice
President-Finance and Principal
Accounting Officer
Date: March 23, 2000 By /s/ Willie R. Barnes
-------------------------------------
Willie R. Barnes, Director
Date: March 23, 2000 By /s/ Kelvin L. Davis
-------------------------------------
Kelvin L. Davis, Director
Date: March 23, 2000 By /s/ Kathleen H. Lucier
-------------------------------------
Kathleen H. Lucier, Director
42
<PAGE>
Date: March 23, 2000 By /s/ Dennis E. Mitchem
-------------------------------------
Dennis E. Mitchem, Director
Date: March 23, 2000 By /s/ Louis P. Neeb
-------------------------------------
Louis P. Neeb, Director
Date: March 23, 2000 By /s/ Kenneth B. Roath
-------------------------------------
Kenneth B. Roath, Director
Date: March 23, 2000 By /s/ Casey J. Sylla
-------------------------------------
Casey J. Sylla, Director
Date: March 23, 2000 By /s/ Christopher H. Volk
-------------------------------------
Christopher H. Volk, Director
Date: March 23, 2000 By /s/ Shelby Yastrow
-------------------------------------
Shelby Yastrow, Director
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Income For The Years Ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Changes in Shareholders' Equity
For The Years Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows For The Years Ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
Schedule III - Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1999 F-17
Schedule IV - Schedule of Mortgage Loans on Real Estate
as of December 31, 1999 F-19
F-1
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
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 state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
January 24, 2000.
F-2
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1999 AND 1998
(Amounts in thousands except share data)
1999 1998
----------- -----------
ASSETS
Investments:
Investments in Real Estate, at cost (Note 3):
Land $ 583,033 $ 496,286
Buildings and Improvements 871,660 759,444
Equipment 20,065 18,870
----------- -----------
1,474,758 1,274,600
Less-Accumulated Depreciation 205,400 185,580
----------- -----------
Net Real Estate Investments 1,269,358 1,089,020
Mortgage Loans Held for Sale (Note 4) 139,703 163,172
Mortgage Loans Receivable, net of allowances
of $3,570 in 1999 and $3,600 in 1998 (Note 5) 57,996 43,343
Real Estate Investment Securities (Note 6) 185,252 113,692
Other Investments (Note 5) 14,129 14,231
----------- -----------
Total Investments 1,666,438 1,423,458
Cash and Cash Equivalents 4,757 3,881
Accounts Receivable, net of allowances
of $1,125 in 1999 and $720 in 1998 10,669 9,491
Other Assets (Note 11) 28,932 23,599
----------- -----------
Total Assets $ 1,710,796 $ 1,460,429
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Dividends Payable $ 29,739 $ 24,041
Notes Payable (Note 7) 501,859 500,168
Borrowings Under Lines of Credit (Note 8) 238,000 188,000
Mortgage Payable to Affiliate (Note 11) 8,500 8,500
Accrued Expenses and Other 29,066 23,286
----------- -----------
Total Liabilities 807,164 743,995
----------- -----------
Commitments and Contingent Liabilities (Note 14)
Shareholders' Equity (Notes 9 and 10):
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 56,110,776 shares in 1999 and
49,063,133 shares in 1998 561 491
Capital in Excess of Par Value 927,147 773,708
Accumulated Other Comprehensive Income 237 --
Cumulative Net Income 446,550 297,823
Cumulative Dividends (470,863) (355,588)
----------- -----------
Total Shareholders' Equity 903,632 716,434
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,710,796 $ 1,460,429
=========== ===========
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, 1999, 1998 AND 1997
(Amounts in thousands except per share data)
1999 1998 1997
-------- -------- --------
Revenues:
Rental $151,193 $121,490 $101,292
Mortgage Loan Interest 28,769 26,118 10,987
Real Estate Investment Securities
Income (Note 6) 31,073 14,350 7,680
Investment Income and Other 7,440 7,610 5,992
Interest (Related Party) (Note 11) -- -- 9,037
-------- -------- --------
218,475 169,568 134,988
-------- -------- --------
Expenses:
Depreciation and Amortization 30,923 24,518 20,784
Operating, General and Administrative 20,612 14,244 11,106
Property Costs 1,884 1,778 1,641
Interest 56,297 42,846 34,764
Interest (Related Party) (Note 11) 1,015 1,000 986
-------- -------- --------
110,731 84,386 69,281
-------- -------- --------
Income Before Gain on Sale of Property
and Other 107,744 85,182 65,707
Gain on Sale of Property (Note 6) 40,983 10,535 5,471
Equity in Net Income of Affiliate (Note 11) -- -- 1,719
-------- -------- --------
Net Income $148,727 $ 95,717 $ 72,897
======== ======== ========
Basic Net Income Per Share $ 2.69 $ 2.01 $ 1.78
======== ======== ========
Diluted Net Income Per Share $ 2.68 $ 2.00 $ 1.76
======== ======== ========
Number of Common Shares Used in
Basic Net Income Per Share 55,346 47,554 40,968
Incremental Shares from Assumed
Conversion of Options 159 354 365
-------- -------- --------
Number of Common Shares Used in
Diluted Net Income Per Share (Note 2) 55,505 47,908 41,333
======== ======== ========
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, 1999, 1998 AND 1997
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Issued Capital in Other
--------------------- Excess of Comprehensive Cumulative Cumulative
Shares Amount Par Value Income Net Income Dividends Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Capital contributions -
Issuance of common stock 6,716 67 146,087 -- -- -- 146,154
Dividend reinvestment plan 323 3 7,166 -- -- -- 7,169
Exercise of stock options 9 -- 186 -- -- -- 186
Unrealized gain on securities -- -- -- 237 -- -- 237
Net income - -- -- -- -- 148,727 -- 148,727
Dividends declared -
$2.00 per share -- -- -- -- -- (115,275) (115,275)
------ ----- -------- -------- -------- --------- ---------
BALANCE, December 31, 1999 56,111 $ 561 $927,147 $ 237 $446,550 $(470,863) $ 903,632
====== ===== ======== ======== ======== ========= =========
</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, 1999, 1998 AND 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,727 $ 95,717 $ 72,897
Adjustments to net income:
Depreciation and amortization 30,923 24,518 20,784
Gain on sale of property (40,983) (10,535) (5,471)
Equity in net income of affiliate -- -- (1,719)
Provision for uncollectible mortgage loans 2,050 1,118 791
Other 5,223 1,482 (4,153)
----------- ----------- -----------
Net cash provided by operating activities 145,940 112,300 83,129
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (259,102) (366,836) (140,218)
Investment in mortgage loans (1,097,135) (537,665) (310,811)
Investment in notes receivable (5,525) (33,819) (17,460)
Proceeds from securitization transactions 1,031,243 540,372 103,975
Proceeds from sale of property 56,795 33,764 26,425
Receipt of mortgage loan and note payoffs 18,523 56,415 30,198
Collection of mortgage loan and note principal 9,989 10,601 7,520
Collection of investment security principal 6,216 3,184 1,463
Collection of related party notes receivable -- -- 100,706
Purchase of investment securities -- -- (15,946)
Dividend received from affiliate -- -- 9,822
----------- ----------- -----------
Net cash used in investing activities (238,996) (293,984) (204,326)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (109,577) (88,603) (73,618)
Proceeds from issuance of common stock 153,509 190,725 29,733
Proceeds from bank borrowings 887,000 738,000 503,000
Proceeds from issuance of notes -- 190,313 60,150
Payment of bank borrowings (837,000) (852,000) (352,288)
Payment of other unsecured notes -- -- (50,000)
----------- ----------- -----------
Net cash provided by financing activities 93,932 178,435 116,977
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 876 (3,249) (4,220)
CASH AND CASH EQUIVALENTS, beginning of year 3,881 7,130 11,350
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 4,757 $ 3,881 $ 7,130
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
F-6
<PAGE>
FRANCHISE FINANCE CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) ORGANIZATION AND OPERATION:
Franchise Finance Corporation of America, a Delaware corporation, is a
self-administered real estate investment trust ("REIT") providing real estate
financing to chain store operators (including operators of restaurants,
convenience stores and automotive service and parts stores). Franchise Finance
Corporation of America and its wholly-owned subsidiaries ("FFCA") offer
financing through various products, including sale-leaseback transactions,
mortgage loans, equipment loans and construction financing. At December 31,
1999, FFCA had interests in 5,339 properties representing approximately $1.9
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 480 different operators in approximately 150
retail chains. No single operator represented over 8% of FFCA's total portfolio
revenues during the year ended December 31, 1999. FFCA's portfolio included
2,451 chain store properties consisting of investments in real estate mortgage
loans and properties subject to leases and 2,888 properties consisting of
securitized mortgage loans in which FFCA holds a residual interest.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION - 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 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 net assets exceeds the book basis by approximately $185
million at December 31, 1999 because, among other things, upon the merger of
FFCA with its predecessor companies in 1994, the tax basis of the assets and
liabilities was recorded based upon the value of the consideration exchanged. In
1999, excess inclusion income related to the securitization transactions (see
Note 6) resulted in unrelated business taxable income of $.069 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 and capitalized interest,
where applicable. 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, 1999, 1998, and 1997 is net of
approximately $1.6 million, $4.0 million, and $1.9 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, 1999.
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.
MORTGAGE SERVICING RIGHTS - Servicing assets are created when loans are
originated and the loans are subsequently sold with the servicing rights
retained. Such servicing assets are amortized on a straight-line basis over the
estimated servicing period and are assessed for impairment based on fair value.
Servicing assets totaled $10.6 million and $3.7 million at December 31, 1999 and
1998, respectively.
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 has been 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 purposes. The primary
instruments used are interest rate swap contracts, which are non-leveraged and
involve little complexity. 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. FFCA terminates these contracts upon the
sale of the fixed-rate mortgage loans, at which time FFCA would generally expect
to receive (if rates rise) or pay (if rates fall) an amount equal to the present
value of the difference between the 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 termination of the swap contract, both the gain or loss on
the sale of the loans and the gain or loss on the termination of the interest
rate contracts are measured and recognized in the statement of income. 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 credit-worthy financial institutions
and, therefore, does not anticipate non-performance. The use of derivative
financial instruments is monitored through regular communication with senior
management and the utilization of written policies.
At December 31, 1999, FFCA had interest rate swap contracts outstanding
with a notional amount aggregating $26 million. 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. Under the
contracts no cash payments would be required until the earlier of September 2000
or the loan sale or securitization transaction (which is expected to be prior to
September 2000).
RENTAL REVENUE RECOGNITION - FFCA leases real estate under long-term net
leases that are classified as operating leases. Rental revenue from operating
leases is recognized as it is earned.
EARNINGS PER SHARE - Stock options to purchase 1.2 million and 970,000
weighted shares of common stock outstanding during 1999 and 1998, respectively,
were not included in the computation of diluted earnings per share for those
years, because the options' exercise price was greater than the average market
price of the common shares. Warrants issued in March 1998 to purchase
approximately 1.5 million shares of common stock at a price of $31.64 per share
and warrants issued in December 1999 to purchase 2 million shares of common
stock (of which 1 million were exercisable) at a price of $25.47 per share were
also excluded from the computation of earnings per share in 1999 and 1998.
Subsequent to December 31, 1999, FFCA granted options to purchase approximately
584,000 shares of common stock at an exercise price of $23.50 per share, and
issued approximately 111,000 shares of restricted stock, to employees under its
stock-based compensation plan. Both the stock options and the restricted stock
are subject to years-of-service vesting requirements.
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.
F-8
<PAGE>
NEW PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133, as amended, 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 2001 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 or financial condition.
In December 1999, the Securities and Exchange Commission issued a new major
topic "Revenue Recognition" under Staff Accounting Bulletin 101. This new
accounting guidance, which FFCA plans to adopt in 2000, requires companies to
recognize contingent rentals as revenue when the change in the factor on which
the contingent lease payment is based actually occurs. Currently, FFCA
recognizes estimated contingent revenues ratably throughout the year when it is
probable that a property will exceed the sales threshold where percentage
revenues are due. Verification of the actual amount of percentage revenues due
is received from the operator at various times during the year, based on the
operator's reporting requirements. The percentage revenue reported at December
31, 1999 would not have differed materially had FFCA adopted a policy of
deferring recognition of contingent revenues until receiving verification that
the property reached its sales targets.
(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 2019 with a weighted average remaining term of 13.5
years as of December 31, 1999. 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). Approximately 60% of FFCA's land and building leases provide for
purchase options and approximately 45% of these options provide for a 90-day
option window at various times during the lease term. Approximately one-half of
the purchase options are currently exercisable.
Minimum future rentals under noncancellable operating leases as of December
31, 1999, are as follows (amounts in thousands):
Year ending December 31,
-----------------------
2000 $ 150,300
2001 149,100
2002 145,100
2003 141,300
2004 137,000
Thereafter 1,203,100
----------
Total minimum future rentals $1,925,900
==========
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. Contingent revenues based on the operator's gross sales of the
related property totaled approximately $8.3 million in 1999, $7.9 million in
1998 and $6.7 million in 1997 (including $980,000, $310,000 and $300,000,
respectively, of contingent interest income on mortgage loans receivable).
F-9
<PAGE>
(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 real property (and related equipment, in many instances) of 138 properties
comprising $60 million in fixed-rate loans and $46 million in variable-rate
loans. The loans held for sale also include variable-rate construction loans
totaling $34 million at December 31, 1999. The fixed-rate loans carry a weighted
average interest rate of 9.7% 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 9.5% at December
31, 1999). Total principal and interest payments aggregate approximately $2
million per month. The fixed-rate mortgage loans generally prohibit prepayment
for certain periods or condition prepayment upon receipt of prepayment penalties
or yield maintenance premiums from the borrower. The variable-rate mortgage
loans generally have no prepayment restrictions.
(5) OTHER MORTGAGE LOANS AND NOTES RECEIVABLE:
At December 31, 1999, FFCA held first mortgage loans on the real property
(and related equipment, in many instances) of approximately 125 properties
represented by $30 million in participating fixed-rate loans (net of reserve of
$3.6 million in 1999) and $28 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. 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 that adjust monthly based on 30-day
LIBOR plus a margin and carry an average interest rate of 10.8% at December 31,
1999. Approximately 30% of the outstanding mortgage balance matures in 2000, 15%
in 2001 and the remaining principal is due in level amounts through 2019. FFCA
also held various secured and unsecured notes totaling $14 million at December
31, 1999 and 1998 (net of allowances of $20,000 in 1999 and $460,000 in 1998).
Generally, the notes carry interest rates ranging from 9% to 11% per annum and
mature through 2009.
(6) REAL ESTATE INVESTMENT SECURITIES:
FFCA entered into a loan sale facility with a third party in 1998 (the
maximum committed amount of this facility ranged from $600 million to $900
million in 1998 and 1999, and it was renewed through December 31, 2000 at $600
million). This facility permits FFCA to sell loans on a regular basis to a trust
for an agreed upon advance rate. In sixteen separate transactions during 1999,
FFCA sold 1,570 loans with an outstanding aggregate principal balance of $1
billion to the trust and received cash proceeds of $862 million plus trust
certificates representing the remaining 15-20% of the loan sale price. During
1998, FFCA sold 460 loans with an outstanding aggregate principal balance of
$264 million to the trust, receiving trust certificates and cash proceeds of
$225 million. 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 sale
of mortgages generated gains totaling approximately $36.1 million in 1999, $6.2
million in 1998 and $430,000 in 1997. Upon the sale of such loans, FFCA acts as
servicer for the loans. The retained subordinated investment securities,
totaling $43.5 million at December 31, 1999 and $39.3 million at December 31,
1998, were recorded by allocating the previous carrying amount of the mortgages
between the assets sold and the retained trust certificates, based on their
relative fair values and are included in "Real Estate Investment Securities" in
the accompanying consolidated balance sheets. These trust certificates are
classified as trading securities.
Mortgage loans originated by FFCA and sold into the loan sale facility
described above, totaling $1.1 billion in 1999 and $335 million in 1998, were
securitized and Secured Franchise Loan Trust Certificates were sold to
investors. Generally, the majority of each securitized loan pool is sold to
third parties, while FFCA retains the servicing rights on these mortgage loans
and subordinated investment securities (ranging from 9% to 12.5% of the
aggregate mortgage loan principal balance). These subordinated investment
securities, totaling $141.7 million and $74.4 million at December 31, 1999 and
1998, respectively, are included in "Real Estate Investment Securities" in the
accompanying consolidated balance sheets.
F-10
<PAGE>
FFCA's real estate investment securities are classified as follows at
December 31, 1999 and 1998 (amounts in thousands):
1999 1998
-------- --------
Held-to-maturity securities $112,041 $ 53,937
Available-for-sale securities 29,699 20,441
Trading securities (trust certificates) 43,512 39,314
-------- --------
$185,252 $113,692
======== ========
Unrealized holding gains and losses for trading securities are included in
earnings, while unrealized holding gains and losses for available-for-sale
securities are reported as other comprehensive income (a separate component of
shareholders' equity). The estimated fair market value of FFCA's investments in
held-to-maturity securities was approximately $100.5 million in 1999 and
approximated carrying value in 1998. At December 31, 1999, the weighted average
remaining term of the held-to-maturity securities approximated 17 years and the
weighted average remaining term of the available-for-sale securities
approximated 14 years.
(7) NOTES PAYABLE:
A summary of FFCA's unsecured notes payable follows (amounts in thousands):
1999 1998
-------- --------
7% Senior Notes due November 2000, net of unamortized
discount of $221 in 1999 and $465 in 1998 $149,779 $149,535
8.25% Senior Notes due 2003, net of unamortized
discount and related costs of $5,509 in 1999
and $6,946 in 1998 144,491 143,054
7.875% Senior Notes due 2005, net of unamortized
discount of $61 in 1999 and $71 in 1998 49,939 49,929
6.78% Notes due 2002 30,000 30,000
7.02% Notes due 2003 30,000 30,000
7.10% 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 17,000
7.07% Notes due 2008 30,500 30,500
-------- --------
$501,859 $500,168
======== ========
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
7.73% in 1999 and 7.26% in 1998. 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 that, 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, 1999, FFCA was in compliance with its note
covenants.
Amortization of debt issuance costs for the years ended December 31, 1999,
1998 and 1997 amounted to $2.8 million, $1.4 million and $1.3 million,
respectively, which is included in "Interest Expense" in the accompanying
financial statements. The senior unsecured notes issued in October 1998 are
presented net of a hedge settlement of approximately $7 million, which is being
amortized into interest expense over the term of the notes.
(8) BORROWINGS UNDER LINES OF CREDIT:
The following is a summary of borrowings under FFCA's lines of credit
(amounts in thousands):
1999 1998
-------- --------
Borrowings at 30-day LIBOR plus 1%, weighted
average interest rate of 7.48% and 6.59% at
December 31, 1999 and 1998, respectively $230,000 $ 35,000
Borrowings at LIBOR Bid Rate, weighted average
interest rate of 6.37% at December 31, 1998 -- 47,000
Borrowings at Base Rate, 8.50% and 7.75% at
December 31, 1999 and 1998, respectively,
subsequently converted to LIBOR loans 8,000 106,000
-------- --------
$238,000 $188,000
======== ========
F-11
<PAGE>
At December 31, 1999, FFCA had outstanding $238 million on $425 million in
revolving loan facilities with participating banks used to provide funds for the
acquisition or financing of chain store properties. Interest on these unsecured
loan facilities is due in periodic installments with a weighted average rate of
6.36% in 1999 and 6.57% in 1998. These loan facilities provide for a fee on the
unused commitment amount of .20% per annum, payable quarterly in arrears. The
revolving loan facilities expire as follows: $75 million expires in February
2000 and $350 million expires in December 2000, with the possibility of annual
extensions. The credit agreements contain 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, 1999, FFCA was in compliance with its debt covenants.
Amortization of loan fees related to the facility for the years ended
December 31, 1999, 1998 and 1997 amounted to approximately $742,000, $880,000
and $1.2 million, respectively, which is included in "Interest Expense" in the
accompanying consolidated financial statements.
(9) STOCK-BASED COMPENSATION PLANS:
FFCA shareholders have approved a stock option and incentive plan that
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 4,518,804 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 1999 and 1998, FFCA issued 8,092 and 29,886 shares of
restricted stock, respectively, which awards are conditioned upon
years-of-service vesting requirements. Compensation expense is determined by
reference to the market price of the stock on the date of grant and is being
amortized over the vesting period of the stock. Such expense amounted to
$229,000 in 1999 and $150,000 in 1998. Stock options granted under the plan may
be either non-qualified or incentive stock options and the exercise price,
determined by the committee, may not be less than the fair market value of a
share of common stock on the grant date. Options granted to FFCA's non-employee
directors are immediately exercisable, while the remaining options 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):
1999 1998 1997
-------- -------- --------
Net income:
As reported $148,727 $ 95,717 $ 72,897
Pro forma $148,253 $ 94,950 $ 70,718
Earnings per share of common stock:
As reported:
Basic $ 2.69 $ 2.01 $ 1.78
Assuming dilution $ 2.68 $ 2.00 $ 1.76
Pro forma:
Basic $ 2.68 $ 2.00 $ 1.73
Assuming dilution $ 2.67 $ 1.98 $ 1.71
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 1999, 1998 and 1997, respectively: dividend yield
of 7.7%, 6.5%, and 6.4%; expected stock price volatility of 20.42%, 18.53%, and
18.47%; risk-free interest rates of 4.87%, 5.57%, and 5.65%; and an expected
option term of seven years.
F-12
<PAGE>
As of December 31, 1999, options outstanding under the plan had exercise
prices ranging from $19.50 to $27.625 with a weighted average price of $22.85,
and expiration dates ranging from May 2005 to May 2009 with a weighted average
remaining term of approximately six and one-half years.
A summary of the status of FFCA's stock option and incentive plan as of
December 31, 1999, 1998 and 1997, and changes during the years then ended, is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
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 2,580,813 $22.79 2,425,245 $22.14 1,705,181 $20.23
Granted 212,496 $23.71 258,003 $27.58 774,730 $26.32
Exercised (8,625) $21.60 (102,435) $19.50 (32,166) $19.62
Cancellations (11,500) $26.68 - - (22,500) $24.38
--------- --------- ---------
Outstanding, end of year 2,773,184 $22.85 2,580,813 $22.79 2,425,245 $22.14
========= ========= =========
Options exercisable, end of year 2,190,667 $22.05 1,691,130 $21.17 956,071 $20.07
========= ========= =========
Weighted average fair value of
each option granted during year $2.24 $2.91 $2.88
===== ===== =====
</TABLE>
FFCA established a 401K Plan as a savings plan for its 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 $344,000 in 1999, $277,000
in 1998 and $256,000 in 1997.
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 1999, 1998 or 1997.
(10) DIVIDENDS AND CAPITAL STOCK:
FFCA declared a fourth quarter 1999 dividend of $0.53 per share, payable on
February 18, 2000, to shareholders of record on February 10, 2000. The dividend
payments made by FFCA to its shareholders represent ordinary income of $1.96 per
share for 1999 and $1.88 per share for 1998. Dividend payments made by FFCA to
its shareholders for 1997 represent ordinary income of $1.68 per share and
capital gain of $0.12 per share.
Warrants to purchase 3,476,908 shares of FFCA common stock were outstanding
at December 31, 1999, of which 2,476,908 shares were exercisable. A warrant
representing 1,476,908 shares was issued in March 1998 with an exercise price of
$31.64 per share and expires in March 2005. A warrant representing 2 million
shares was issued in December 1999 in connection with the agreement entered into
with Washington Mutual Bank, FA (see Note 14) with an exercise price of $25.47
per share and expires in December 2009, or earlier, in accordance with the terms
of the warrant agreement.
In April 1999, the Board of Directors of FFCA adopted a shareholder rights
plan. This plan is intended to protect FFCA's shareholders in the event of
unfair takeover tactics, or an unsolicited attempt to acquire control of FFCA in
a transaction the Board of Directors believes is not in the best interests of
the shareholders. Under the plan, FFCA declared a dividend of one preferred
F-13
<PAGE>
share purchase right (a "Right") for each outstanding share of FFCA's common
stock, payable to the stockholders of record at the close of business on April
19, 1999. Each Right entitles the registered holder to purchase from FFCA one
one-thousandth of a share of FFCA's Series A Junior Participating Preferred
Stock (the "Preferred Stock") at a price of $90, subject to adjustment.
The Rights are not exercisable except under circumstances of the
announcement of an acquisition, tender offer or exchange offer, the consummation
of which would result in the ownership by a person or group of 15% or more of
the outstanding shares of FFCA common stock. (The Rights beneficially owned by
the acquiring person or group will become void.) The Rights will expire on April
7, 2009, unless this date is advanced or extended, or unless the Rights are
earlier redeemed or exchanged by FFCA. The Board of Directors in its sole
discretion may establish the terms and conditions for the redemption of the
Rights. Until exercised or exchanged, the Rights have no vote and are not
entitled to receive dividends; however, in the event of a merger or certain
other transactions, an unexercised Right may be exchanged for certain
preferential consideration.
Each share of Preferred Stock would be entitled to a minimum preferential
quarterly dividend payment, a minimum preferential payment in the event of
liquidation, dissolution or winding up of FFCA, and other preferential payments
or assets in the event of any merger, consolidation or similar transaction. Each
share of Preferred Stock will have one vote, voting together with the common
stock.
In December 1999, FFCA's Board of Directors adopted a resolution
authorizing the repurchase of up to 7.5% of the company's outstanding common
stock from time to time in open market or privately negotiated transactions. The
timing of the purchases and the actual number of common shares purchased will
depend on market conditions and available cash flow.
(11) RELATED PARTY TRANSACTIONS:
INVESTMENT IN AFFILIATE - FFCA Mortgage Corporation ("Mortgage Corp.")
operated during 1997 to originate mortgage loans to be held for future
securitization transactions. FFCA owned all of the nonvoting preferred stock of
Mortgage Corp., and was entitled to receive 95% of any dividends declared. FFCA
recorded 95% of Mortgage Corp.'s net income for 1997 as "Equity in Net Income of
Affiliate" in the accompanying financial statements. Mortgage Corp. had revenues
of $9.6 million, interest expense of $9 million, gains net of other expenses of
$1.2 million and net income of $1.8 million in 1997, and was dissolved on
December 31, 1997.
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. 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 $12.3 million in
1999 and $11.8 million in 1998 (net of accumulated depreciation of $4.6 million
in 1999 and $4.1 million in 1998) and is included in "Other Assets" in the
accompanying financial statements.
ADMINISTRATIVE SERVICES AGREEMENT WITH AFFILIATES - FFCA provides certain
accounting, computer, investor and other administrative services to its
affiliates under a service agreement which provides for a monthly fee based upon
the amount of services used by each affiliate. Fees for such services aggregated
approximately $427,000 in 1999, $590,000 in 1998 and $1.4 million in 1997.
(12) 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 (held-to-maturity portfolio) 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.
F-14
<PAGE>
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, 1999. The carrying amount of the mortgage
loans held for long-term investment exceeded the estimated fair values by
approximately $800,000. Based on market prices of similar investments at
December 31, 1999, the carrying amount of FFCA's real estate investment
securities exceeded its fair value by $11.5 million. The carrying amount of
FFCA's long-term, fixed-rate debt exceeded its fair value by $11.7 million based
on the level of interest rates prevailing at December 31, 1999.
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
received approximately $500,000 if it had terminated its interest rate swap
contracts at December 31, 1999.
The combined fair value differences of these financial instruments is
equivalent to an unrealized loss of approximately $100,000; 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.
(13) ADDITIONAL FINANCIAL INFORMATION:
Additional information with respect to cash flows follows (amounts in
thousands):
1999 1998 1997
------- ------- -------
Securities and other assets resulting
from securitization $81,528 $63,479 $12,094
Mortgage loans obtained as part of property sale
proceeds, net of deferred gain -- 1,447 997
Conversion of mortgage loans to property and
equipment subject to operating lease 3,034 -- --
Mortgage loans received from affiliate -- -- 46,910
Interest paid, net of amounts capitalized 52,031 38,980 32,296
Income taxes paid 164 98 119
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.
(14) COMMITMENTS AND CONTINGENT LIABILITIES:
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,
1999, FFCA's outstanding commitments to extend credit over the next year
aggregated approximately $500 million.
In December 1999, FFCA entered into a three-year loan sale agreement with
Washington Mutual Bank, FA, a large financial services company, whereby
Washington Mutual agreed to purchase loans originated by FFCA while FFCA retains
the servicing rights on the loans sold. Subsequent to December 31, 1999, FFCA
assigned the Washington Mutual agreement to an affiliate (see Note 15). Under
the terms of this assignment, FFCA will service the loans sold to Washington
Mutual and will guaranty the performance of its affiliate under the agreement.
F-15
<PAGE>
FFCA entered into three-year employment agreements with its five executive
officers. Each employment agreement provides that FFCA is liable for
compensation benefits at a rate of three times the officer's base salary plus
bonus, and other benefits, if an executive officer were to be terminated without
cause, as defined, or if a change in control, as defined, occurs and the
executive's employment is terminated. The aggregate annual compensation under
these agreements was approximately $3.2 million as of December 31, 1999. FFCA
entered into similar two-year agreements with certain other key officers under
which FFCA is liable for compensation benefits at a rate of two times the
officer's base salary plus bonus, and other benefits, if a change in control
were to occur and the officer's employment is terminated. The aggregate annual
compensation under these agreements was approximately $2.2 million as of
December 31, 1999. In addition, FFCA has a severance plan for certain other key
employees which provides that FFCA is liable for the compensation benefits of
such employee for one year if the employee is terminated without cause in
connection with a change in control, as defined.
(15) SUBSEQUENT EVENTS (Unaudited):
On January 4, 2000, FFCA established a nonqualified REIT subsidiary, FFCA
Funding Corporation ("Funding Corp."), to originate mortgage loans for sale.
FFCA transferred its corporate headquarters building and its future mortgage
loan origination business (including a transfer of certain employees and an
assignment of the agreement with Washington Mutual to be its exclusive provider
of chain store loans) to Funding Corp. in exchange for 10 shares of
newly-issued, nonvoting preferred stock. The preferred stock, which represents
all of the issued and outstanding stock of such class, entitles FFCA to 99% of
any dividends declared by Funding Corp. Certain officers of FFCA own all of the
outstanding voting common stock of Funding Corp. In connection with the start up
of this new company, FFCA advanced $5 million to Funding Corp. under a one-year
note agreement, with interest due monthly and principal due at maturity.
On January 14, 2000, FFCA issued $50 million in unsecured notes due in
2002, bearing interest at 8.43% and $50 million in unsecured notes due in 2004
bearing interest at 8.68%. Proceeds of the notes were used to pay down FFCA's
revolving line of credit.
On February 7, 2000, FFCA entered into a contract with an affiliate to
purchase a parcel of land (3.6 acres) for approximately $1.9 million. The sale
is subject to the approval, by vote, of the majority of the limited partner
interests of the affiliate. There can be no assurances as to the final terms of
the proposed transaction, that the conditions will be satisfied or that the
proposed transaction will be consummated.
(16) QUARTERLY FINANCIAL INFORMATION (Unaudited):
Quarter Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
------- ------- ------- -------
(amounts in thousands, except per share data)
1999
Revenues $48,520 $53,211 $59,472 $57,272
Net income 25,459 36,458 46,328 40,482
Net income per share,
assuming dilution 0.48 0.65 0.83 0.72
Dividends per share $ 0.49 $ 0.49 $ 0.49 $ 0.53
Weighted average shares 53,533 56,107 56,135 56,206
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
F-16
<PAGE>
SCHEDULE III
Page 1 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1999
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Initial Cost to Company and
Gross Amount at December 31, 1999 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 330 $ 82,520 $ 151,215 $ 3,891 $ 237,626 $ 31,135 $ 3,876 $ 35,011
Mideast 290 82,699 124,863 658 208,220 20,314 658 20,972
Mountain 210 60,886 95,687 1,545 158,118 13,293 1,545 14,838
Northeast 139 33,395 50,663 3,358 87,416 10,010 1,492 11,502
Pacific 191 57,829 59,647 285 117,761 14,093 285 14,378
Southeast 591 149,707 206,792 3,212 359,711 53,703 3,212 56,915
Southwest 300 76,408 113,784 4,638 194,830 28,065 4,638 32,703
W.N. Central 213 39,589 69,009 2,478 111,076 16,656 2,425 19,081
------ --------- --------- --------- ---------- --------- --------- ---------
TOTAL 2,264 $ 583,033 $ 871,660 $ 20,065 $1,474,758 $ 187,269 $ 18,131 $ 205,400
====== ========= ========= ========= ========== ========= ========= =========
</TABLE>
F-17
<PAGE>
SCHEDULE III
Page 2 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1999
(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
$1.5 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 1999, 1998, and 1997 are summarized as follows:
Accumulated
Cost Depreciation
----------- ------------
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
Acquisitions 260,854 --
Cost of real estate sold (57,597) (8,202)
Cost of equipment sold (1,492) (1,492)
Impairment loss (1,607) --
Depreciation expense -- 29,514
----------- -----------
Balance, December 31, 1999 $ 1,474,758 $ 205,400
=========== ===========
F-18
<PAGE>
SCHEDULE IV
Page 1 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1999
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Principal
Amount of Loans
Subject to
Face Carrying Delinquent
Original No. of Interest Maturity Date Amount of Amount of Principal
U.S. Region Loan Amount Properties Rate Range Range Mortgages Mortgages or Interest
- ----------- ----------- ---------- ---------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Southeast under $500 1 10.0% - 13.5% Apr. 2002 - Aug. 2006 $ 3,469 $ 2,281 $ --
$501-$1,000 1 10.5% Jul. 2014 696 696 --
over $1,000 3 10.06% - 11.5% Sept. 2000 - Jul. 2018 33,929 20,331 --
-------- -------- --------
38,094 23,308 --
-------- -------- --------
Mideast under $500 10.2% - 11.0% Apr. 2001 - Jan. 2007 1,394 844 --
$501-$1,000 1 10.31% - 10.5% Jul. 2006 - Nov. 2011 1,575 1,466 --
over $1,000 1 10.0% Jun. 2000 1,290 618 --
-------- -------- --------
4,259 2,928 --
-------- -------- --------
Northeast under $500 11.25% - 11.5% Jul. 2003 - Apr. 2004 392 281 136
$501-$1,000 2 9.72% - 11.5% Sept. 2000 - Aug. 2019 1,330 1,306 --
over $1,000 2 11.5% Sept. 2003 - Nov. 2015 3,062 1,586 1,586
-------- -------- --------
4,784 3,173 1,722
-------- -------- --------
E.N. Central under $500 8.82% - 12.0% Aug. 2000 - May 2006 1,360 518 --
$501-$1,000 11.25% May 2002 - May 2015 6,595 4,744 4,744
over $1,000 30 12.46% Sept. 2001 9,750 9,722 --
-------- -------- --------
17,705 14,984 4,744
-------- -------- --------
W.N. Central under $500 1 9.25% - 13.5% Sept. 2001 - Mar. 2019 1,603 513 --
$501-$1,000 1 10.5% Jan. 2009 778 599 --
-------- -------- --------
2,381 1,112 --
-------- -------- --------
Southwest under $500 5 9.25% - 11.5% Oct. 2002 - Mar. 2019 5,015 4,294 --
$501-$1,000 1 8.52% - 10.87% Apr. 2000 - Jul. 2005 1,390 1,281 --
over $1,000 1 11.5% Jun. 2003 - Jun. 2016 1,203 459 459
-------- -------- --------
7,608 6,034 459
-------- -------- --------
Mountain under $500 1 8.735% - 11.5% Feb. 2000 - May 2019 4,942 2,794 --
$501-$1,000 2 9.25% - 14.5% Nov. 2000 - Mar. 2019 2,554 1,774 --
-------- -------- --------
7,496 4,568 --
-------- -------- --------
Pacific under $500 10.25% - 11.0% Jan. 2004 - May 2005 439 348 --
$501-$1,000 1 10.81% - 11.5% Sept. 2002 - Nov. 2019 1,061 810 --
over $1,000 1 9.7% - 9.93% Jan. 2005 - May 2017 1,399 731 731
-------- -------- --------
2,899 1,889 731
-------- -------- --------
TOTAL $ 85,226 $ 57,996 $ 7,656
======== ======== ========
</TABLE>
F-19
<PAGE>
SCHEDULE IV
Page 2 of 2
FRANCHISE FINANCE CORPORATION OF AMERICA
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1999
(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
$63 million.
(6) Transactions in mortgage loans on real estate during 1999, 1998 and
1997 are summarized as follows:
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
Additions during period:
New mortgage loans 31,152
Recognition of deferred gain, net of
additional deferred gains in 1999 333
Deductions during period:
Collections of principal (2,906)
Mortgage loan payoffs (10,175)
Reserve for mortgage loan losses (644)
Foreclosures (3,107)
--------
Balance, December 31, 1999 $ 57,996
========
F-20
<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 Certificate of Designation of Franchise Finance Corporation of
America, classifying and designating the Series A Junior Participating
Preferred Stock (2)
3.03 Third Amended and Restated Bylaws of Franchise Finance Corporation of
America *
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 the 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)
4.07 Rights Agreement, dated as of April 7, 1999, between Franchise Finance
Corporation of America and Gemisys Corporation, as Rights Agent (2)
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 Amendment No. 1 to the 1995 Stock Option and Incentive Plan of
Franchise Finance Corporation of America (10)
10.05 Stock Purchase Agreement between Franchise Finance Corporation of
America and Colony Investors III, L.P. dated February 13, 1998 (11)
<PAGE>
10.06 Master Loan Purchase Agreement, dated as of December 14, 1999, between
FFCA Acquisition Corporation, as Seller and Washington Mutual Bank,
FA, as Purchaser (12)
10.07 Guaranty by Franchise Finance Corporation, dated as of December 14,
1999, of certain obligations of FFCA Acquisition Corporation for the
benefit of Washington Mutual (12)
10.08 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and Morton H.
Fleischer *
10.09 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and Christopher
H. Volk *
10.10 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and John R.
Barravecchia *
10.11 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and Dennis L.
Ruben *
10.12 Amended and Restated Employment Agreement, dated as of January 1,
2000, between Franchise Finance Corporation of America and Stephen G.
Schmitz *
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. (13)
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 (14)
99.03 Second Amended and Restated Sale and Servicing Agreement dated as of
January 1, 2000, among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Loan Warehouse Corporation, FFCA Acquisition Corporation, Franchise
Finance Corporation of America and LaSalle Bank National Association
f/k/a LaSalle National Bank *
99.04 Loan Purchase Agreement dated as of August 14, 1998, between FFCA Loan
Warehouse Corporation and FFCA Acquisition Corporation (15)
99.05 Amendment No. 1, dated as of March 18, 1999, to the Loan Purchase
Agreement between FFCA Loan Warehouse Corporation and FFCA Acquisition
Corporation *
<PAGE>
99.06 Amendment No. 2, dated as of January 1, 2000, to the Loan Purchase
Agreement between FFCA Loan Warehouse Corporation and FFCA Acquisition
Corporation *
99.07 Indenture dated as of August 14, 1998, between FFCA Franchise Loan
Owner Trust 1998-1 and LaSalle National Bank. (15)
99.08 Fourth Amended and Restated Indenture Supplement, dated as of January
1, 2000, between FFCA Franchise Loan Owner Trust 1998-1 and LaSalle
Bank National Association f/k/a LaSalle National Bank *
99.09 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. (15)
99.10 Amendment No. 1, dated as of October 30, 1998, to the Note Purchase
Agreement among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Acquisition Corporation, FFCA Loan Warehouse Corporation, and Morgan
Stanley Securitization Funding Inc. *
99.11 Amendment No. 2, dated as of March 18, 1999, to the Note Purchase
Agreement among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Acquisition Corporation, FFCA Loan Warehouse Corporation, and Morgan
Stanley Securitization Funding Inc. *
99.12 Amendment No. 3, dated as of August 27, 1999, to the Note Purchase
Agreement among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Acquisition Corporation, FFCA Loan Warehouse Corporation, and Morgan
Stanley Securitization Funding Inc. (16)
99.13 Amendment No. 4, dated as of January 1, 2000, to the Note Purchase
Agreement among FFCA Franchise Loan Owner Trust 1998-1, FFCA
Acquisition Corporation, FFCA Loan Warehouse Corporation, and Morgan
Stanley Securitization Funding Inc. *
99.14 Credit Agreement dated as of February 11, 1999, among Franchise
Finance Corporation of America, Certain Lenders and NationsBank
N.A.(14)
99.15 Note Purchase Agreement dated April 22, 1999, between FFCA Secured
Lending Corporation, and Morgan Stanley & Co. Incorporated, Salomon
Smith Barney Inc. and Prudential Securities Incorporated, as initial
purchasers of $371,908,000 aggregate principal or notional amount of
Secured Franchise Loan Trust Certificates, Series 1999-1, Class A-1a,
Class A-1b, Class A-2, Class B-1, Class B-2, Class C-1, Class C-2,
Class D-1, Class D-2 and Class IO (17)
- ----------
* 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 Current Report on Form 8-K,
dated April 7, 1999, 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.
<PAGE>
(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 Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1999, as filed with the
Securities and Exchange Commission.
(11) 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.
(12) Incorporated by reference from the Registrant's Current Report on Form 8-K,
dated December 14, 1999, as filed with the Securities and Exchange
Commission.
(13) 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.
(14) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, as filed with the Securities
and Exchange Commission.
(15) 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.
(16) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999, as filed with the
Securities and Exchange Commission.
(17) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1999, as filed with the
Securities and Exchange Commission.
THIRD AMENDED AND RESTATED BYLAWS
OF
FRANCHISE FINANCE CORPORATION OF AMERICA
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of stockholders shall be held at any
place within or without the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders shall be
held each year on a date and at a time designated by the Board of Directors. At
each annual meeting directors shall be elected and any other proper business may
be transacted.
SECTION 3. QUORUM.
(a) A majority of the stock issued and outstanding and entitled to
vote at any meeting of stockholders, the holders of which are present in
person or represented by proxy, shall constitute a quorum for the
transaction of business, except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws. A quorum, once established,
shall not be broken by the withdrawal of enough votes to leave less than a
quorum and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not be present or represented
at any meeting of the stockholders, a majority of the voting stock
represented in person or by proxy may adjourn the meeting from time to
time, to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted that might have been transacted at the meeting
as originally notified. If the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
<PAGE>
(b) All elections of directors shall be by a plurality vote cast of
the stockholders present and in person entitled to vote at such meeting of
stockholders. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present represented
in person or by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of law,
the Certificate of Incorporation or these Bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
SECTION 4. PROXY. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting, may vote in person or may authorize another person or persons
to act for him by proxy appointed in any manner permitted under Delaware law as
the same exists or may hereafter be amended. All proxies must be filed with,
transmitted to or otherwise conveyed to the Secretary of the corporation at the
beginning of each meeting in order to be counted in any vote at such meeting.
Each stockholder shall have one (1) vote for each share of stock having voting
power, registered in his name on the books of the corporation on the record date
set by the Board of Directors as provided in Article V, Section 6 hereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or the Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning not less
than ten percent (10%) of the entire capital stock of the corporation issued and
outstanding, and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 6. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which notice shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided in the Certificate of Incorporation or
these Bylaws, the written notice of any meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
SECTION 7. STOCKHOLDER LIST. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
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meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 8. ACTION BY CONSENT OF STOCKHOLDERS. Unless otherwise provided in
the Certificate of Incorporation, any action required or permitted to be taken
at any annual or special meeting of stockholders of the corporation, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted; provided, however, that no
action required or permitted to be taken at any annual meeting of stockholders
of the corporation shall be taken pursuant to the provisions of this Section 8
so long as any shares of the corporation's stock are listed on the New York
Stock Exchange. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. NUMBER. The initial number of directors which shall constitute
the Board of Directors shall be two (2). The number of directors which shall
constitute the whole Board of Directors shall be not less than two (2) nor more
than fifteen (15). The number of directors of the corporation may be changed by
majority vote of the Board of Directors. The directors need not be stockholders.
SECTION 2. TERM OF OFFICE. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3 of this Article,
and each director elected shall hold office for a term of one (1) year and until
his successor is elected and qualified; provided, however, that unless otherwise
restricted by the Certificate of Incorporation or by law, any director or the
entire Board of Directors may be removed, either with or without cause, from the
Board of Directors at any meeting of stockholders by a majority of the stock
represented and entitled to vote thereat.
SECTION 3. RESIGNATIONS, REMOVAL AND VACANCIES. Any director may resign at
any time upon the delivery of written notice to the corporation. Vacancies on
the Board of Directors by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. The directors so chosen shall hold
office until the next annual election of directors and until their successors
are duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board of Directors (as constituted immediately prior to any such
increase), the Court of Chancery of the State of Delaware may, upon application
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of any stockholder or stockholders holding at least ten percent (10%) of the
total number of the shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
SECTION 4. POWER AND AUTHORITY. The property and business of the
corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute, the
Certificate of Incorporation or these Bylaws directed or required to be
exercised or done by the stockholders.
SECTION 5. PLACE OF MEETING. The directors may hold their meetings and have
one or more offices, and keep the books of the corporation outside of the State
of Delaware.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the President on forty-eight (48) hours' notice to each director,
either personally or by mail, telegram or telecopy; special meetings shall be
called by the President or the Secretary in like manner and on like notice on
the written request of two (2) directors unless the Board of Directors consists
of only one (1) director, in which case special meetings shall be called by the
President or Secretary in like manner or on like notice on the written request
of the sole director.
SECTION 8. QUORUM. At all meetings of the Board of Directors a majority of
the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, the Certificate of Incorporation or these Bylaws. If a quorum shall
not be present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum.
SECTION 9. ACTION BY CONSENT IN LIEU OF MEETING. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 10. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
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SECTION 11. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
(1) or more committees, each such committee to consist of one (1) or more of the
directors of the corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
these Bylaws; and, unless the resolution or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
SECTION 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors; provided, however, that no
officer of the corporation shall receive any compensation for serving as a
director of the corporation. The directors who are not officers of the
corporation shall be paid their expenses, if any, and a fixed sum for their
attendance at each meeting of the Board of Directors and each committee meeting.
No such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
SECTION 13. INDEMNIFICATION. The corporation shall indemnify every person
who was or is a party or is or was threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the corporation
or, while a director or officer of the corporation, is or was serving at the
request of the corporation as a director, officer, employee, agent or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including counsel fees), judgments, fines
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and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, to the full extent permitted by
applicable law.
SECTION 14. TRANSACTIONS WITH INTERESTED DIRECTORS. No contract or
transaction between the corporation and one or more of its directors, or between
the corporation and any other corporation, partnership, association or other
entity in which one or more of its directors are directors or officers of this
corporation or are financially interested, shall be either void or voidable for
this reason alone, or solely because the director is present at or participates
in the meeting of the board or committee which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if (a) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
committee, and the board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (b)
the material facts as to his relationship or interest and to the contract or
transaction are disclosed or made known to the stockholders entitled to vote
thereon, and the contract or transaction are specifically approved in good
faith; or (c) the contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the Board of Directors, a
committee or the stockholders.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.
(a) The officers of this corporation shall be chosen by the Board of
Directors and shall include a President and a Secretary. The corporation
may also have at the discretion of the Board of Directors such other
officers as are desired, including a Chairman of the Board of Directors,
one or more Vice Presidents, a Treasurer, one or more Assistant Secretaries
and Assistant Treasurers and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article IV. In the
event there are two or more Vice Presidents, then one or more may be
designated as Executive Vice President, Senior Vice President or other
similar or dissimilar title. At the time of the election of officers, the
directors may by resolution determine the order of their rank. Any number
of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
(b) The Board of Directors, at its first meeting after each annual
meeting of stockholders, shall choose the officers of the corporation.
(c) The Board of Directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
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(d) The salaries of all officers and agents of the corporation shall
be fixed by the Board of Directors.
(e) The officers of the corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. If the office of
any officer or officers becomes vacant for any reason, the vacancy shall be
filled by the Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of
Directors, if such an officer be elected, shall, if present, preside at all
meetings of the Board of Directors, shall preside at all meetings of the
stockholders and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
these Bylaws. The Chairman of the Board of Directors shall in addition be the
Chief Executive Officer of the corporation and shall have the general powers and
duties of management usually vested in the office of Chief Executive Officer of
corporations.
SECTION 3. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board of Directors, if
there be such an officer, the President shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and officers of the corporation. The President may in addition be the
Chief Operating Officer of the corporation and, to the extent applicable, shall
have the general powers and duties of management usually vested in the office of
Chief Operating Officer of corporations. In the absence of the Chairman of the
Board of Directors, or if there be none, the President shall preside at all
meetings of the Board of Directors. He shall be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of President of corporations, and shall have such other
powers and duties as may be prescribed by the Board of Directors or these
Bylaws. In the absence of the Chief Executive Officer, or if there be none, the
President shall be the Chief Executive Officer of the corporation.
SECTION 4. VICE PRESIDENTS. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall have such other duties as from time to time may be prescribed
for them, respectively, by the Board of Directors.
SECTION 5. SECRETARY. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required by the Board of
Directors. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or these
Bylaws. He shall keep in safe custody the seal of the corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and when
so affixed it shall be attested by his signature or by the signature of an
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Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
SECTION 6. ASSISTANT SECRETARY. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors, or if there be no such determination, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
SECTION 7. TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the corporation. If required by the Board of
Directors, he shall give the corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for the
faithful performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
SECTION 8. ASSISTANT TREASURER. The Assistant Treasurer, or if there shall
be more than one, the Assistant Treasurers in the order determined by the Board
of Directors, or if there be no such determination, the Assistant Treasurer
designated by the Board of Directors, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
ARTICLE V
THE CORPORATION'S STOCK
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman or Vice Chairman of the Board of Directors, or the
President or a Vice President, and by the Secretary or an Assistant Secretary,
or the Treasurer or an Assistant Treasurer of the corporation, certifying the
number of shares represented by the certificate owned by such stockholder in the
corporation.
SECTION 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
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SECTION 3. POWERS, DESIGNATIONS AND PREFERENCES. If the corporation shall
be authorized to issue more than one class of stock or more than one series of
any class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualification, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock;
provided that, except as otherwise provided in Section 202 of the General
Corporation Law of the State of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 5. TRANSFERS OF STOCK. Upon surrender to the corporation, or the
transfer agent of the corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 6. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting, or at any
adjournment of a meeting, of stockholders; or entitled to express consent to
corporate action in writing without a meeting; or entitled to receive payment of
any dividend or other distribution or allotment of any rights; or entitled to
exercise any rights in respect of any change, conversion or exchange of stock;
or for the purpose of any other lawful action; the Board of Directors may fix,
in advance, a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. The record date for determining the stockholders entitled to notice
of or to vote at any meeting of the stockholders or any adjournment thereof
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting; provided, however, that so long as any shares of the corporation's
stock are listed on the New York Stock Exchange, the Record Date shall be no
less than thirty (30) days before such meeting. The record date for determining
the stockholders entitled to consent to corporate action in writing without a
meeting shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. The
record date for any other purpose shall not be more than sixty (60) days prior
to such other action; provided, however, that so long as any shares of the
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corporation's stock are listed on the New York Stock Exchange, the Record Date
shall be no less than thirty (30) days before such meeting. If no record date is
fixed, (a) the record date for determining stockholders entitled to notice of or
to vote at any meeting shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived by all
stockholders, at the close of business on the day next preceding the day on
which the meeting is held; (b) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is required, shall be the first
date on which a signed written consent setting forth the action taken or to be
taken is delivered to the corporation, and when prior action by the Board of
Directors is required, shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action; and (c) the
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating to such other purpose. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 7. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS.
(a) Dividends upon the capital stock of the corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to
law. Dividends may be paid in cash, in property or in shares of the capital
stock, subject to the General Corporation Law of the State of Delaware and
the provisions of the Certificate of Incorporation.
(b) Before payment of any dividend there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as
a reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve.
SECTION 2. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
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SECTION 4. SEAL. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
SECTION 5. NOTICES.
(a) Whenever, under the provisions of the law, the Certificate of
Incorporation or these Bylaws, notice is required to be given to any
director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram or telecopy.
(b) Whenever any notice is required to be given under the provisions
of the law, the Certificate of Incorporation or these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed to
be equivalent.
SECTION 6. ANNUAL STATEMENT. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
ARTICLE VII
AMENDMENTS
SECTION 1. AMENDMENTS. These Bylaws may be altered, amended or repealed or
new Bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the Certificate of
Incorporation, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting. If the power to
alter, adopt, amend or repeal the Bylaws is conferred upon the Board of
Directors by the Certificate of Incorporation it shall not divest or limit the
power of the stockholders to alter, adopt, amend or repeal the Bylaws.
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is dated as of January 1,
2000, by and between Franchise Finance Corporation of America, a Delaware
corporation (the "Company") and Morton H. Fleischer ("Executive").
RECITALS
In order to induce Executive to serve as Chairman and Chief Executive
Officer of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform services for the
Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. DEFINED TERMS. The following terms shall have the following meanings
unless otherwise specifically defined in this Agreement:
"ACTUAL BONUS" means the highest annual cash bonus payable to Executive
with respect to any of the three years immediately preceding the Termination
Year.
"AGREEMENT" means this Amended and Restated Employment Agreement dated as
of January 1, 2000 between the Company and Executive.
"ANNUAL CASH BONUS" means the cash compensation payable to Executive as
calculated and paid in a manner substantially similar to the methods and timing
used to calculate and pay Executive's bonus for calendar year 1999; PROVIDED,
HOWEVER, that during the term of this Agreement, neither the Company nor the
Compensation Committee shall change such methods and timing in a manner which
will be less favorable to Executive.
"BASE SALARY" means the annual base salary of Executive as set forth in
Section 4(a).
"BOARD" means the board of directors of the Company.
"CAUSE" means:
(a) the willful and continued failure of Executive to perform a
substantial portion of his duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to Executive by
the Board, which specifically identifies the manner in which the Board
believes that Executive has not substantially performed his duties;
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(b) the willful engaging by Executive in gross misconduct (including,
without limitation, fraud or embezzlement); or
(c) the conviction of, or plea of guilty or NOLO CONTENDERE to, a
felony.
"CHANGE IN CONTROL" means:
(a) any "Person" as defined in Section 3(a)(9) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and as used
in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any
subsidiary and any employee benefit plan sponsored or maintained by
the Company or any subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities (other than
indirectly as a result of the Company's redemption of its securities);
PROVIDED, HOWEVER, that, in the event that any such person becomes the
beneficial owner of 25% or more, but not exceeding 50%, of the
combined voting power of the Company's then outstanding securities, no
Change of Control shall be deemed to occur so long as the Incumbent
Directors (as defined below) continue to constitute a majority of the
Board in accordance with the terms of paragraph (c) below; or
(b) the consummation of any merger or other business combination
of the Company, sale of all or substantially all of the Company's
assets (other than with respect to sales of assets in the ordinary
course of business, securitization and whole loan sales provided by
the Company's interim and permanent financing arrangements),
liquidation or dissolution of the Company or combination of the
foregoing transactions (the "Transactions") other than a Transaction
immediately following which the shareholders of the Company and any
trustee or fiduciary of any Company employee benefit plan immediately
prior to the Transaction own at least 51% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such
merger or other business combination; (B) the purchaser of or
successor to the Company's assets (other than with respect to sales of
assets in the ordinary course of business, securitization and whole
loan sales provided by the Company's interim and permanent financing
arrangements); (C) both the surviving corporation and the purchaser in
the event of any combination of Transactions; or (D) the parent
company owning 100% of such surviving corporation, purchaser or both
the surviving corporation and the purchaser, as the case may be; or
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(c) within any twenty-four-month period, the persons who were
directors immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death)
to constitute at least a majority of the Board or the board of
directors of a successor to the Company. For this purpose, any
director who was not a director at the beginning of such period shall
be deemed to be an Incumbent Director if such director was elected to
the Board by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors (so long as such director was not nominated by a person who
commenced or threatened to commence an election contest or proxy
solicitation by or on behalf of a Person other than the Board) or who
has entered into an agreement to effect a Change in Control or
expressed an intention to cause such Change in Control.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
provisions of any successor law.
"COMPANY" means Franchise Finance Corporation of America, a Delaware
corporation.
"COMPENSATION COMMITTEE" means the compensation committee of the Board.
"EFFECTIVE DATE" means January 1, 2000.
"EXECUTIVE" means Morton H. Fleischer.
"EXPENSE PAYMENT" means payments made to Executive for expenses which are
permitted under this Agreement and have been incurred but not yet reimbursed.
"GOOD REASON" means any of the following without Executive's express prior
written consent:
(a) any material diminution or adverse change in Executive's
duties, titles or responsibilities with the Company (or any affiliate
thereof) from those in effect immediately prior to any such diminution
or adverse change; PROVIDED, HOWEVER, that no such diminution or
adverse change shall be deemed to exist solely as a consequence of the
Company ceasing to be a Company with publicly-traded securities or
becoming a wholly-owned subsidiary of another company;
(b) if after a Change in Control there is any reduction in
Executive's aggregate annual cash compensation (which shall include
Base Salary and Actual Bonus) in Executive's aggregate annual cash
compensation in effect immediately prior to such reduction;
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(c) any requirement that Executive be based at a location more
than 35 miles from the Company's headquarters, located in Scottsdale,
Arizona (or a substantial increase in the amount of travel that
Executive is required to do because of a relocation of the Company's
headquarters from Scottsdale, Arizona);
(d) any failure by the Company to obtain from any successor to
the Company an agreement reasonably satisfactory to Executive to
assume and perform this Agreement, as contemplated by Section 13
hereof; or
(e) during the thirty-day period immediately following the first
anniversary of the Change in Control there is a Thirteenth-Month
Termination by Executive.
"PERMANENT DISABILITY" means the total and permanent disability of
Executive as defined in the Company's long-term disability benefit plan
applicable to senior executive officers in effect on the Effective Date.
"RETIREMENT" means Executive's voluntary termination of employment pursuant
to late, normal or early retirement under a pension plan (which may include a
defined benefit plan or a defined contribution plan) sponsored by the Company,
as defined in such plan, but only if such retirement occurs prior to a
termination by the Company for Cause or by Executive for Good Reason.
"TERMINATION DATE" means the date this Agreement is terminated, except to
the extent the provisions of Section 16 are applicable, which shall be the
earlier of December 31, 2002 or the date of termination of Executive's
employment pursuant to this Agreement.
"TERMINATION YEAR" means the year in which Executive's termination of
employment occurs.
"THIRTEENTH-MONTH TERMINATION" means the voluntary termination of
employment by Executive for any reason or no reason at all.
"VACATION PAYMENT" means payments made to Executive with respect to accrued
but unused vacation days.
2. EMPLOYMENT.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its
Chairman and Chief Executive Officer or as an officer of the Company
having the same or a more senior title and greater responsibilities.
In his capacity as the Chairman and Chief Executive Officer of the
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Company, Executive shall report to the Board and shall have the
customary powers, responsibilities and authorities of a Chairman and
Chief Executive Officer for corporations of the size and character of
the Company, as it exists from time to time, and as are assigned by
the Board.
(b) Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment with the Company commencing on the
Effective Date, and agrees to devote his full working time and
efforts, to the best of his ability, experience and talent, to the
performance of services, duties and responsibilities in connection
therewith. Executive shall perform such duties and exercise such
powers, commensurate with his position, as the Board shall from time
to time delegate to him on such terms and conditions and subject to
such restrictions the Board may reasonably from time to time impose.
Executive also agrees to serve, if elected, as a member of the Board.
(c) Nothing in this Agreement shall preclude Executive, so long
as in the reasonable determination of the Board such activities do not
interfere with his duties and responsibilities hereunder, from
engaging in charitable and community affairs, from managing any
passive investment made by him in publicly traded equity securities or
other property (provided that no such investment may exceed 5% of the
equity of any entity) or, without prior notice to the Board and
subject to Section 15 and Section 16(b) hereof, from serving as a
member of boards of directors or as a trustee of any other
corporation, association or entity.
3. EFFECTIVE DATE; TERM OF EMPLOYMENT. This Agreement shall be effective as
the Effective Date. Executive's term of employment under this Agreement shall
commence on the Effective Date hereof and, subject to the terms hereof, shall
terminate on the Termination Date; provided, however, that any termination of
Employment by Executive for Good Reason or pursuant to the Change in Control
provisions of Section 8 may only be made on 30 days' prior written notice and
any other termination of employment by Executive other than for death, Permanent
Disability or Good Reason may only be made upon 90 days' prior written notice to
the Company.
4. COMPENSATION.
(a) SALARY. The Company shall pay Executive during the term of
this Agreement the Base Salary, as calculated pursuant to this Section
4, payable in cash not less frequently than bimonthly. As of the
Effective Date, the Base Salary shall be $525,000. As of January 1 of
each annual anniversary of the Effective Date, the Base Salary of
Executive will be increased from Executive's Base Salary for the
preceding calendar year by the greater of (i) five percent, (ii) the
average percentage salary increase awarded to all employees of the
Company who are not senior executive officers of the Company or (iii)
an amount determined by the Compensation Committee.
(b) ANNUAL CASH BONUS. In addition to Base Compensation, the
Company will pay to Executive on or prior to January 30 of each year
for performance in the preceding calendar year the Annual Cash Bonus.
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(c) COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible
to participate in any compensation plan or program maintained by the
Company from time to time, which compensation plans and programs are
intended to be comparable to those currently maintained by the
Company, in which other senior executives of the Company participate
on terms that are intended to be comparable to those applicable to
such other senior executives.
(d) STOCK OPTIONS AND RESTRICTED STOCK AWARDS. Executive shall be
eligible to receive grants of stock options and restricted stock
awards as determined in the discretion of the Compensation Committee
under any stock option plan or incentive plan of the Company or any
affiliate.
5. EMPLOYEE BENEFITS.
(a) EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. The Company
shall provide Executive during the term of his employment hereunder
with coverage under all employee pension and welfare benefit programs,
plans and practices (commensurate with his positions in the Company
from time to time and to the extent permitted under any employee
benefit plan) in accordance with the terms thereof, which the Company
makes available to its senior executives and which employee pension
and welfare benefit programs, plans and practices that are intended to
be comparable to those currently maintained by the Company; provided,
however, such programs, plans and practices will be no less favorable
than those in existence as of the date of execution of this Agreement.
(b) VACATION AND FRINGE BENEFITS. Executive shall be entitled to
no less than the number of business days paid vacation in each
calendar year to which Executive is entitled immediately prior to
execution of this Agreement, which shall be taken at such times as are
consistent with Executive's responsibilities hereunder. In addition,
Executive shall be entitled to the perquisites and other fringe
benefits currently made available to senior executives of the Company,
commensurate with his position with the Company.
6. EXPENSES. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR BY EXECUTIVE
FOR GOOD REASON. (i) The Company may terminate Executive's employment
at any time for any reason. If Executive's employment is terminated by
the Company other than for Cause) or if Executive terminates his
employment for Good Reason prior to the Termination Date, Executive
shall receive such payments, if any, under applicable plans or
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programs, including but not limited to those referred to in Section
4(c) hereof, to which he is entitled pursuant to the terms of such
plans or programs. In addition, Executive shall be entitled to receive
the following:
(A) A cash lump sum payment equal to the sum of three times
(1) Executive's Base Salary at the annual rate as of the date of
termination and (2) the Actual Bonus; and
(B) a cash lump sum payment with respect to (1) the Vacation
Payment and (2) the Expense Payment which shall be paid by the
Company to Executive within 30 days after the termination of
Executive's employment by check payable to the order of Executive
or by wire transfer to an account specified by Executive;
(C) Executive shall also be entitled to the following
benefits:
(i) continued medical, dental, vision, and life
insurance coverage (excluding accident, death, and
disability insurance) and any fringe benefit or perquisites
in effect immediately prior to the date of termination for
Executive and Executive's eligible dependents or, to the
extent such benefits are not commercially available, such
other arrangements reasonably acceptable to Executive, on
the same basis as in effect prior to the date of
termination, whichever is deemed to provide for more
substantial benefits, for a period ending December 31, 2002;
(ii) immediate 100% vesting of all outstanding stock
options, stock appreciation rights and restricted stock
granted or issued by the Company to the extent not
previously vested;
(iii) all other accrued or vested benefits in
accordance with the terms of the applicable plan, which
vested benefits shall include Executive's otherwise unvested
account balances in the Company's 401(k) plan, which shall
be vested as of the date of termination; and
(iv) if so requested by Executive, outplacement
services shall be provided by a professional outplacement
provider selected by Executive; PROVIDED, HOWEVER, that such
outplacement services shall be provided to Executive at a
cost to the Company of not more than fifteen (15) percent of
such Executive's Base Salary.
(b) CURE PERIOD OF COMPANY FOR GOOD REASON TERMINATION.
Notwithstanding the foregoing, in the event that Executive provides
the Company with a notice of termination stating Good Reason, except
in the event of a Thirteenth-Month Termination, the Company shall have
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30 days thereafter in which to cure or resolve the behavior otherwise
constituting Good Reason. Any good faith determination by Executive
that Good Reason exists shall be presumed correct and shall be binding
upon the Company.
(c) PERMANENT DISABILITY OF EXECUTIVE. If Executive has a
Permanent Disability, the Company or Executive may terminate
Executive's employment on written notice thereof, and Executive shall
receive or commence receiving, as soon as practicable:
(i) amounts payable pursuant to the terms of a disability
insurance policy or similar arrangement which the Company
maintains during the term hereof;
(ii) the Actual Bonus, prorated by a fraction, the numerator
of which is the number of days of the fiscal year until
termination and the denominator of which is 365;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 4(c)
hereof, to which he is entitled pursuant to the terms of such
plans or programs.
(d) DEATH. In the event of Executive's death during the term of
his employment hereunder, Executive's estate or designated
beneficiaries shall receive or commence receiving, as soon as
practicable:
(i) the Actual Bonus, the numerator of which is the number
of days of the fiscal year until his death and the denominator of
which is 365;
(ii) any death benefits provided under the employee benefit
programs, plans and practices referred to in Section 5(a) hereof,
in accordance with their terms;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 4(c)
hereof, to which Executive's estate or designated beneficiaries
are entitled pursuant to the terms of such plans or programs.
(e) TERMINATION BY THE COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT
GOOD REASON
(i) The Company shall have the right to terminate the
employment of Executive for Cause. In the event that Executive's
employment is terminated by the Company for Cause, or by
Executive other than for Good Reason, Executive shall only be
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entitled to receive the Vacation Payment and the Expense Payment.
Executive shall not be entitled, among other things, to the
payment of any Annual Cash Bonus in respect of all or any portion
of the fiscal year in which such termination occurs. After the
termination of Executive's employment under this Section 7(e),
the obligations of the Company under this Agreement to make any
further payments or provide any benefits specified herein to
Executive shall thereupon cease and terminate.
(ii) Termination of Executive for Cause shall be made by
delivery to Executive of a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the
non-employee directors of the Board at a regular or special
meeting of such directors called and held for such purpose, after
30 days' prior written notice to Executive specifying the basis
for such termination and the particulars thereof and a reasonable
opportunity for Executive to be heard prior to or at such
meeting, finding that in the reasonable judgment of such
directors, that any conduct or event constituting Cause has
occurred and that such occurrence warrants Executive's
termination.
8. CHANGE IN CONTROL.
(a) Executive shall be entitled to the compensation provided for
in this Section 8 hereof, if within two years after a Change in
Control, Executive's employment by the Company shall be terminated (A)
by the Company for any reason other than (I) Executive's Permanent
Disability or Retirement, (II) Executive's death or (III) for Cause,
or (B) by Executive with Good Reason.
(b) In addition, Executive shall be entitled to the compensation
provided for in this Section 8, if the following events occur: (A) an
agreement is signed which, if consummated, would result in a Change of
Control, (B) Executive is terminated without Cause by the Company or
terminates employment with Good Reason prior to the anticipated Change
in Control, and (C) such termination (or the action leading to such
termination, in the case of Good Reason) is at the request or
suggestion of the acquiror or merger partner or otherwise in
connection with the anticipated Change in Control, except that any
termination of employment as set forth in clause (C), above, shall be
presumed, in the absence of clear and convincing evidence to the
contrary, to have occurred in connection with a Change in Control,
whether or not a Change in Control actually occurs.
(c) The Company shall pay or cause to be paid to Executive a cash
severance amount equal to three times the sum of (i) Executive's
annual Base Salary on the date of the Change in Control (or, if
higher, the annual Base Salary in effect immediately prior to the
giving of the notice of termination), and (ii) the Actual Bonus. This
cash severance amount shall be payable in a lump sum calculated
without any discount or, at the election of Executive, on any deferred
payment schedule selected by Executive.
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(d) No compensation or other benefit pursuant to this Section 8
hereof shall be payable under this Agreement unless and until either
(i) a Change in Control shall have occurred while Executive is an
employee of a Company and Executive's employment by the Company
thereafter shall have terminated in accordance with this Section 8
hereof or (ii) Executive's employment by the Company shall have
terminated in accordance with this Section 8 hereof in anticipation of
the occurrence of a Change in Control.
(e) Executive shall also be entitled to the (i) Vacation Payment
and the Expense Payment, (ii) the medical and other benefits under
Section 7(a)(C)(i), (iii) vesting of certain security rights under
Section 7(a)(C)(ii), (iv) other accrued and vested plans under Section
7(a)(C)(iii) and (v) outplacement services under Section 7(a)(C)(iv).
9. EXCESS PARACHUTE EXCISE TAX.
(i) If it is determined (as hereafter provided) that any payment
or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of
any other agreement, policy, plan, program or arrangement, including
without limitation any stock option, stock appreciation right or
similar right, or the lapse or termination of any restriction on or
the vesting or exercisability of any of the foregoing (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Code
by reason of being "contingent on a change in ownership or control" of
the Company, within the meaning of Section 280G of the Code (or any
successor provision thereto) or to any similar tax imposed by state or
local law, or any interest or penalties with respect to such excise
tax (such tax or taxes, together with any such interest and penalties,
are hereafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment or
payments (a "Gross-Up Payment") in an amount such that, after payment
by Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including any Excise Tax, imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(A) Subject to the provisions of this Section 9 hereof, all
determinations required to be made under this Section 9,
including whether an Excise Tax is payable by Executive and the
amount of such Excise Tax and whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, shall be made
by the nationally recognized firm of certified public accountants
(the "Accounting Firm") used by the Company prior to the Change
in Control (or, if such Accounting Firm shall be a nationally
recognized firm of certified public accountants, as selected by
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Executive). The Accounting Firm shall be directed by the Company
or Executive to submit its preliminary determination and detailed
supporting calculations to both the Company and Executive within
15 calendar days after the date of termination of employment, if
applicable, and any other such time or times as may be requested
by the Company or Executive. If the Accounting Firm determines
that any Excise Tax is payable by Executive, the Company shall
pay the required Gross-Up Payment to, or for the benefit of,
Executive within five business days after receipt of such
determination and calculations. If the Accounting Firm determines
that no Excise Tax is payable by Executive, it shall, at the same
time as it makes such determination, furnish Executive with an
opinion that he has substantial authority not to report any
Excise Tax on his/her federal, state, local income or other tax
return. Any determination by the Accounting Firm as to the amount
of the Gross-Up Payment shall be binding upon the Company and
Executive absent a contrary determination by the Internal Revenue
Service or a court of competent jurisdiction; provided, however,
that no such determination shall eliminate or reduce the
Company's obligation to provide any Gross-Up Payment that shall
be due as a result of such contrary determination. As a result of
the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the possibility of
similar uncertainty regarding state or local tax law at the time
of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by
the Company should have been made (an "Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies
pursuant to Section 6(f)(i) hereof and Executive thereafter is
required to make a payment of any Excise Tax, Executive shall
direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and
Executive as promptly as possible. Any such Underpayment shall be
promptly paid by the Company to, or for the benefit of, Executive
within five business days after receipt of such determination and
calculations.
(B) The federal, state and local income or other tax returns
filed by Executive (or any filing made by a consolidated tax
group which includes the Company) shall be prepared and filed on
a consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by Executive. Executive
shall make proper payment of the amount of any Excise Tax, and at
the request of the Company, provide to the Company true and
correct copies (with any amendments) of his/her federal income
tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed
with the applicable taxing authority, and such other documents
reasonably requested by the Company, evidencing such payment. If
prior to the filing of Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up
Payment should be reduced, Executive shall within five business
days pay to the Company the amount of such reduction.
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(ii) In the event that the Internal Revenue Service claims that
any payment or benefit received under this Agreement constitutes as
"excess parachute payment", within the meaning of Section 280G(b)(1)
of the Code, Executive shall notify the Company in writing of such
claim. Such notification shall be given as soon as practicable but no
later than 10 business days after Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30 day period
following the date on which Executive gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies Executive
in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall (1) give the Company any
information reasonably requested by the Company relating to such
claim; (2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company and reasonably satisfactory to Executive; (3) cooperate with
the Company in good faith in order to effectively contest such claim;
and (4) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including, but not limited to,
additional interest and penalties and related legal, consulting or
other similar fees) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for and
against any Excise Tax or other tax (including interest and penalties
with respect thereto) imposed as a result of such representation and
any payment of costs and expenses.
(A) The Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forgo any and all administrative appeals, proceedings,
hearings and conferences with the tax authority in respect of
such claim and may, at its sole option, either direct Executive
to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and Executive agrees to prosecute such
contest before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs
Executive to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to Executive on an
interest-free basis, and shall indemnify and hold Executive
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harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and provide, further, that
if Executive is required to extend the statute of limitations to
enable the Company to contest such claim, Executive may limit
this extension solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect to
which a corporate deduction would be disallowed pursuant to
Section 280G of the Code and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority. In
addition, no position may be taken nor any final resolution be
agreed to by the Company without Executive's consent if such
position or resolution could reasonably be expected to adversely
affect Executive (including adversely affecting any other tax
position of Executive unrelated to matters covered hereby).
(B) If, after the receipt by Executive of any amount
advanced by the Company in connection with the contest of the
Excise Tax claim, Executive becomes entitled to receive any
refund with respect to such claim, Executive shall promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto); provided, however, if the amount of that refund exceeds
the amount advanced by the Company or it is otherwise determined
for any reason that additional amounts could be paid by the
Company to Executive without incurring any Excise Tax, any such
amount will be promptly paid by the Company to Executive. If,
after the receipt by Executive of an amount advanced by the
Company in connection with an Excise Tax claim, a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive
in writing of its intent to contest the denial of such refund
prior to the expiration of 30 days after such determination, such
advance shall be forgiven and shall not be required to be repaid
and shall be deemed to be in consideration for services rendered
after the date of the Termination.
(iii) The Company and Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the
possession of the Company or Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determination contemplated by this Section 9.
(iv) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by this Section 9 hereof shall be borne by the Company.
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If such fees and expenses are initially advanced by Executive, the
Company shall reimburse Executive the full amount of such fees and
expenses within five business days after receipt from Executive of a
statement therefor and reasonable evidence of his payment thereof.
10. MITIGATION OF DAMAGES. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder.
11. NOTICES. All notices or communications hereunder shall be in writing,
addressed as follows:
To the Company:
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: General Counsel
To Executive:
Mr. Morton H. Fleischer
17207 North Perimeter Drive
Scottsdale, AZ 85255
Any such notice or communication shall be delivered by hand, by telecopy (with
machine confirmation) or by courier or sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other address
as such party may designate in a notice duly delivered as described above), and
the third business day after the actual date of mailing shall constitute the
time at which notice was given.
12. SEVERABILITY; LEGAL FEES. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. In the event that any dispute arises between
Executive and the Company as to the terms or interpretation of this Agreement,
whether instituted by formal legal proceedings or otherwise, including any
action that Executive takes to enforce the terms of this Agreement or to defend
against any action taken by the Company, Executive shall be reimbursed for all
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that Executive shall obtain a
settlement or final judgement by a court of competent jurisdiction substantially
in favor of Executive. Such reimbursement shall be paid within ten (10) days of
Executive's furnishing to the Company written evidence, which may be in the
form, among other things, of a cancelled check or receipt, of any costs or
expenses incurred by Executive.
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13. SUCCESSORS; BINDING AGREEMENT, ASSIGNMENT.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to
expressly, absolutely and unconditionally assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such agreement prior to
the effectiveness of any such succession shall be a material breach of
this Agreement and shall entitle Executive to terminate Executive's
employment with the Company or such successor for Good Reason
immediately prior to or at any time after such succession. As used in
this Agreement, "Company" shall mean (i) the Company as hereinbefore
defined, and (ii) any successor to all the stock of the Company or to
all or substantially all of the Company's business or assets (other
than with respect to sales of assets in the ordinary course,
securitization and whole loan sales provided by the Company's interim
and permanent financing arrangements) which executes and delivers an
agreement provided for in this Section 13(a) or which otherwise
becomes bound by all the terms and provisions of this Agreement by
operation of law, including any parent or subsidiary of such a
successor.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Executive should die while any amount would be
payable to Executive hereunder if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's estate or
designated beneficiary. Neither this Agreement nor any right arising
hereunder shall be assignable or otherwise subject to hypothecation by
Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise)
to all or substantially all of the stock, assets or businesses of the
Company, if such successor expressly agrees to assume the obligations
of the Company hereunder.
14. AMENDMENT. This Agreement may only be amended by written agreement of
the parties hereto.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. At any time during or after
Executive's employment with the Company, Executive shall not, without the prior
written consent of the Company, use, divulge, disclose or make accessible to any
other person, firm, partnership, corporation or other entity any confidential or
proprietary information pertaining to the business of the Company or any of its
subsidiaries, pursuant to the policies set forth in the Company's employee
handbook and compliance manual, as amended from time to time.
16. COVENANT NOT TO COMPETE.
(a) During the period of his employment hereunder and for the
first to occur of (i) one year following the termination of employment
of Executive or (ii) December 31, 2002, Executive agrees that, without
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the prior written consent of the Company, (a) he will not, directly or
indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any other
capacity, carry on, be engaged in or have any financial interest in
(other than an ownership position of less than five percent in any
company whose shares are publicly traded), any business, which is in
Competition (as defined in Section 16(b)) with the existing business
of the Company or its subsidiaries, and (b) he shall not, on his own
behalf or on behalf of any person, firm or company, directly or
indirectly, solicit or offer employment to any person who has been
employed by the Company or its subsidiaries at any time during the 12
months immediately preceding such solicitation.
(b) For purposes of this Section 16, a business shall be deemed
to be in Competition with the Company or its subsidiaries if a
significant portion of its business is providing financing to
operators in the chain restaurant, convenience store or automotive
service and parts industries in any portion of the United States.
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further
agree that if in the opinion of any court of competent jurisdiction
such restraint is not reasonable in any respect, such court shall have
the right, power and authority to excise or modify such provision or
provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended.
Executive agrees that any breach of the covenants contained in this
Section 16 would irreparably injure the Company. Accordingly,
Executive agrees that the Company may, in addition to pursuing any
other remedies it may have in law or in equity, cease making any
payments otherwise required by this Agreement and obtain an injunction
against Executive from any court having jurisdiction over the matter
restraining any further violation of this Agreement by Executive.
17. BENEFICIARIES; REFERENCES. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
18. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations, including
the provisions of Section 16 herein. The provisions of this Section 18 are in
addition to the survivorship provisions of any other section of this Agreement.
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19. GOVERNING LAW. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Arizona without reference
to rules relating to conflicts of law.
20. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior or other agreement or understanding between the Company or any affiliate
of the Company and Executive including, without limitation, the Continuity
Agreement dated as of May 12, 1999 between the Company and Executive.
21. WITHHOLDING. The Company shall be entitled to withhold from payment any
amount of withholding required by law.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
FRANCHISE FINANCE CORPORATION OF AMERICA
By /s/ Christopher H. Volk
-------------------------------------
Name: Christopher H. Volk
Title: President, Chief Operating
Officer
/s/ Morton H. Fleischer
----------------------------------------
Morton H. Fleischer
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is dated as of January 1,
2000, by and between Franchise Finance Corporation of America, a Delaware
corporation (the "Company") and Christopher H. Volk ("Executive").
RECITALS
In order to induce Executive to serve as President and Chief Operating
Officer of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform services for the
Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. DEFINED TERMS. The following terms shall have the following meanings
unless otherwise specifically defined in this Agreement:
"ACTUAL BONUS" means the highest annual cash bonus payable to Executive
with respect to any of the three years immediately preceding the Termination
Year.
"AGREEMENT" means this Amended and Restated Employment Agreement dated as
of January 1, 2000 between the Company and Executive.
"ANNUAL CASH BONUS" means the cash compensation payable to Executive as
calculated and paid in a manner substantially similar to the methods and timing
used to calculate and pay Executive's bonus for calendar year 1999; PROVIDED,
HOWEVER, that during the term of this Agreement, neither the Company nor the
Compensation Committee shall change such methods and timing in a manner which
will be less favorable to Executive.
"BASE SALARY" means the annual base salary of Executive as set forth in
Section 4(a).
"BOARD" means the board of directors of the Company.
"CAUSE" means:
(a) the willful and continued failure of Executive to perform a
substantial portion of his duties with the Company (other than any
such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to Executive by the Board, which specifically identifies the
manner in which the Board believes that Executive has not
substantially performed his duties;
<PAGE>
(b) the willful engaging by Executive in gross misconduct
(including, without limitation, fraud or embezzlement); or
(c) the conviction of, or plea of guilty or NOLO CONTENDERE to, a
felony.
"CHANGE IN CONTROL" means:
(a) any "Person" as defined in Section 3(a)(9) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and as used
in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any
subsidiary and any employee benefit plan sponsored or maintained by
the Company or any subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities (other than
indirectly as a result of the Company's redemption of its securities);
PROVIDED, HOWEVER, that, in the event that any such person becomes the
beneficial owner of 25% or more, but not exceeding 50%, of the
combined voting power of the Company's then outstanding securities, no
Change of Control shall be deemed to occur so long as the Incumbent
Directors (as defined below) continue to constitute a majority of the
Board in accordance with the terms of paragraph (c) below; or
(b) the consummation of any merger or other business combination
of the Company, sale of all or substantially all of the Company's
assets (other than with respect to sales of assets in the ordinary
course of business, securitization and whole loan sales provided by
the Company's interim and permanent financing arrangements),
liquidation or dissolution of the Company or combination of the
foregoing transactions (the "Transactions") other than a Transaction
immediately following which the shareholders of the Company and any
trustee or fiduciary of any Company employee benefit plan immediately
prior to the Transaction own at least 51% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such
merger or other business combination; (B) the purchaser of or
successor to the Company's assets (other than with respect to sales of
assets in the ordinary course of business, securitization and whole
loan sales provided by the Company's interim and permanent financing
arrangements); (C) both the surviving corporation and the purchaser in
the event of any combination of Transactions; or (D) the parent
company owning 100% of such surviving corporation, purchaser or both
the surviving corporation and the purchaser, as the case may be; or
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(c) within any twenty-four-month period, the persons who were
directors immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death)
to constitute at least a majority of the Board or the board of
directors of a successor to the Company. For this purpose, any
director who was not a director at the beginning of such period shall
be deemed to be an Incumbent Director if such director was elected to
the Board by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors (so long as such director was not nominated by a person who
commenced or threatened to commence an election contest or proxy
solicitation by or on behalf of a Person other than the Board) or who
has entered into an agreement to effect a Change in Control or
expressed an intention to cause such Change in Control.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
provisions of any successor law.
"COMPANY" means Franchise Finance Corporation of America, a Delaware
corporation.
"COMPENSATION COMMITTEE" means the compensation committee of the Board.
"EFFECTIVE DATE" means January 1, 2000.
"EXECUTIVE" means Christopher H. Volk.
"EXPENSE PAYMENT" means payments made to Executive for expenses which are
permitted under this Agreement and have been incurred but not yet reimbursed.
"GOOD REASON" means any of the following without Executive's express prior
written consent:
(a) any material diminution or adverse change in Executive's duties,
titles or responsibilities with the Company (or any affiliate thereof) from
those in effect immediately prior to any such diminution or adverse change;
PROVIDED, HOWEVER, that no such diminution or adverse change shall be
deemed to exist solely as a consequence of the Company ceasing to be a
Company with publicly-traded securities or becoming a wholly-owned
subsidiary of another company;
(b) if after a Change in Control there is any reduction in Executive's
aggregate annual cash compensation (which shall include Base Salary and
Actual Bonus) in Executive's aggregate annual cash compensation in effect
immediately prior to such reduction;
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(c) any requirement that Executive be based at a location more than 35
miles from the Company's headquarters, located in Scottsdale, Arizona (or a
substantial increase in the amount of travel that Executive is required to
do because of a relocation of the Company's headquarters from Scottsdale,
Arizona);
(d) any failure by the Company to obtain from any successor to the
Company an agreement reasonably satisfactory to Executive to assume and
perform this Agreement, as contemplated by Section 13 hereof; or
(e) during the thirty-day period immediately following the first
anniversary of the Change in Control there is a Thirteenth-Month
Termination by Executive.
"PERMANENT DISABILITY" means the total and permanent disability of
Executive as defined in the Company's long-term disability benefit plan
applicable to senior executive officers in effect on the Effective Date.
"RETIREMENT" means Executive's voluntary termination of employment pursuant
to late, normal or early retirement under a pension plan (which may include a
defined benefit plan or a defined contribution plan) sponsored by the Company,
as defined in such plan, but only if such retirement occurs prior to a
termination by the Company for Cause or by Executive for Good Reason.
"TERMINATION DATE" means the date this Agreement is terminated, except to
the extent the provisions of Section 16 are applicable, which shall be the
earlier of December 31, 2002 or the date of termination of Executive's
employment pursuant to this Agreement.
"TERMINATION YEAR" means the year in which Executive's termination of
employment occurs.
"THIRTEENTH-MONTH TERMINATION" means the voluntary termination of
employment by Executive for any reason or no reason at all.
"VACATION PAYMENT" means payments made to Executive with respect to accrued
but unused vacation days.
2. EMPLOYMENT.
(a) Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the term hereof as its President and
Chief Operating Officer or as an officer of the Company having the same or
a more senior title and greater responsibilities. In his capacity as the
President and Chief Operating Officer of the Company, Executive shall
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report to the Board and shall have the customary powers, responsibilities
and authorities of a President and Chief Operating Officer for corporations
of the size and character of the Company, as it exists from time to time,
and as are assigned by the Board.
(b) Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment with the Company commencing on the Effective
Date, and agrees to devote his full working time and efforts, to the best
of his ability, experience and talent, to the performance of services,
duties and responsibilities in connection therewith. Executive shall
perform such duties and exercise such powers, commensurate with his
position, as the Board shall from time to time delegate to him on such
terms and conditions and subject to such restrictions the Board may
reasonably from time to time impose. Executive also agrees to serve, if
elected, as a member of the Board.
(c) Nothing in this Agreement shall preclude Executive, so long as in
the reasonable determination of the Board such activities do not interfere
with his duties and responsibilities hereunder, from engaging in charitable
and community affairs, from managing any passive investment made by him in
publicly traded equity securities or other property (provided that no such
investment may exceed 5% of the equity of any entity) or, without prior
notice to the Board and subject to Section 15 and Section 16(b) hereof,
from serving as a member of boards of directors or as a trustee of any
other corporation, association or entity.
3. EFFECTIVE DATE; TERM OF EMPLOYMENT. This Agreement shall be effective as
the Effective Date. Executive's term of employment under this Agreement shall
commence on the Effective Date hereof and, subject to the terms hereof, shall
terminate on the Termination Date; provided, however, that any termination of
Employment by Executive for Good Reason or pursuant to the Change in Control
provisions of Section 8 may only be made on 30 days' prior written notice and
any other termination of employment by Executive other than for death, Permanent
Disability or Good Reason may only be made upon 90 days' prior written notice to
the Company.
4. COMPENSATION.
(a) SALARY. The Company shall pay Executive during the term of this
Agreement the Base Salary, as calculated pursuant to this Section 4,
payable in cash not less frequently than bimonthly. As of the Effective
Date, the Base Salary shall be $350,000. As of January 1 of each annual
anniversary of the Effective Date, the Base Salary of Executive will be
increased from Executive's Base Salary for the preceding calendar year by
the greater of (i) five percent, (ii) the average percentage salary
increase awarded to all employees of the Company who are not senior
executive officers of the Company or (iii) an amount determined by the
Compensation Committee.
(b) ANNUAL CASH BONUS. In addition to Base Compensation, the Company
will pay to Executive on or prior to January 30 of each year for
performance in the preceding calendar year the Annual Cash Bonus.
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(c) COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible to
participate in any compensation plan or program maintained by the Company
from time to time, which compensation plans and programs are intended to be
comparable to those currently maintained by the Company, in which other
senior executives of the Company participate on terms that are intended to
be comparable to those applicable to such other senior executives.
(d) STOCK OPTIONS AND RESTRICTED STOCK AWARDS. Executive shall be
eligible to receive grants of stock options and restricted stock awards as
determined in the discretion of the Compensation Committee under any stock
option plan or incentive plan of the Company or any affiliate.
5. EMPLOYEE BENEFITS.
(a) EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. The Company shall
provide Executive during the term of his employment hereunder with coverage
under all employee pension and welfare benefit programs, plans and
practices (commensurate with his positions in the Company from time to time
and to the extent permitted under any employee benefit plan) in accordance
with the terms thereof, which the Company makes available to its senior
executives and which employee pension and welfare benefit programs, plans
and practices that are intended to be comparable to those currently
maintained by the Company; provided, however, such programs, plans and
practices will be no less favorable than those in existence as of the date
of execution of this Agreement.
(b) VACATION AND FRINGE BENEFITS. Executive shall be entitled to no
less than the number of business days paid vacation in each calendar year
to which Executive is entitled immediately prior to execution of this
Agreement, which shall be taken at such times as are consistent with
Executive's responsibilities hereunder. In addition, Executive shall be
entitled to the perquisites and other fringe benefits currently made
available to senior executives of the Company, commensurate with his
position with the Company.
6. EXPENSES. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR BY EXECUTIVE FOR
GOOD REASON. (i) The Company may terminate Executive's employment at any
time for any reason. If Executive's employment is terminated by the Company
other than for Cause) or if Executive terminates his employment for Good
Reason prior to the Termination Date, Executive shall receive such
payments, if any, under applicable plans or programs, including but not
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<PAGE>
limited to those referred to in Section 4(c) hereof, to which he is
entitled pursuant to the terms of such plans or programs. In addition,
Executive shall be entitled to receive the following:
(A) A cash lump sum payment equal to the sum of three times (1)
Executive's Base Salary at the annual rate as of the date of
termination and (2) the Actual Bonus, except with respect to a
Thirteenth-Month Termination which shall be paid as provided in
Section 8(c) hereof; and
(B) a cash lump sum payment with respect to (1) the Vacation
Payment and (2) the Expense Payment which shall be paid by the Company
to Executive within 30 days after the termination of Executive's
employment by check payable to the order of Executive or by wire
transfer to an account specified by Executive;
(C) Executive shall also be entitled to the following benefits:
(i) continued medical, dental, vision, and life insurance
coverage (excluding accident, death, and disability insurance)
and any fringe benefit or perquisites in effect immediately prior
to the date of termination for Executive and Executive's eligible
dependents or, to the extent such benefits are not commercially
available, such other arrangements reasonably acceptable to
Executive, on the same basis as in effect prior to the date of
termination, whichever is deemed to provide for more substantial
benefits, for a period ending December 31, 2002;
(ii) immediate 100% vesting of all outstanding stock
options, stock appreciation rights and restricted stock granted
or issued by the Company to the extent not previously vested;
(iii) all other accrued or vested benefits in accordance
with the terms of the applicable plan, which vested benefits
shall include Executive's otherwise unvested account balances in
the Company's 401(k) plan, which shall be vested as of the date
of termination; and
(iv) if so requested by Executive, outplacement services
shall be provided by a professional outplacement provider
selected by Executive; PROVIDED, HOWEVER, that such outplacement
services shall be provided to Executive at a cost to the Company
of not more than fifteen (15) percent of such Executive's Base
Salary.
(b) CURE PERIOD OF COMPANY FOR GOOD REASON TERMINATION.
Notwithstanding the foregoing, in the event that Executive provides the
Company with a notice of termination stating Good Reason, except in the
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event of a Thirteenth-Month Termination, the Company shall have 30 days
thereafter in which to cure or resolve the behavior otherwise constituting
Good Reason. Any good faith determination by Executive that Good Reason
exists shall be presumed correct and shall be binding upon the Company.
(c) PERMANENT DISABILITY OF EXECUTIVE. If Executive has a Permanent
Disability, the Company or Executive may terminate Executive's employment
on written notice thereof, and Executive shall receive or commence
receiving, as soon as practicable:
(i) amounts payable pursuant to the terms of a disability
insurance policy or similar arrangement which the Company maintains
during the term hereof;
(ii) the Actual Bonus, prorated by a fraction, the numerator of
which is the number of days of the fiscal year until termination and
the denominator of which is 365;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs, including
but not limited to those referred to in Section 4(c) hereof, to which
he is entitled pursuant to the terms of such plans or programs.
(d) DEATH. In the event of Executive's death during the term of his
employment hereunder, Executive's estate or designated beneficiaries shall
receive or commence receiving, as soon as practicable:
(i) the Actual Bonus, the numerator of which is the number of
days of the fiscal year until his death and the denominator of which
is 365;
(ii) any death benefits provided under the employee benefit
programs, plans and practices referred to in Section 5(a) hereof, in
accordance with their terms;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs, including
but not limited to those referred to in Section 4(c) hereof, to which
Executive's estate or designated beneficiaries are entitled pursuant
to the terms of such plans or programs.
(e) TERMINATION BY THE COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD
REASON
(i) The Company shall have the right to terminate the employment
of Executive for Cause. In the event that Executive's employment is
terminated by the Company for Cause, or by Executive other than for
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Good Reason, Executive shall only be entitled to receive the Vacation
Payment and the Expense Payment. Executive shall not be entitled,
among other things, to the payment of any Annual Cash Bonus in respect
of all or any portion of the fiscal year in which such termination
occurs. After the termination of Executive's employment under this
Section 7(e), the obligations of the Company under this Agreement to
make any further payments or provide any benefits specified herein to
Executive shall thereupon cease and terminate.
(ii) Termination of Executive for Cause shall be made by delivery
to Executive of a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the non-employee directors of the
Board at a regular or special meeting of such directors called and
held for such purpose, after 30 days' prior written notice to
Executive specifying the basis for such termination and the
particulars thereof and a reasonable opportunity for Executive to be
heard prior to or at such meeting, finding that in the reasonable
judgment of such directors, that any conduct or event constituting
Cause has occurred and that such occurrence warrants Executive's
termination.
8. CHANGE IN CONTROL.
(a) Executive shall be entitled to the compensation provided for in
this Section 8 hereof, if within two years after a Change in Control,
Executive's employment by the Company shall be terminated (A) by the
Company for any reason other than (I) Executive's Permanent Disability or
Retirement, (II) Executive's death or (III) for Cause, or (B) by Executive
with Good Reason.
(b) In addition, Executive shall be entitled to the compensation
provided for in this Section 8, if the following events occur: (A) an
agreement is signed which, if consummated, would result in a Change of
Control, (B) Executive is terminated without Cause by the Company or
terminates employment with Good Reason prior to the anticipated Change in
Control, and (C) such termination (or the action leading to such
termination, in the case of Good Reason) is at the request or suggestion of
the acquiror or merger partner or otherwise in connection with the
anticipated Change in Control, except that any termination of employment as
set forth in clause (C), above, shall be presumed, in the absence of clear
and convincing evidence to the contrary, to have occurred in connection
with a Change in Control, whether or not a Change in Control actually
occurs.
(c) The Company shall pay or cause to be paid to Executive a cash
severance amount equal to three times the sum of (i) Executive's annual
Base Salary on the date of the Change in Control (or, if higher, the annual
Base Salary in effect immediately prior to the giving of the notice of
termination), and (ii) the Actual Bonus; PROVIDED, HOWEVER, that in the
event that Executive's employment is terminated by a Thirteenth-Month
Termination, Executive's cash severance amount shall only be equal to two
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times the sum of (i) and (ii) above. This cash severance amount shall be
payable in a lump sum calculated without any discount or, at the election
of Executive, on any deferred payment schedule selected by Executive.
(d) No compensation or other benefit pursuant to this Section 8 hereof
shall be payable under this Agreement unless and until either (i) a Change
in Control shall have occurred while Executive is an employee of a Company
and Executive's employment by the Company thereafter shall have terminated
in accordance with this Section 8 hereof or (ii) Executive's employment by
the Company shall have terminated in accordance with this Section 8 hereof
in anticipation of the occurrence of a Change in Control.
(e) Executive shall also be entitled to the (i) Vacation Payment and
the Expense Payment, (ii) the medical and other benefits under Section
7(a)(C)(i), (iii) vesting of certain security rights under Section
7(a)(C)(ii), (iv) other accrued and vested plans under Section 7(a)(C)(iii)
and (v) outplacement services under Section 7(a)(C)(iv).
9. EXCESS PARACHUTE EXCISE TAX.
(i) If it is determined (as hereafter provided) that any payment or
distribution by the Company to or for the benefit of Executive, whether
paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right, or
the lapse or termination of any restriction on or the vesting or
exercisability of any of the foregoing (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Code by reason of being
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or
to any similar tax imposed by state or local law, or any interest or
penalties with respect to such excise tax (such tax or taxes, together with
any such interest and penalties, are hereafter collectively referred to as
the "Excise Tax"), then Executive shall be entitled to receive an
additional payment or payments (a "Gross-Up Payment") in an amount such
that, after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax,
imposed upon the Gross-Up Payment, Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(A) Subject to the provisions of this Section 9 hereof, all
determinations required to be made under this Section 9, including
whether an Excise Tax is payable by Executive and the amount of such
Excise Tax and whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall be made by the nationally recognized
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firm of certified public accountants (the "Accounting Firm") used by
the Company prior to the Change in Control (or, if such Accounting
Firm shall be a nationally recognized firm of certified public
accountants, as selected by Executive). The Accounting Firm shall be
directed by the Company or Executive to submit its preliminary
determination and detailed supporting calculations to both the Company
and Executive within 15 calendar days after the date of termination of
employment, if applicable, and any other such time or times as may be
requested by the Company or Executive. If the Accounting Firm
determines that any Excise Tax is payable by Executive, the Company
shall pay the required Gross-Up Payment to, or for the benefit of,
Executive within five business days after receipt of such
determination and calculations. If the Accounting Firm determines that
no Excise Tax is payable by Executive, it shall, at the same time as
it makes such determination, furnish Executive with an opinion that he
has substantial authority not to report any Excise Tax on his/her
federal, state, local income or other tax return. Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment shall be
binding upon the Company and Executive absent a contrary determination
by the Internal Revenue Service or a court of competent jurisdiction;
provided, however, that no such determination shall eliminate or
reduce the Company's obligation to provide any Gross-Up Payment that
shall be due as a result of such contrary determination. As a result
of the uncertainty in the application of Section 4999 of the Code (or
any successor provision thereto) and the possibility of similar
uncertainty regarding state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the Company should
have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts
or fails to pursue its remedies pursuant to Section 6(f)(i) hereof and
Executive thereafter is required to make a payment of any Excise Tax,
Executive shall direct the Accounting Firm to determine the amount of
the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and Executive as
promptly as possible. Any such Underpayment shall be promptly paid by
the Company to, or for the benefit of, Executive within five business
days after receipt of such determination and calculations.
(B) The federal, state and local income or other tax returns
filed by Executive (or any filing made by a consolidated tax group
which includes the Company) shall be prepared and filed on a
consistent basis with the determination of the Accounting Firm with
respect to the Excise Tax payable by Executive. Executive shall make
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proper payment of the amount of any Excise Tax, and at the request of
the Company, provide to the Company true and correct copies (with any
amendments) of his/her federal income tax return as filed with the
Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority,
and such other documents reasonably requested by the Company,
evidencing such payment. If prior to the filing of Executive's federal
income tax return, or corresponding state or local tax return, if
relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, Executive shall within five
business days pay to the Company the amount of such reduction.
(ii) In the event that the Internal Revenue Service claims that any
payment or benefit received under this Agreement constitutes as "excess
parachute payment", within the meaning of Section 280G(b)(1) of the Code,
Executive shall notify the Company in writing of such claim. Such
notification shall be given as soon as practicable but no later than 10
business days after Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30 day period following the date on which
Executive gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due).
If the Company notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall (1) give
the Company any information reasonably requested by the Company relating to
such claim; (2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company and
reasonably satisfactory to Executive; (3) cooperate with the Company in
good faith in order to effectively contest such claim; and (4) permit the
Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and
expenses (including, but not limited to, additional interest and penalties
and related legal, consulting or other similar fees) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for and against any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and any payment of costs and expenses.
(A) The Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences with
the tax authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest before any administrative tribunal,
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in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the
Company directs Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to Executive on an
interest-free basis, and shall indemnify and hold Executive harmless,
on an after-tax basis, from any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to
such advance; and provide , further, that if Executive is required to
extend the statute of limitations to enable the Company to contest
such claim, Executive may limit this extension solely to such
contested amount. The Company's control of the contest shall be
limited to issues with respect to which a corporate deduction would be
disallowed pursuant to Section 280G of the Code and Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
In addition, no position may be taken nor any final resolution be
agreed to by the Company without Executive's consent if such position
or resolution could reasonably be expected to adversely affect
Executive (including adversely affecting any other tax position of
Executive unrelated to matters covered hereby).
(B) If, after the receipt by Executive of any amount advanced by
the Company in connection with the contest of the Excise Tax claim,
Executive becomes entitled to receive any refund with respect to such
claim, Executive shall promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after
taxes applicable thereto); provided, however, if the amount of that
refund exceeds the amount advanced by the Company or it is otherwise
determined for any reason that additional amounts could be paid by the
Company to Executive without incurring any Excise Tax, any such amount
will be promptly paid by the Company to Executive. If, after the
receipt by Executive of an amount advanced by the Company in
connection with an Excise Tax claim, a determination is made that
Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify Executive in writing of its
intent to contest the denial of such refund prior to the expiration of
30 days after such determination, such advance shall be forgiven and
shall not be required to be repaid and shall be deemed to be in
consideration for services rendered after the date of the Termination.
(iii) The Company and Executive shall each provide the Accounting Firm
access to and copies of any books, records and documents in the possession
of the Company or Executive, as the case may be, reasonably requested by
the Accounting Firm, and otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determination
contemplated by this Section 9.
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(iv) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by this
Section 9 hereof shall be borne by the Company. If such fees and expenses
are initially advanced by Executive, the Company shall reimburse Executive
the full amount of such fees and expenses within five business days after
receipt from Executive of a statement therefor and reasonable evidence of
his payment thereof.
10. MITIGATION OF DAMAGES. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder.
11. NOTICES. All notices or communications hereunder shall be in writing,
addressed as follows:
To the Company:
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: General Counsel
To Executive:
Mr. Christopher H. Volk
6324 North 48th Place
Paradise Valley, AZ 85253
Any such notice or communication shall be delivered by hand, by telecopy (with
machine confirmation) or by courier or sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other address
as such party may designate in a notice duly delivered as described above), and
the third business day after the actual date of mailing shall constitute the
time at which notice was given.
12. SEVERABILITY; LEGAL FEES. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. In the event that any dispute arises between
Executive and the Company as to the terms or interpretation of this Agreement,
whether instituted by formal legal proceedings or otherwise, including any
action that Executive takes to enforce the terms of this Agreement or to defend
against any action taken by the Company, Executive shall be reimbursed for all
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that Executive shall obtain a
settlement or final judgement by a court of competent jurisdiction substantially
in favor of Executive. Such reimbursement shall be paid within ten (10) days of
Executive's furnishing to the Company written evidence, which may be in the
form, among other things, of a cancelled check or receipt, of any costs or
expenses incurred by Executive.
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13. SUCCESSORS; BINDING AGREEMENT, ASSIGNMENT.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to
expressly, absolutely and unconditionally assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of
the Company to obtain such agreement prior to the effectiveness of any such
succession shall be a material breach of this Agreement and shall entitle
Executive to terminate Executive's employment with the Company or such
successor for Good Reason immediately prior to or at any time after such
succession. As used in this Agreement, "Company" shall mean (i) the Company
as hereinbefore defined, and (ii) any successor to all the stock of the
Company or to all or substantially all of the Company's business or assets
(other than with respect to sales of assets in the ordinary course,
securitization and whole loan sales provided by the Company's interim and
permanent financing arrangements) which executes and delivers an agreement
provided for in this Section 13(a) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law, including
any parent or subsidiary of such a successor.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should
die while any amount would be payable to Executive hereunder if Executive
had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to Executive's
estate or designated beneficiary. Neither this Agreement nor any right
arising hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to
all or substantially all of the stock, assets or businesses of the Company,
if such successor expressly agrees to assume the obligations of the Company
hereunder.
14. AMENDMENT. This Agreement may only be amended by written agreement of
the parties hereto.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. At any time during or after
Executive's employment with the Company, Executive shall not, without the prior
written consent of the Company, use, divulge, disclose or make accessible to any
other person, firm, partnership, corporation or other entity any confidential or
proprietary information pertaining to the business of the Company or any of its
subsidiaries, pursuant to the policies set forth in the Company's employee
handbook and compliance manual, as amended from time to time.
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16. COVENANT NOT TO COMPETE.
(a) During the period of his employment hereunder and for the first to
occur of (i) one year following the termination of employment of Executive
or (ii) December 31, 2002, Executive agrees that, without the prior written
consent of the Company, (a) he will not, directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner,
investor, lender or employee or in any other capacity, carry on, be engaged
in or have any financial interest in (other than an ownership position of
less than five percent in any company whose shares are publicly traded),
any business, which is in Competition (as defined in Section 16(b)) with
the existing business of the Company or its subsidiaries, and (b) he shall
not, on his own behalf or on behalf of any person, firm or company,
directly or indirectly, solicit or offer employment to any person who has
been employed by the Company or its subsidiaries at any time during the 12
months immediately preceding such solicitation.
(b) For purposes of this Section 16, a business shall be deemed to be
in Competition with the Company or its subsidiaries if a significant
portion of its business is providing financing to operators in the chain
restaurant, convenience store or automotive service and parts industries in
any portion of the United States.
(c) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if
in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant
as to the court shall appear not reasonable and to enforce the remainder of
the covenant as so amended. Executive agrees that any breach of the
covenants contained in this Section 16 would irreparably injure the
Company. Accordingly, Executive agrees that the Company may, in addition to
pursuing any other remedies it may have in law or in equity, cease making
any payments otherwise required by this Agreement and obtain an injunction
against Executive from any court having jurisdiction over the matter
restraining any further violation of this Agreement by Executive.
17. BENEFICIARIES; REFERENCES. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
18. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations, including
the provisions of Section 16 herein. The provisions of this Section 18 are in
addition to the survivorship provisions of any other section of this Agreement.
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19. GOVERNING LAW. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Arizona without reference
to rules relating to conflicts of law.
20. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior or other agreement or understanding between the Company or any affiliate
of the Company and Executive including, without limitation, the Continuity
Agreement dated as of May 12, 1999 between the Company and Executive.
21. WITHHOLDING. The Company shall be entitled to withhold from payment any
amount of withholding required by law.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
FRANCHISE FINANCE CORPORATION OF AMERICA
By /s/ Morton H. Fleischer
-------------------------------------
Name: Morton H. Fleischer
Title: Chairman of the Board and
Chief Executive Officer
/s/ Christopher H. Volk
----------------------------------------
Christopher H. Volk
17
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is dated as of January 1,
2000, by and between Franchise Finance Corporation of America, a Delaware
corporation (the "Company") and John Barravecchia ("Executive").
RECITALS
In order to induce Executive to serve as Executive Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary of the Company, the Company
desires to provide Executive with compensation and other benefits on the terms
and conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services for the
Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. DEFINED TERMS. The following terms shall have the following meanings
unless otherwise specifically defined in this Agreement:
"ACTUAL BONUS" means the highest annual cash bonus payable to Executive
with respect to any of the three years immediately preceding the Termination
Year.
"AGREEMENT" means this Amended and Restated Employment Agreement dated as
of January 1, 2000 between the Company and Executive.
"ANNUAL CASH BONUS" means the cash compensation payable to Executive as
calculated and paid in a manner substantially similar to the methods and timing
used to calculate and pay Executive's bonus for calendar year 1999; PROVIDED,
HOWEVER, that during the term of this Agreement, neither the Company nor the
Compensation Committee shall change such methods and timing in a manner which
will be less favorable to Executive.
"BASE SALARY" means the annual base salary of Executive as set forth in
Section 4(a).
"BOARD" means the board of directors of the Company.
"CAUSE" means:
(a) the willful and continued failure of Executive to perform a
substantial portion of his duties with the Company (other than any
such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to Executive by the Board, which specifically identifies the
manner in which the Board believes that Executive has not
substantially performed his duties;
<PAGE>
(b) the willful engaging by Executive in gross misconduct
(including, without limitation, fraud or embezzlement); or
(c) the conviction of, or plea of guilty or NOLO CONTENDERE to, a
felony.
"CHANGE IN CONTROL" means:
(a) any "Person" as defined in Section 3(a)(9) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and as used
in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any
subsidiary and any employee benefit plan sponsored or maintained by
the Company or any subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities (other than
indirectly as a result of the Company's redemption of its securities);
PROVIDED, HOWEVER, that, in the event that any such person becomes the
beneficial owner of 25% or more, but not exceeding 50%, of the
combined voting power of the Company's then outstanding securities, no
Change of Control shall be deemed to occur so long as the Incumbent
Directors (as defined below) continue to constitute a majority of the
Board in accordance with the terms of paragraph (c) below; or
(b) the consummation of any merger or other business combination
of the Company, sale of all or substantially all of the Company's
assets (other than with respect to sales of assets in the ordinary
course of business, securitization and whole loan sales provided by
the Company's interim and permanent financing arrangements),
liquidation or dissolution of the Company or combination of the
foregoing transactions (the "Transactions") other than a Transaction
immediately following which the shareholders of the Company and any
trustee or fiduciary of any Company employee benefit plan immediately
prior to the Transaction own at least 51% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such
merger or other business combination; (B) the purchaser of or
successor to the Company's assets (other than with respect to sales of
assets in the ordinary course of business, securitization and whole
loan sales provided by the Company's interim and permanent financing
arrangements); (C) both the surviving corporation and the purchaser in
the event of any combination of Transactions; or (D) the parent
company owning 100% of such surviving corporation, purchaser or both
the surviving corporation and the purchaser, as the case may be; or
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(c) within any twenty-four-month period, the persons who were
directors immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death)
to constitute at least a majority of the Board or the board of
directors of a successor to the Company. For this purpose, any
director who was not a director at the beginning of such period shall
be deemed to be an Incumbent Director if such director was elected to
the Board by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors (so long as such director was not nominated by a person who
commenced or threatened to commence an election contest or proxy
solicitation by or on behalf of a Person other than the Board) or who
has entered into an agreement to effect a Change in Control or
expressed an intention to cause such Change in Control.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
provisions of any successor law.
"COMPANY" means Franchise Finance Corporation of America, a Delaware
corporation.
"COMPENSATION COMMITTEE" means the compensation committee of the Board.
"EFFECTIVE DATE" means January 1, 2000.
"EXECUTIVE" means John Barravecchia.
"EXPENSE PAYMENT" means payments made to Executive for expenses which are
permitted under this Agreement and have been incurred but not yet reimbursed.
"GOOD REASON" means any of the following without Executive's express prior
written consent:
(a) any material diminution or adverse change in Executive's
duties, titles or responsibilities with the Company (or any affiliate
thereof) from those in effect immediately prior to any such diminution
or adverse change; PROVIDED, HOWEVER, that no such diminution or
adverse change shall be deemed to exist solely as a consequence of the
Company ceasing to be a Company with publicly-traded securities or
becoming a wholly-owned subsidiary of another company;
(b) if after a Change in Control there is any reduction in
Executive's aggregate annual cash compensation (which shall include
Base Salary and Actual Bonus) in Executive's aggregate annual cash
compensation in effect immediately prior to such reduction;
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(c) any requirement that Executive be based at a location more
than 35 miles from the Company's headquarters, located in Scottsdale,
Arizona (or a substantial increase in the amount of travel that
Executive is required to do because of a relocation of the Company's
headquarters from Scottsdale, Arizona);
(d) any failure by the Company to obtain from any successor to
the Company an agreement reasonably satisfactory to Executive to
assume and perform this Agreement, as contemplated by Section 13
hereof; or
(e) during the thirty-day period immediately following the first
anniversary of the Change in Control there is a Thirteenth-Month
Termination by Executive.
"PERMANENT DISABILITY" means the total and permanent disability of
Executive as defined in the Company's long-term disability benefit plan
applicable to senior executive officers in effect on the Effective Date.
"RETIREMENT" means Executive's voluntary termination of employment pursuant
to late, normal or early retirement under a pension plan (which may include a
defined benefit plan or a defined contribution plan) sponsored by the Company,
as defined in such plan, but only if such retirement occurs prior to a
termination by the Company for Cause or by Executive for Good Reason.
"TERMINATION DATE" means the date this Agreement is terminated, except to
the extent the provisions of Section 16 are applicable, which shall be the
earlier of December 31, 2002 or the date of termination of Executive's
employment pursuant to this Agreement.
"TERMINATION YEAR" means the year in which Executive's termination of
employment occurs.
"THIRTEENTH-MONTH TERMINATION" means the voluntary termination of
employment by Executive for any reason or no reason at all.
"VACATION PAYMENT" means payments made to Executive with respect to accrued
but unused vacation days.
2. EMPLOYMENT.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its
Executive Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary or as an officer of the Company having the same or
a more senior title and greater responsibilities. In his capacity as
the Executive Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary of the Company, Executive shall report to the
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Board and shall have the customary powers, responsibilities and
authorities of an Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary for corporations of the size and
character of the Company, as it exists from time to time, and as are
assigned by the Board.
(b) Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment with the Company commencing on the
Effective Date, and agrees to devote his full working time and
efforts, to the best of his ability, experience and talent, to the
performance of services, duties and responsibilities in connection
therewith. Executive shall perform such duties and exercise such
powers, commensurate with his position, as the Board shall from time
to time delegate to him on such terms and conditions and subject to
such restrictions the Board may reasonably from time to time impose.
Executive also agrees to serve, if elected, as a member of the Board.
(c) Nothing in this Agreement shall preclude Executive, so long
as in the reasonable determination of the Board such activities do not
interfere with his duties and responsibilities hereunder, from
engaging in charitable and community affairs, from managing any
passive investment made by him in publicly traded equity securities or
other property (provided that no such investment may exceed 5% of the
equity of any entity) or, without prior notice to the Board and
subject to Section 15 and Section 16(b) hereof, from serving as a
member of boards of directors or as a trustee of any other
corporation, association or entity.
3. EFFECTIVE DATE; TERM OF EMPLOYMENT. This Agreement shall be effective as
the Effective Date. Executive's term of employment under this Agreement shall
commence on the Effective Date hereof and, subject to the terms hereof, shall
terminate on the Termination Date; provided, however, that any termination of
Employment by Executive for Good Reason or pursuant to the Change in Control
provisions of Section 8 may only be made on 30 days' prior written notice and
any other termination of employment by Executive other than for death, Permanent
Disability or Good Reason may only be made upon 90 days' prior written notice to
the Company.
4. COMPENSATION.
(a) SALARY. The Company shall pay Executive during the term of
this Agreement the Base Salary, as calculated pursuant to this Section
4, payable in cash not less frequently than bimonthly. As of the
Effective Date, the Base Salary shall be $250,000. As of January 1 of
each annual anniversary of the Effective Date, the Base Salary of
Executive will be increased from Executive's Base Salary for the
preceding calendar year by the greater of (i) five percent, (ii) the
average percentage salary increase awarded to all employees of the
Company who are not senior executive officers of the Company or (iii)
an amount determined by the Compensation Committee.
(b) ANNUAL CASH BONUS. In addition to Base Compensation, the
Company will pay to Executive on or prior to January 30 of each year
for performance in the preceding calendar year the Annual Cash Bonus.
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(c) COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible
to participate in any compensation plan or program maintained by the
Company from time to time, which compensation plans and programs are
intended to be comparable to those currently maintained by the
Company, in which other senior executives of the Company participate
on terms that are intended to be comparable to those applicable to
such other senior executives.
(d) STOCK OPTIONS AND RESTRICTED STOCK AWARDS. Executive shall be
eligible to receive grants of stock options and restricted stock
awards as determined in the discretion of the Compensation Committee
under any stock option plan or incentive plan of the Company or any
affiliate.
5. EMPLOYEE BENEFITS.
(a) EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. The Company
shall provide Executive during the term of his employment hereunder
with coverage under all employee pension and welfare benefit programs,
plans and practices (commensurate with his positions in the Company
from time to time and to the extent permitted under any employee
benefit plan) in accordance with the terms thereof, which the Company
makes available to its senior executives and which employee pension
and welfare benefit programs, plans and practices that are intended to
be comparable to those currently maintained by the Company; provided,
however, such programs, plans and practices will be no less favorable
than those in existence as of the date of execution of this Agreement.
(b) VACATION AND FRINGE BENEFITS. Executive shall be entitled to
no less than the number of business days paid vacation in each
calendar year to which Executive is entitled immediately prior to
execution of this Agreement, which shall be taken at such times as are
consistent with Executive's responsibilities hereunder. In addition,
Executive shall be entitled to the perquisites and other fringe
benefits currently made available to senior executives of the Company,
commensurate with his position with the Company.
6. EXPENSES. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR BY EXECUTIVE
FOR GOOD REASON. (i) The Company may terminate Executive's employment
at any time for any reason. If Executive's employment is terminated by
the Company other than for Cause) or if Executive terminates his
employment for Good Reason prior to the Termination Date, Executive
shall receive such payments, if any, under applicable plans or
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programs, including but not limited to those referred to in Section
4(c) hereof, to which he is entitled pursuant to the terms of such
plans or programs. In addition, Executive shall be entitled to receive
the following:
(A) A cash lump sum payment equal to the sum of three times
(1) Executive's Base Salary at the annual rate as of the date of
termination and (2) the Actual Bonus, except with respect to a
Thirteenth-Month Termination which shall be paid as provided in
Section 8(c) hereof; and
(B) a cash lump sum payment with respect to (1) the Vacation
Payment and (2) the Expense Payment which shall be paid by the
Company to Executive within 30 days after the termination of
Executive's employment by check payable to the order of Executive
or by wire transfer to an account specified by Executive;
(C) Executive shall also be entitled to the following
benefits:
(i) continued medical, dental, vision, and life
insurance coverage (excluding accident, death, and
disability insurance) and any fringe benefit or perquisites
in effect immediately prior to the date of termination for
Executive and Executive's eligible dependents or, to the
extent such benefits are not commercially available, such
other arrangements reasonably acceptable to Executive, on
the same basis as in effect prior to the date of
termination, whichever is deemed to provide for more
substantial benefits, for a period ending December 31, 2002;
(ii) immediate 100% vesting of all outstanding stock
options, stock appreciation rights and restricted stock
granted or issued by the Company to the extent not
previously vested;
(iii) all other accrued or vested benefits in
accordance with the terms of the applicable plan, which
vested benefits shall include Executive's otherwise unvested
account balances in the Company's 401(k) plan, which shall
be vested as of the date of termination; and
(iv) if so requested by Executive, outplacement
services shall be provided by a professional outplacement
provider selected by Executive; PROVIDED, HOWEVER, that such
outplacement services shall be provided to Executive at a
cost to the Company of not more than fifteen (15) percent of
such Executive's Base Salary.
(b) CURE PERIOD OF COMPANY FOR GOOD REASON TERMINATION.
Notwithstanding the foregoing, in the event that Executive provides
the Company with a notice of termination stating Good Reason, except
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in the event of a Thirteenth-Month Termination, the Company shall have
30 days thereafter in which to cure or resolve the behavior otherwise
constituting Good Reason. Any good faith determination by Executive
that Good Reason exists shall be presumed correct and shall be binding
upon the Company.
(c) PERMANENT DISABILITY OF EXECUTIVE. If Executive has a
Permanent Disability, the Company or Executive may terminate
Executive's employment on written notice thereof, and Executive shall
receive or commence receiving, as soon as practicable:
(i) amounts payable pursuant to the terms of a disability
insurance policy or similar arrangement which the Company
maintains during the term hereof;
(ii) the Actual Bonus, prorated by a fraction, the numerator
of which is the number of days of the fiscal year until
termination and the denominator of which is 365;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 4(c)
hereof, to which he is entitled pursuant to the terms of such
plans or programs.
(d) DEATH. In the event of Executive's death during the term of
his employment hereunder, Executive's estate or designated
beneficiaries shall receive or commence receiving, as soon as
practicable:
(i) the Actual Bonus, the numerator of which is the number
of days of the fiscal year until his death and the denominator of
which is 365;
(ii) any death benefits provided under the employee benefit
programs, plans and practices referred to in Section 5(a) hereof,
in accordance with their terms;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 4(c)
hereof, to which Executive's estate or designated beneficiaries
are entitled pursuant to the terms of such plans or programs.
(e) TERMINATION BY THE COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT
GOOD REASON
(i) The Company shall have the right to terminate the
employment of Executive for Cause. In the event that Executive's
employment is terminated by the Company for Cause, or by
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Executive other than for Good Reason, Executive shall only be
entitled to receive the Vacation Payment and the Expense Payment.
Executive shall not be entitled, among other things, to the
payment of any Annual Cash Bonus in respect of all or any portion
of the fiscal year in which such termination occurs. After the
termination of Executive's employment under this Section 7(e),
the obligations of the Company under this Agreement to make any
further payments or provide any benefits specified herein to
Executive shall thereupon cease and terminate.
(ii) Termination of Executive for Cause shall be made by
delivery to Executive of a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the
non-employee directors of the Board at a regular or special
meeting of such directors called and held for such purpose, after
30 days' prior written notice to Executive specifying the basis
for such termination and the particulars thereof and a reasonable
opportunity for Executive to be heard prior to or at such
meeting, finding that in the reasonable judgment of such
directors, that any conduct or event constituting Cause has
occurred and that such occurrence warrants Executive's
termination.
8. CHANGE IN CONTROL.
(a) Executive shall be entitled to the compensation provided for
in this Section 8 hereof, if within two years after a Change in
Control, Executive's employment by the Company shall be terminated (A)
by the Company for any reason other than (I) Executive's Permanent
Disability or Retirement, (II) Executive's death or (III) for Cause,
or (B) by Executive with Good Reason.
(b) In addition, Executive shall be entitled to the compensation
provided for in this Section 8, if the following events occur: (A) an
agreement is signed which, if consummated, would result in a Change of
Control, (B) Executive is terminated without Cause by the Company or
terminates employment with Good Reason prior to the anticipated Change
in Control, and (C) such termination (or the action leading to such
termination, in the case of Good Reason) is at the request or
suggestion of the acquiror or merger partner or otherwise in
connection with the anticipated Change in Control, except that any
termination of employment as set forth in clause (C), above, shall be
presumed, in the absence of clear and convincing evidence to the
contrary, to have occurred in connection with a Change in Control,
whether or not a Change in Control actually occurs.
(c) The Company shall pay or cause to be paid to Executive a cash
severance amount equal to three times the sum of (i) Executive's
annual Base Salary on the date of the Change in Control (or, if
higher, the annual Base Salary in effect immediately prior to the
giving of the notice of termination), and (ii) the Actual Bonus;
PROVIDED, HOWEVER, that in the event that Executive's employment is
terminated by a Thirteenth-Month Termination, Executive's cash
severance amount shall only be equal to two times the sum of (i) and
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(ii) above. This cash severance amount shall be payable in a lump sum
calculated without any discount or, at the election of Executive, on
any deferred payment schedule selected by Executive.
(d) No compensation or other benefit pursuant to this Section 8
hereof shall be payable under this Agreement unless and until either
(i) a Change in Control shall have occurred while Executive is an
employee of a Company and Executive's employment by the Company
thereafter shall have terminated in accordance with this Section 8
hereof or (ii) Executive's employment by the Company shall have
terminated in accordance with this Section 8 hereof in anticipation of
the occurrence of a Change in Control.
(e) Executive shall also be entitled to the (i) Vacation Payment
and the Expense Payment, (ii) the medical and other benefits under
Section 7(a)(C)(i), (iii) vesting of certain security rights under
Section 7(a)(C)(ii), (iv) other accrued and vested plans under Section
7(a)(C)(iii) and (v) outplacement services under Section 7(a)(C)(iv).
9. EXCESS PARACHUTE EXCISE TAX.
(i) If it is determined (as hereafter provided) that any payment
or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of
any other agreement, policy, plan, program or arrangement, including
without limitation any stock option, stock appreciation right or
similar right, or the lapse or termination of any restriction on or
the vesting or exercisability of any of the foregoing (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Code
by reason of being "contingent on a change in ownership or control" of
the Company, within the meaning of Section 280G of the Code (or any
successor provision thereto) or to any similar tax imposed by state or
local law, or any interest or penalties with respect to such excise
tax (such tax or taxes, together with any such interest and penalties,
are hereafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment or
payments (a "Gross-Up Payment") in an amount such that, after payment
by Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including any Excise Tax, imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(A) Subject to the provisions of this Section 9 hereof, all
determinations required to be made under this Section 9,
including whether an Excise Tax is payable by Executive and the
amount of such Excise Tax and whether a Gross-Up Payment is
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required and the amount of such Gross-Up Payment, shall be made
by the nationally recognized firm of certified public accountants
(the "Accounting Firm") used by the Company prior to the Change
in Control (or, if such Accounting Firm shall be a nationally
recognized firm of certified public accountants, as selected by
Executive). The Accounting Firm shall be directed by the Company
or Executive to submit its preliminary determination and detailed
supporting calculations to both the Company and Executive within
15 calendar days after the date of termination of employment, if
applicable, and any other such time or times as may be requested
by the Company or Executive. If the Accounting Firm determines
that any Excise Tax is payable by Executive, the Company shall
pay the required Gross-Up Payment to, or for the benefit of,
Executive within five business days after receipt of such
determination and calculations. If the Accounting Firm determines
that no Excise Tax is payable by Executive, it shall, at the same
time as it makes such determination, furnish Executive with an
opinion that he has substantial authority not to report any
Excise Tax on his/her federal, state, local income or other tax
return. Any determination by the Accounting Firm as to the amount
of the Gross-Up Payment shall be binding upon the Company and
Executive absent a contrary determination by the Internal Revenue
Service or a court of competent jurisdiction; provided, however,
that no such determination shall eliminate or reduce the
Company's obligation to provide any Gross-Up Payment that shall
be due as a result of such contrary determination. As a result of
the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the possibility of
similar uncertainty regarding state or local tax law at the time
of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by
the Company should have been made (an "Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies
pursuant to Section 6(f)(i) hereof and Executive thereafter is
required to make a payment of any Excise Tax, Executive shall
direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and
Executive as promptly as possible. Any such Underpayment shall be
promptly paid by the Company to, or for the benefit of, Executive
within five business days after receipt of such determination and
calculations.
(B) The federal, state and local income or other tax returns
filed by Executive (or any filing made by a consolidated tax
group which includes the Company) shall be prepared and filed on
a consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by Executive. Executive
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<PAGE>
shall make proper payment of the amount of any Excise Tax, and at
the request of the Company, provide to the Company true and
correct copies (with any amendments) of his/her federal income
tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed
with the applicable taxing authority, and such other documents
reasonably requested by the Company, evidencing such payment. If
prior to the filing of Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up
Payment should be reduced, Executive shall within five business
days pay to the Company the amount of such reduction.
(ii) In the event that the Internal Revenue Service claims that
any payment or benefit received under this Agreement constitutes as
"excess parachute payment", within the meaning of Section 280G(b)(1)
of the Code, Executive shall notify the Company in writing of such
claim. Such notification shall be given as soon as practicable but no
later than 10 business days after Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30 day period
following the date on which Executive gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies Executive
in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall (1) give the Company any
information reasonably requested by the Company relating to such
claim; (2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company and reasonably satisfactory to Executive; (3) cooperate with
the Company in good faith in order to effectively contest such claim;
and (4) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including, but not limited to,
additional interest and penalties and related legal, consulting or
other similar fees) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for and
against any Excise Tax or other tax (including interest and penalties
with respect thereto) imposed as a result of such representation and
any payment of costs and expenses.
(A) The Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forgo any and all administrative appeals, proceedings,
hearings and conferences with the tax authority in respect of
such claim and may, at its sole option, either direct Executive
to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and Executive agrees to prosecute such
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contest before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs
Executive to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to Executive on an
interest-free basis, and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and provide , further, that
if Executive is required to extend the statute of limitations to
enable the Company to contest such claim, Executive may limit
this extension solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect to
which a corporate deduction would be disallowed pursuant to
Section 280G of the Code and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority. In
addition, no position may be taken nor any final resolution be
agreed to by the Company without Executive's consent if such
position or resolution could reasonably be expected to adversely
affect Executive (including adversely affecting any other tax
position of Executive unrelated to matters covered hereby).
(B) If, after the receipt by Executive of any amount
advanced by the Company in connection with the contest of the
Excise Tax claim, Executive becomes entitled to receive any
refund with respect to such claim, Executive shall promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto); provided, however, if the amount of that refund exceeds
the amount advanced by the Company or it is otherwise determined
for any reason that additional amounts could be paid by the
Company to Executive without incurring any Excise Tax, any such
amount will be promptly paid by the Company to Executive. If,
after the receipt by Executive of an amount advanced by the
Company in connection with an Excise Tax claim, a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive
in writing of its intent to contest the denial of such refund
prior to the expiration of 30 days after such determination, such
advance shall be forgiven and shall not be required to be repaid
and shall be deemed to be in consideration for services rendered
after the date of the Termination.
(iii) The Company and Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the
possession of the Company or Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determination contemplated by this Section 9.
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(iv) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by this Section 9 hereof shall be borne by the Company.
If such fees and expenses are initially advanced by Executive, the
Company shall reimburse Executive the full amount of such fees and
expenses within five business days after receipt from Executive of a
statement therefor and reasonable evidence of his payment thereof.
10. MITIGATION OF DAMAGES. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder.
11. NOTICES. All notices or communications hereunder shall be in writing,
addressed as follows:
To the Company:
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: General Counsel
To Executive:
Mr. John Barravecchia
3418 E. Sequoia Trail
Phoenix, AZ 85044
Any such notice or communication shall be delivered by hand, by telecopy (with
machine confirmation) or by courier or sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other address
as such party may designate in a notice duly delivered as described above), and
the third business day after the actual date of mailing shall constitute the
time at which notice was given.
12. SEVERABILITY; LEGAL FEES. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. In the event that any dispute arises between
Executive and the Company as to the terms or interpretation of this Agreement,
whether instituted by formal legal proceedings or otherwise, including any
action that Executive takes to enforce the terms of this Agreement or to defend
against any action taken by the Company, Executive shall be reimbursed for all
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that Executive shall obtain a
settlement or final judgement by a court of competent jurisdiction substantially
in favor of Executive. Such reimbursement shall be paid within ten (10) days of
Executive's furnishing to the Company written evidence, which may be in the
form, among other things, of a cancelled check or receipt, of any costs or
expenses incurred by Executive.
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13. SUCCESSORS; BINDING AGREEMENT, ASSIGNMENT.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to
expressly, absolutely and unconditionally assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such agreement prior to
the effectiveness of any such succession shall be a material breach of
this Agreement and shall entitle Executive to terminate Executive's
employment with the Company or such successor for Good Reason
immediately prior to or at any time after such succession. As used in
this Agreement, "Company" shall mean (i) the Company as hereinbefore
defined, and (ii) any successor to all the stock of the Company or to
all or substantially all of the Company's business or assets (other
than with respect to sales of assets in the ordinary course,
securitization and whole loan sales provided by the Company's interim
and permanent financing arrangements) which executes and delivers an
agreement provided for in this Section 13(a) or which otherwise
becomes bound by all the terms and provisions of this Agreement by
operation of law, including any parent or subsidiary of such a
successor.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Executive should die while any amount would be
payable to Executive hereunder if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's estate or
designated beneficiary. Neither this Agreement nor any right arising
hereunder shall be assignable or otherwise subject to hypothecation by
Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise)
to all or substantially all of the stock, assets or businesses of the
Company, if such successor expressly agrees to assume the obligations
of the Company hereunder.
14. AMENDMENT. This Agreement may only be amended by written agreement of
the parties hereto.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. At any time during or after
Executive's employment with the Company, Executive shall not, without the prior
written consent of the Company, use, divulge, disclose or make accessible to any
other person, firm, partnership, corporation or other entity any confidential or
proprietary information pertaining to the business of the Company or any of its
subsidiaries, pursuant to the policies set forth in the Company's employee
handbook and compliance manual, as amended from time to time.
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16. COVENANT NOT TO COMPETE.
(a) During the period of his employment hereunder and for the
first to occur of (i) one year following the termination of employment
of Executive or (ii) December 31, 2002, Executive agrees that, without
the prior written consent of the Company, (a) he will not, directly or
indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any other
capacity, carry on, be engaged in or have any financial interest in
(other than an ownership position of less than five percent in any
company whose shares are publicly traded), any business, which is in
Competition (as defined in Section 16(b)) with the existing business
of the Company or its subsidiaries, and (b) he shall not, on his own
behalf or on behalf of any person, firm or company, directly or
indirectly, solicit or offer employment to any person who has been
employed by the Company or its subsidiaries at any time during the 12
months immediately preceding such solicitation.
(b) For purposes of this Section 16, a business shall be deemed
to be in Competition with the Company or its subsidiaries if a
significant portion of its business is providing financing to
operators in the chain restaurant, convenience store or automotive
service and parts industries in any portion of the United States.
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further
agree that if in the opinion of any court of competent jurisdiction
such restraint is not reasonable in any respect, such court shall have
the right, power and authority to excise or modify such provision or
provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended.
Executive agrees that any breach of the covenants contained in this
Section 16 would irreparably injure the Company. Accordingly,
Executive agrees that the Company may, in addition to pursuing any
other remedies it may have in law or in equity, cease making any
payments otherwise required by this Agreement and obtain an injunction
against Executive from any court having jurisdiction over the matter
restraining any further violation of this Agreement by Executive.
17. BENEFICIARIES; REFERENCES. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
18. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations, including
the provisions of Section 16 herein. The provisions of this Section 18 are in
addition to the survivorship provisions of any other section of this Agreement.
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19. GOVERNING LAW. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Arizona without reference
to rules relating to conflicts of law.
20. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior or other agreement or understanding between the Company or any affiliate
of the Company and Executive including, without limitation, the Continuity
Agreement dated as of May 12, 1999 between the Company and Executive.
21. WITHHOLDING. The Company shall be entitled to withhold from payment any
amount of withholding required by law.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
FRANCHISE FINANCE CORPORATION OF AMERICA
By /s/ Christopher H. Volk
-------------------------------------
Name: Christopher H. Volk
Title: President, Chief Operating
Officer
/s/ John Barravecchia
----------------------------------------
John Barravecchia
17
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is dated as of January 1,
2000, by and between Franchise Finance Corporation of America, a Delaware
corporation (the "Company") and Dennis L. Ruben, Esq. ("Executive").
RECITALS
In order to induce Executive to serve as Executive Vice President, General
Counsel and Secretary of the Company, the Company desires to provide Executive
with compensation and other benefits on the terms and conditions set forth in
this Agreement.
Executive is willing to accept such employment and perform services for the
Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. DEFINED TERMS. The following terms shall have the following meanings
unless otherwise specifically defined in this Agreement:
"ACTUAL BONUS" means the highest annual cash bonus payable to Executive
with respect to any of the three years immediately preceding the Termination
Year.
"AGREEMENT" means this Amended and Restated Employment Agreement dated as
of January 1, 2000 between the Company and Executive.
"ANNUAL CASH BONUS" means the cash compensation payable to Executive as
calculated and paid in a manner substantially similar to the methods and timing
used to calculate and pay Executive's bonus for calendar year 1999; PROVIDED,
HOWEVER, that during the term of this Agreement, neither the Company nor the
Compensation Committee shall change such methods and timing in a manner which
will be less favorable to Executive.
"BASE SALARY" means the annual base salary of Executive as set forth in
Section 4(a).
"BOARD" means the board of directors of the Company.
"CAUSE" means:
(a) the willful and continued failure of Executive to perform a
substantial portion of his duties with the Company (other than any
such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to Executive by the Board, which specifically identifies the
manner in which the Board believes that Executive has not
substantially performed his duties;
<PAGE>
(b) the willful engaging by Executive in gross misconduct
(including, without limitation, fraud or embezzlement); or
(c) the conviction of, or plea of guilty or NOLO CONTENDERE to, a
felony.
"CHANGE IN CONTROL" means:
(a) any "Person" as defined in Section 3(a)(9) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and as used
in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any
subsidiary and any employee benefit plan sponsored or maintained by
the Company or any subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities (other than
indirectly as a result of the Company's redemption of its securities);
PROVIDED, HOWEVER, that, in the event that any such person becomes the
beneficial owner of 25% or more, but not exceeding 50%, of the
combined voting power of the Company's then outstanding securities, no
Change of Control shall be deemed to occur so long as the Incumbent
Directors (as defined below) continue to constitute a majority of the
Board in accordance with the terms of paragraph (c) below; or
(b) the consummation of any merger or other business combination
of the Company, sale of all or substantially all of the Company's
assets (other than with respect to sales of assets in the ordinary
course of business, securitization and whole loan sales provided by
the Company's interim and permanent financing arrangements),
liquidation or dissolution of the Company or combination of the
foregoing transactions (the "Transactions") other than a Transaction
immediately following which the shareholders of the Company and any
trustee or fiduciary of any Company employee benefit plan immediately
prior to the Transaction own at least 51% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such
merger or other business combination; (B) the purchaser of or
successor to the Company's assets (other than with respect to sales of
assets in the ordinary course of business, securitization and whole
loan sales provided by the Company's interim and permanent financing
arrangements); (C) both the surviving corporation and the purchaser in
the event of any combination of Transactions; or (D) the parent
company owning 100% of such surviving corporation, purchaser or both
the surviving corporation and the purchaser, as the case may be; or
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(c) within any twenty-four-month period, the persons who were
directors immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death)
to constitute at least a majority of the Board or the board of
directors of a successor to the Company. For this purpose, any
director who was not a director at the beginning of such period shall
be deemed to be an Incumbent Director if such director was elected to
the Board by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors (so long as such director was not nominated by a person who
commenced or threatened to commence an election contest or proxy
solicitation by or on behalf of a Person other than the Board) or who
has entered into an agreement to effect a Change in Control or
expressed an intention to cause such Change in Control.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
provisions of any successor law.
"COMPANY" means Franchise Finance Corporation of America, a Delaware
corporation.
"COMPENSATION COMMITTEE" means the compensation committee of the Board.
"EFFECTIVE DATE" means January 1, 2000.
"EXECUTIVE" means Dennis L. Ruben, Esq.
"EXPENSE PAYMENT" means payments made to Executive for expenses which are
permitted under this Agreement and have been incurred but not yet reimbursed.
"GOOD REASON" means any of the following without Executive's express prior
written consent:
(a) any material diminution or adverse change in Executive's
duties, titles or responsibilities with the Company (or any affiliate
thereof) from those in effect immediately prior to any such diminution
or adverse change; PROVIDED, HOWEVER, that no such diminution or
adverse change shall be deemed to exist solely as a consequence of the
Company ceasing to be a Company with publicly-traded securities or
becoming a wholly-owned subsidiary of another company;
(b) if after a Change in Control there is any reduction in
Executive's aggregate annual cash compensation (which shall include
Base Salary and Actual Bonus) in Executive's aggregate annual cash
compensation in effect immediately prior to such reduction;
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(c) any requirement that Executive be based at a location more
than 35 miles from the Company's headquarters, located in Scottsdale,
Arizona (or a substantial increase in the amount of travel that
Executive is required to do because of a relocation of the Company's
headquarters from Scottsdale, Arizona);
(d) any failure by the Company to obtain from any successor to
the Company an agreement reasonably satisfactory to Executive to
assume and perform this Agreement, as contemplated by Section 13
hereof; or
(e) during the thirty-day period immediately following the first
anniversary of the Change in Control there is a Thirteenth-Month
Termination by Executive.
"PERMANENT DISABILITY" means the total and permanent disability of
Executive as defined in the Company's long-term disability benefit plan
applicable to senior executive officers in effect on the Effective Date.
"RETIREMENT" means Executive's voluntary termination of employment pursuant
to late, normal or early retirement under a pension plan (which may include a
defined benefit plan or a defined contribution plan) sponsored by the Company,
as defined in such plan, but only if such retirement occurs prior to a
termination by the Company for Cause or by Executive for Good Reason.
"TERMINATION DATE" means the date this Agreement is terminated, except to
the extent the provisions of Section 16 are applicable, which shall be the
earlier of December 31, 2002 or the date of termination of Executive's
employment pursuant to this Agreement.
"TERMINATION YEAR" means the year in which Executive's termination of
employment occurs.
"THIRTEENTH-MONTH TERMINATION" means the voluntary termination of
employment by Executive for any reason or no reason at all.
"VACATION PAYMENT" means payments made to Executive with respect to accrued
but unused vacation days.
2. EMPLOYMENT.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its
Executive Vice President, General Counsel and Secretary or as an
officer of the Company having the same or a more senior title and
greater responsibilities. In his capacity as the Executive Vice
President, General Counsel and Secretary of the Company, Executive
shall report to the Board and shall have the customary powers,
responsibilities and authorities of an Executive Vice President,
General Counsel and Secretary for corporations of the size and
character of the Company, as it exists from time to time, and as are
assigned by the Board.
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(b) Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment with the Company commencing on the
Effective Date, and agrees to devote his full working time and
efforts, to the best of his ability, experience and talent, to the
performance of services, duties and responsibilities in connection
therewith. Executive shall perform such duties and exercise such
powers, commensurate with his position, as the Board shall from time
to time delegate to him on such terms and conditions and subject to
such restrictions the Board may reasonably from time to time impose.
Executive also agrees to serve, if elected, as a member of the Board.
(c) Nothing in this Agreement shall preclude Executive, so long
as in the reasonable determination of the Board such activities do not
interfere with his duties and responsibilities hereunder, from
engaging in charitable and community affairs, from managing any
passive investment made by him in publicly traded equity securities or
other property (provided that no such investment may exceed 5% of the
equity of any entity) or, without prior notice to the Board and
subject to Section 15 and Section 16(b) hereof, from serving as a
member of boards of directors or as a trustee of any other
corporation, association or entity.
3. EFFECTIVE DATE; TERM OF EMPLOYMENT. This Agreement shall be effective as
the Effective Date. Executive's term of employment under this Agreement shall
commence on the Effective Date hereof and, subject to the terms hereof, shall
terminate on the Termination Date; provided, however, that any termination of
Employment by Executive for Good Reason or pursuant to the Change in Control
provisions of Section 8 may only be made on 30 days' prior written notice and
any other termination of employment by Executive other than for death, Permanent
Disability or Good Reason may only be made upon 90 days' prior written notice to
the Company.
4. COMPENSATION.
(a) SALARY. The Company shall pay Executive during the term of
this Agreement the Base Salary, as calculated pursuant to this Section
4, payable in cash not less frequently than bimonthly. As of the
Effective Date, the Base Salary shall be $275,000. As of January 1 of
each annual anniversary of the Effective Date, the Base Salary of
Executive will be increased from Executive's Base Salary for the
preceding calendar year by the greater of (i) five percent, (ii) the
average percentage salary increase awarded to all employees of the
Company who are not senior executive officers of the Company or (iii)
an amount determined by the Compensation Committee.
(b) ANNUAL CASH BONUS. In addition to Base Compensation, the
Company will pay to Executive on or prior to January 30 of each year
for performance in the preceding calendar year the Annual Cash Bonus.
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(c) COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible
to participate in any compensation plan or program maintained by the
Company from time to time, which compensation plans and programs are
intended to be comparable to those currently maintained by the
Company, in which other senior executives of the Company participate
on terms that are intended to be comparable to those applicable to
such other senior executives.
(d) STOCK OPTIONS AND RESTRICTED STOCK AWARDS. Executive shall be
eligible to receive grants of stock options and restricted stock
awards as determined in the discretion of the Compensation Committee
under any stock option plan or incentive plan of the Company or any
affiliate.
5. EMPLOYEE BENEFITS.
(a) EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. The Company
shall provide Executive during the term of his employment hereunder
with coverage under all employee pension and welfare benefit programs,
plans and practices (commensurate with his positions in the Company
from time to time and to the extent permitted under any employee
benefit plan) in accordance with the terms thereof, which the Company
makes available to its senior executives and which employee pension
and welfare benefit programs, plans and practices that are intended to
be comparable to those currently maintained by the Company; provided,
however, such programs, plans and practices will be no less favorable
than those in existence as of the date of execution of this Agreement.
(b) VACATION AND FRINGE BENEFITS. Executive shall be entitled to
no less than the number of business days paid vacation in each
calendar year to which Executive is entitled immediately prior to
execution of this Agreement, which shall be taken at such times as are
consistent with Executive's responsibilities hereunder. In addition,
Executive shall be entitled to the perquisites and other fringe
benefits currently made available to senior executives of the Company,
commensurate with his position with the Company.
6. EXPENSES. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR BY EXECUTIVE
FOR GOOD REASON. (i) The Company may terminate Executive's employment
at any time for any reason. If Executive's employment is terminated by
the Company other than for Cause) or if Executive terminates his
employment for Good Reason prior to the Termination Date, Executive
shall receive such payments, if any, under applicable plans or
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programs, including but not limited to those referred to in Section
4(c) hereof, to which he is entitled pursuant to the terms of such
plans or programs. In addition, Executive shall be entitled to receive
the following:
(A) A cash lump sum payment equal to the sum of three times
(1) Executive's Base Salary at the annual rate as of the date of
termination and (2) the Actual Bonus, except with respect to a
Thirteenth-Month Termination which shall be paid as provided in
Section 8(c) hereof; and
(B) a cash lump sum payment with respect to (1) the Vacation
Payment and (2) the Expense Payment which shall be paid by the
Company to Executive within 30 days after the termination of
Executive's employment by check payable to the order of Executive
or by wire transfer to an account specified by Executive;
(C) Executive shall also be entitled to the following
benefits:
(i) continued medical, dental, vision, and life
insurance coverage (excluding accident, death, and
disability insurance) and any fringe benefit or perquisites
in effect immediately prior to the date of termination for
Executive and Executive's eligible dependents or, to the
extent such benefits are not commercially available, such
other arrangements reasonably acceptable to Executive, on
the same basis as in effect prior to the date of
termination, whichever is deemed to provide for more
substantial benefits, for a period ending December 31, 2002;
(ii) immediate 100% vesting of all outstanding stock
options, stock appreciation rights and restricted stock
granted or issued by the Company to the extent not
previously vested;
(iii) all other accrued or vested benefits in
accordance with the terms of the applicable plan, which
vested benefits shall include Executive's otherwise unvested
account balances in the Company's 401(k) plan, which shall
be vested as of the date of termination; and
(iv) if so requested by Executive, outplacement
services shall be provided by a professional outplacement
provider selected by Executive; PROVIDED, HOWEVER, that such
outplacement services shall be provided to Executive at a
cost to the Company of not more than fifteen (15) percent of
such Executive's Base Salary.
(b) CURE PERIOD OF COMPANY FOR GOOD REASON TERMINATION.
Notwithstanding the foregoing, in the event that Executive provides
the Company with a notice of termination stating Good Reason, except
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in the event of a Thirteenth-Month Termination, the Company shall have
30 days thereafter in which to cure or resolve the behavior otherwise
constituting Good Reason. Any good faith determination by Executive
that Good Reason exists shall be presumed correct and shall be binding
upon the Company.
(c) PERMANENT DISABILITY OF EXECUTIVE. If Executive has a
Permanent Disability, the Company or Executive may terminate
Executive's employment on written notice thereof, and Executive shall
receive or commence receiving, as soon as practicable:
(i) amounts payable pursuant to the terms of a disability
insurance policy or similar arrangement which the Company
maintains during the term hereof;
(ii) the Actual Bonus, prorated by a fraction, the numerator
of which is the number of days of the fiscal year until
termination and the denominator of which is 365;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 4(c)
hereof, to which he is entitled pursuant to the terms of such
plans or programs.
(d) DEATH. In the event of Executive's death during the term of
his employment hereunder, Executive's estate or designated
beneficiaries shall receive or commence receiving, as soon as
practicable:
(i) the Actual Bonus, the numerator of which is the number
of days of the fiscal year until his death and the denominator of
which is 365;
(ii) any death benefits provided under the employee benefit
programs, plans and practices referred to in Section 5(a) hereof,
in accordance with their terms;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 4(c)
hereof, to which Executive's estate or designated beneficiaries
are entitled pursuant to the terms of such plans or programs.
(e) TERMINATION BY THE COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT
GOOD REASON
(i) The Company shall have the right to terminate the
employment of Executive for Cause. In the event that Executive's
employment is terminated by the Company for Cause, or by
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Executive other than for Good Reason, Executive shall only be
entitled to receive the Vacation Payment and the Expense Payment.
Executive shall not be entitled, among other things, to the
payment of any Annual Cash Bonus in respect of all or any portion
of the fiscal year in which such termination occurs. After the
termination of Executive's employment under this Section 7(e),
the obligations of the Company under this Agreement to make any
further payments or provide any benefits specified herein to
Executive shall thereupon cease and terminate.
(ii) Termination of Executive for Cause shall be made by
delivery to Executive of a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the
non-employee directors of the Board at a regular or special
meeting of such directors called and held for such purpose, after
30 days' prior written notice to Executive specifying the basis
for such termination and the particulars thereof and a reasonable
opportunity for Executive to be heard prior to or at such
meeting, finding that in the reasonable judgment of such
directors, that any conduct or event constituting Cause has
occurred and that such occurrence warrants Executive's
termination.
8. CHANGE IN CONTROL.
(a) Executive shall be entitled to the compensation provided
for in this Section 8 hereof, if within two years after a Change
in Control, Executive's employment by the Company shall be
terminated (A) by the Company for any reason other than (I)
Executive's Permanent Disability or Retirement, (II) Executive's
death or (III) for Cause, or (B) by Executive with Good Reason.
(b) In addition, Executive shall be entitled to the
compensation provided for in this Section 8, if the following
events occur: (A) an agreement is signed which, if consummated,
would result in a Change of Control, (B) Executive is terminated
without Cause by the Company or terminates employment with Good
Reason prior to the anticipated Change in Control, and (C) such
termination (or the action leading to such termination, in the
case of Good Reason) is at the request or suggestion of the
acquiror or merger partner or otherwise in connection with the
anticipated Change in Control, except that any termination of
employment as set forth in clause (C), above, shall be presumed,
in the absence of clear and convincing evidence to the contrary,
to have occurred in connection with a Change in Control, whether
or not a Change in Control actually occurs.
(c) The Company shall pay or cause to be paid to Executive a
cash severance amount equal to three times the sum of (i)
Executive's annual Base Salary on the date of the Change in
Control (or, if higher, the annual Base Salary in effect
immediately prior to the giving of the notice of termination),
and (ii) the Actual Bonus; PROVIDED, HOWEVER, that in the event
that Executive's employment is terminated by a Thirteenth-Month
Termination, Executive's cash severance amount shall only be
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equal to two times the sum of (i) and (ii) above. This cash
severance amount shall be payable in a lump sum calculated
without any discount or, at the election of Executive, on any
deferred payment schedule selected by Executive.
(d) No compensation or other benefit pursuant to this
Section 8 hereof shall be payable under this Agreement unless and
until either (i) a Change in Control shall have occurred while
Executive is an employee of a Company and Executive's employment
by the Company thereafter shall have terminated in accordance
with this Section 8 hereof or (ii) Executive's employment by the
Company shall have terminated in accordance with this Section 8
hereof in anticipation of the occurrence of a Change in Control.
(e) Executive shall also be entitled to the (i) Vacation
Payment and the Expense Payment, (ii) the medical and other
benefits under Section 7(a)(C)(i), (iii) vesting of certain
security rights under Section 7(a)(C)(ii), (iv) other accrued and
vested plans under Section 7(a)(C)(iii) and (v) outplacement
services under Section 7(a)(C)(iv).
9. EXCESS PARACHUTE EXCISE TAX.
(i) If it is determined (as hereafter provided) that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar
right, or the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the
Code by reason of being "contingent on a change in ownership or
control" of the Company, within the meaning of Section 280G of
the Code (or any successor provision thereto) or to any similar
tax imposed by state or local law, or any interest or penalties
with respect to such excise tax (such tax or taxes, together with
any such interest and penalties, are hereafter collectively
referred to as the "Excise Tax"), then Executive shall be
entitled to receive an additional payment or payments (a
"Gross-Up Payment") in an amount such that, after payment by
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax,
imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(A) Subject to the provisions of this Section 9 hereof,
all determinations required to be made under this Section 9,
including whether an Excise Tax is payable by Executive and
the amount of such Excise Tax and whether a Gross-Up Payment
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is required and the amount of such Gross-Up Payment, shall
be made by the nationally recognized firm of certified
public accountants (the "Accounting Firm") used by the
Company prior to the Change in Control (or, if such
Accounting Firm shall be a nationally recognized firm of
certified public accountants, as selected by Executive). The
Accounting Firm shall be directed by the Company or
Executive to submit its preliminary determination and
detailed supporting calculations to both the Company and
Executive within 15 calendar days after the date of
termination of employment, if applicable, and any other such
time or times as may be requested by the Company or
Executive. If the Accounting Firm determines that any Excise
Tax is payable by Executive, the Company shall pay the
required Gross-Up Payment to, or for the benefit of,
Executive within five business days after receipt of such
determination and calculations. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it
shall, at the same time as it makes such determination,
furnish Executive with an opinion that he has substantial
authority not to report any Excise Tax on his/her federal,
state, local income or other tax return. Any determination
by the Accounting Firm as to the amount of the Gross-Up
Payment shall be binding upon the Company and Executive
absent a contrary determination by the Internal Revenue
Service or a court of competent jurisdiction; provided,
however, that no such determination shall eliminate or
reduce the Company's obligation to provide any Gross-Up
Payment that shall be due as a result of such contrary
determination. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar
uncertainty regarding state or local tax law at the time of
any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made
by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to Section 6(f)(i) hereof
and Executive thereafter is required to make a payment of
any Excise Tax, Executive shall direct the Accounting Firm
to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed
supporting calculations to both the Company and Executive as
promptly as possible. Any such Underpayment shall be
promptly paid by the Company to, or for the benefit of,
Executive within five business days after receipt of such
determination and calculations.
(B) The federal, state and local income or other tax
returns filed by Executive (or any filing made by a
consolidated tax group which includes the Company) shall be
prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the
Excise Tax payable by Executive. Executive shall make proper
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payment of the amount of any Excise Tax, and at the request
of the Company, provide to the Company true and correct
copies (with any amendments) of his/her federal income tax
return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as
filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing
such payment. If prior to the filing of Executive's federal
income tax return, or corresponding state or local tax
return, if relevant, the Accounting Firm determines that the
amount of the Gross-Up Payment should be reduced, Executive
shall within five business days pay to the Company the
amount of such reduction.
(ii) In the event that the Internal Revenue Service claims that
any payment or benefit received under this Agreement constitutes as
"excess parachute payment", within the meaning of Section 280G(b)(1)
of the Code, Executive shall notify the Company in writing of such
claim. Such notification shall be given as soon as practicable but no
later than 10 business days after Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30 day period
following the date on which Executive gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies Executive
in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall (1) give the Company any
information reasonably requested by the Company relating to such
claim; (2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company and reasonably satisfactory to Executive; (3) cooperate with
the Company in good faith in order to effectively contest such claim;
and (4) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including, but not limited to,
additional interest and penalties and related legal, consulting or
other similar fees) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for and
against any Excise Tax or other tax (including interest and penalties
with respect thereto) imposed as a result of such representation and
any payment of costs and expenses.
(A) The Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forgo any and all administrative appeals, proceedings,
hearings and conferences with the tax authority in respect of
such claim and may, at its sole option, either direct Executive
to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and Executive agrees to prosecute such
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contest before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs
Executive to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to Executive on an
interest-free basis, and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and provide , further, that
if Executive is required to extend the statute of limitations to
enable the Company to contest such claim, Executive may limit
this extension solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect to
which a corporate deduction would be disallowed pursuant to
Section 280G of the Code and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority. In
addition, no position may be taken nor any final resolution be
agreed to by the Company without Executive's consent if such
position or resolution could reasonably be expected to adversely
affect Executive (including adversely affecting any other tax
position of Executive unrelated to matters covered hereby).
(B) If, after the receipt by Executive of any amount
advanced by the Company in connection with the contest of the
Excise Tax claim, Executive becomes entitled to receive any
refund with respect to such claim, Executive shall promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto); provided, however, if the amount of that refund exceeds
the amount advanced by the Company or it is otherwise determined
for any reason that additional amounts could be paid by the
Company to Executive without incurring any Excise Tax, any such
amount will be promptly paid by the Company to Executive. If,
after the receipt by Executive of an amount advanced by the
Company in connection with an Excise Tax claim, a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive
in writing of its intent to contest the denial of such refund
prior to the expiration of 30 days after such determination, such
advance shall be forgiven and shall not be required to be repaid
and shall be deemed to be in consideration for services rendered
after the date of the Termination.
(iii) The Company and Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the
possession of the Company or Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determination contemplated by this Section 9.
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(iv) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by this Section 9 hereof shall be borne by the Company.
If such fees and expenses are initially advanced by Executive, the
Company shall reimburse Executive the full amount of such fees and
expenses within five business days after receipt from Executive of a
statement therefor and reasonable evidence of his payment thereof.
10. MITIGATION OF DAMAGES. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder.
11. NOTICES. All notices or communications hereunder shall be in writing,
addressed as follows:
To the Company:
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: General Counsel
To Executive:
Dennis L. Ruben, Esq.
5501 East Sanna St.
Paradise Valley, AZ 85253
Any such notice or communication shall be delivered by hand, by telecopy (with
machine confirmation) or by courier or sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other address
as such party may designate in a notice duly delivered as described above), and
the third business day after the actual date of mailing shall constitute the
time at which notice was given.
12. SEVERABILITY; LEGAL FEES. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. In the event that any dispute arises between
Executive and the Company as to the terms or interpretation of this Agreement,
whether instituted by formal legal proceedings or otherwise, including any
action that Executive takes to enforce the terms of this Agreement or to defend
against any action taken by the Company, Executive shall be reimbursed for all
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that Executive shall obtain a
settlement or final judgement by a court of competent jurisdiction substantially
in favor of Executive. Such reimbursement shall be paid within ten (10) days of
Executive's furnishing to the Company written evidence, which may be in the
form, among other things, of a cancelled check or receipt, of any costs or
expenses incurred by Executive.
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13. SUCCESSORS; BINDING AGREEMENT, ASSIGNMENT.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to
expressly, absolutely and unconditionally assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such agreement prior to
the effectiveness of any such succession shall be a material breach of
this Agreement and shall entitle Executive to terminate Executive's
employment with the Company or such successor for Good Reason
immediately prior to or at any time after such succession. As used in
this Agreement, "Company" shall mean (i) the Company as hereinbefore
defined, and (ii) any successor to all the stock of the Company or to
all or substantially all of the Company's business or assets (other
than with respect to sales of assets in the ordinary course,
securitization and whole loan sales provided by the Company's interim
and permanent financing arrangements) which executes and delivers an
agreement provided for in this Section 13(a) or which otherwise
becomes bound by all the terms and provisions of this Agreement by
operation of law, including any parent or subsidiary of such a
successor.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Executive should die while any amount would be
payable to Executive hereunder if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's estate or
designated beneficiary. Neither this Agreement nor any right arising
hereunder shall be assignable or otherwise subject to hypothecation by
Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise)
to all or substantially all of the stock, assets or businesses of the
Company, if such successor expressly agrees to assume the obligations
of the Company hereunder.
14. AMENDMENT. This Agreement may only be amended by written agreement of
the parties hereto.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. At any time during or after
Executive's employment with the Company, Executive shall not, without the prior
written consent of the Company, use, divulge, disclose or make accessible to any
other person, firm, partnership, corporation or other entity any confidential or
proprietary information pertaining to the business of the Company or any of its
subsidiaries, pursuant to the policies set forth in the Company's employee
handbook and compliance manual, as amended from time to time.
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16. COVENANT NOT TO COMPETE.
(a) During the period of his employment hereunder and for the
first to occur of (i) one year following the termination of employment
of Executive or (ii) December 31, 2002, Executive agrees that, without
the prior written consent of the Company, (a) he will not, directly or
indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any other
capacity, carry on, be engaged in or have any financial interest in
(other than an ownership position of less than five percent in any
company whose shares are publicly traded), any business, which is in
Competition (as defined in Section 16(b)) with the existing business
of the Company or its subsidiaries, and (b) he shall not, on his own
behalf or on behalf of any person, firm or company, directly or
indirectly, solicit or offer employment to any person who has been
employed by the Company or its subsidiaries at any time during the 12
months immediately preceding such solicitation.
(b) For purposes of this Section 16, a business shall be deemed
to be in Competition with the Company or its subsidiaries if a
significant portion of its business is providing financing to
operators in the chain restaurant, convenience store or automotive
service and parts industries in any portion of the United States.
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further
agree that if in the opinion of any court of competent jurisdiction
such restraint is not reasonable in any respect, such court shall have
the right, power and authority to excise or modify such provision or
provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended.
Executive agrees that any breach of the covenants contained in this
Section 16 would irreparably injure the Company. Accordingly,
Executive agrees that the Company may, in addition to pursuing any
other remedies it may have in law or in equity, cease making any
payments otherwise required by this Agreement and obtain an injunction
against Executive from any court having jurisdiction over the matter
restraining any further violation of this Agreement by Executive.
17. BENEFICIARIES; REFERENCES. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
18. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations, including
the provisions of Section 16 herein. The provisions of this Section 18 are in
addition to the survivorship provisions of any other section of this Agreement.
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19. GOVERNING LAW. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Arizona without reference
to rules relating to conflicts of law.
20. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior or other agreement or understanding between the Company or any affiliate
of the Company and Executive including, without limitation, the Continuity
Agreement dated as of May 12, 1999 between the Company and Executive.
21. WITHHOLDING. The Company shall be entitled to withhold from payment any
amount of withholding required by law.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
FRANCHISE FINANCE CORPORATION OF AMERICA
By /s/ Christopher H. Volk
-------------------------------------
Name: Christopher H. Volk
Title: President, Chief Operating
Officer
/s/ Dennis L. Ruben
----------------------------------------
Dennis L. Ruben, Esq.
17
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is dated as of January 1,
2000, by and between Franchise Finance Corporation of America, a Delaware
corporation (the "Company") and Stephen G. Schmitz ("Executive").
RECITALS
In order to induce Executive to serve as Executive Vice President, Chief
Investment Officer and Assistant Secretary of the Company, the Company desires
to provide Executive with compensation and other benefits on the terms and
conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services for the
Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. DEFINED TERMS. The following terms shall have the following meanings
unless otherwise specifically defined in this Agreement:
"ACTUAL BONUS" means the highest annual cash bonus payable to Executive
with respect to any of the three years immediately preceding the Termination
Year.
"AGREEMENT" means this Amended and Restated Employment Agreement dated as
of January 1, 2000 between the Company and Executive.
"ANNUAL CASH BONUS" means the cash compensation payable to Executive as
calculated and paid in a manner substantially similar to the methods and timing
used to calculate and pay Executive's bonus for calendar year 1999; PROVIDED,
HOWEVER, that during the term of this Agreement, neither the Company nor the
Compensation Committee shall change such methods and timing in a manner which
will be less favorable to Executive.
"BASE SALARY" means the annual base salary of Executive as set forth in
Section 4(a).
"BOARD" means the board of directors of the Company.
"CAUSE" means:
(a) the willful and continued failure of Executive to perform a
substantial portion of his duties with the Company (other than any
such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to Executive by the Board, which specifically identifies the
manner in which the Board believes that Executive has not
substantially performed his duties;
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(b) the willful engaging by Executive in gross misconduct
(including, without limitation, fraud or embezzlement); or
(c) the conviction of, or plea of guilty or NOLO CONTENDERE to, a
felony.
"CHANGE IN CONTROL" means:
(a) any "Person" as defined in Section 3(a)(9) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and as used
in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any
subsidiary and any employee benefit plan sponsored or maintained by
the Company or any subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities (other than
indirectly as a result of the Company's redemption of its securities);
PROVIDED, HOWEVER, that, in the event that any such person becomes the
beneficial owner of 25% or more, but not exceeding 50%, of the
combined voting power of the Company's then outstanding securities, no
Change of Control shall be deemed to occur so long as the Incumbent
Directors (as defined below) continue to constitute a majority of the
Board in accordance with the terms of paragraph (c) below; or
(b) the consummation of any merger or other business combination
of the Company, sale of all or substantially all of the Company's
assets (other than with respect to sales of assets in the ordinary
course of business, securitization and whole loan sales provided by
the Company's interim and permanent financing arrangements),
liquidation or dissolution of the Company or combination of the
foregoing transactions (the "Transactions") other than a Transaction
immediately following which the shareholders of the Company and any
trustee or fiduciary of any Company employee benefit plan immediately
prior to the Transaction own at least 51% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such
merger or other business combination; (B) the purchaser of or
successor to the Company's assets (other than with respect to sales of
assets in the ordinary course of business, securitization and whole
loan sales provided by the Company's interim and permanent financing
arrangements); (C) both the surviving corporation and the purchaser in
the event of any combination of Transactions; or (D) the parent
company owning 100% of such surviving corporation, purchaser or both
the surviving corporation and the purchaser, as the case may be; or
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(c) within any twenty-four-month period, the persons who were
directors immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death)
to constitute at least a majority of the Board or the board of
directors of a successor to the Company. For this purpose, any
director who was not a director at the beginning of such period shall
be deemed to be an Incumbent Director if such director was elected to
the Board by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors (so long as such director was not nominated by a person who
commenced or threatened to commence an election contest or proxy
solicitation by or on behalf of a Person other than the Board) or who
has entered into an agreement to effect a Change in Control or
expressed an intention to cause such Change in Control.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
provisions of any successor law.
"COMPANY" means Franchise Finance Corporation of America, a Delaware
corporation.
"COMPENSATION COMMITTEE" means the compensation committee of the Board.
"EFFECTIVE DATE" means January 1, 2000.
"EXECUTIVE" means Stephen G. Schmitz.
"EXPENSE PAYMENT" means payments made to Executive for expenses which are
permitted under this Agreement and have been incurred but not yet reimbursed.
"GOOD REASON" means any of the following without Executive's express prior
written consent:
(a) any material diminution or adverse change in Executive's
duties, titles or responsibilities with the Company (or any affiliate
thereof) from those in effect immediately prior to any such diminution
or adverse change; PROVIDED, HOWEVER, that no such diminution or
adverse change shall be deemed to exist solely as a consequence of the
Company ceasing to be a Company with publicly-traded securities or
becoming a wholly-owned subsidiary of another company;
(b) if after a Change in Control there is any reduction in
Executive's aggregate annual cash compensation (which shall include
Base Salary and Actual Bonus) in Executive's aggregate annual cash
compensation in effect immediately prior to such reduction;
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(c) any requirement that Executive be based at a location more
than 35 miles from the Company's headquarters, located in Scottsdale,
Arizona (or a substantial increase in the amount of travel that
Executive is required to do because of a relocation of the Company's
headquarters from Scottsdale, Arizona);
(d) any failure by the Company to obtain from any successor to
the Company an agreement reasonably satisfactory to Executive to
assume and perform this Agreement, as contemplated by Section 13
hereof; or
(e) during the thirty-day period immediately following the first
anniversary of the Change in Control there is a Thirteenth-Month
Termination by Executive.
"PERMANENT DISABILITY" means the total and permanent disability of
Executive as defined in the Company's long-term disability benefit plan
applicable to senior executive officers in effect on the Effective Date.
"RETIREMENT" means Executive's voluntary termination of employment pursuant
to late, normal or early retirement under a pension plan (which may include a
defined benefit plan or a defined contribution plan) sponsored by the Company,
as defined in such plan, but only if such retirement occurs prior to a
termination by the Company for Cause or by Executive for Good Reason.
"TERMINATION DATE" means the date this Agreement is terminated, except to
the extent the provisions of Section 16 are applicable, which shall be the
earlier of December 31, 2002 or the date of termination of Executive's
employment pursuant to this Agreement.
"TERMINATION YEAR" means the year in which Executive's termination of
employment occurs.
"THIRTEENTH-MONTH TERMINATION" means the voluntary termination of
employment by Executive for any reason or no reason at all.
"VACATION PAYMENT" means payments made to Executive with respect to accrued
but unused vacation days.
2. EMPLOYMENT.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its
Executive Vice President, Chief Investment Officer and Assistant
Secretary or as an officer of the Company having the same or a more
senior title and greater responsibilities. In his capacity as the
Executive Vice President, Chief Investment Officer and Assistant
Secretary of the Company, Executive shall report to the Board and
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shall have the customary powers, responsibilities and authorities of
an Executive Vice President, Chief Investment Officer and Assistant
Secretary for corporations of the size and character of the Company,
as it exists from time to time, and as are assigned by the Board.
(b) Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment with the Company commencing on the
Effective Date, and agrees to devote his full working time and
efforts, to the best of his ability, experience and talent, to the
performance of services, duties and responsibilities in connection
therewith. Executive shall perform such duties and exercise such
powers, commensurate with his position, as the Board shall from time
to time delegate to him on such terms and conditions and subject to
such restrictions the Board may reasonably from time to time impose.
Executive also agrees to serve, if elected, as a member of the Board.
(c) Nothing in this Agreement shall preclude Executive, so long
as in the reasonable determination of the Board such activities do not
interfere with his duties and responsibilities hereunder, from
engaging in charitable and community affairs, from managing any
passive investment made by him in publicly traded equity securities or
other property (provided that no such investment may exceed 5% of the
equity of any entity) or, without prior notice to the Board and
subject to Section 15 and Section 16(b) hereof, from serving as a
member of boards of directors or as a trustee of any other
corporation, association or entity.
3. EFFECTIVE DATE; TERM OF EMPLOYMENT. This Agreement shall be effective as
the Effective Date. Executive's term of employment under this Agreement shall
commence on the Effective Date hereof and, subject to the terms hereof, shall
terminate on the Termination Date; provided, however, that any termination of
Employment by Executive for Good Reason or pursuant to the Change in Control
provisions of Section 8 may only be made on 30 days' prior written notice and
any other termination of employment by Executive other than for death, Permanent
Disability or Good Reason may only be made upon 90 days' prior written notice to
the Company.
4. COMPENSATION.
(a) SALARY. The Company shall pay Executive during the term of
this Agreement the Base Salary, as calculated pursuant to this Section
4, payable in cash not less frequently than bimonthly. As of the
Effective Date, the Base Salary shall be $315,000. As of January 1 of
each annual anniversary of the Effective Date, the Base Salary of
Executive will be increased from Executive's Base Salary for the
preceding calendar year by the greater of (i) five percent, (ii) the
average percentage salary increase awarded to all employees of the
Company who are not senior executive officers of the Company or (iii)
an amount determined by the Compensation Committee.
(b) ANNUAL CASH BONUS. In addition to Base Compensation, the
Company will pay to Executive on or prior to January 30 of each year
for performance in the preceding calendar year the Annual Cash Bonus.
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(c) COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible
to participate in any compensation plan or program maintained by the
Company from time to time, which compensation plans and programs are
intended to be comparable to those currently maintained by the
Company, in which other senior executives of the Company participate
on terms that are intended to be comparable to those applicable to
such other senior executives.
(d) STOCK OPTIONS AND RESTRICTED STOCK AWARDS. Executive shall be
eligible to receive grants of stock options and restricted stock
awards as determined in the discretion of the Compensation Committee
under any stock option plan or incentive plan of the Company or any
affiliate.
5. EMPLOYEE BENEFITS.
(a) EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. The Company
shall provide Executive during the term of his employment hereunder
with coverage under all employee pension and welfare benefit programs,
plans and practices (commensurate with his positions in the Company
from time to time and to the extent permitted under any employee
benefit plan) in accordance with the terms thereof, which the Company
makes available to its senior executives and which employee pension
and welfare benefit programs, plans and practices that are intended to
be comparable to those currently maintained by the Company; provided,
however, such programs, plans and practices will be no less favorable
than those in existence as of the date of execution of this Agreement.
(b) VACATION AND FRINGE BENEFITS. Executive shall be entitled to
no less than the number of business days paid vacation in each
calendar year to which Executive is entitled immediately prior to
execution of this Agreement, which shall be taken at such times as are
consistent with Executive's responsibilities hereunder. In addition,
Executive shall be entitled to the perquisites and other fringe
benefits currently made available to senior executives of the Company,
commensurate with his position with the Company.
6. EXPENSES. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION BY COMPANY OTHER THAN FOR CAUSE OR BY EXECUTIVE
FOR GOOD REASON. (i) The Company may terminate Executive's employment
at any time for any reason. If Executive's employment is terminated by
the Company other than for Cause) or if Executive terminates his
employment for Good Reason prior to the Termination Date, Executive
shall receive such payments, if any, under applicable plans or
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<PAGE>
programs, including but not limited to those referred to in Section
4(c) hereof, to which he is entitled pursuant to the terms of such
plans or programs. In addition, Executive shall be entitled to receive
the following:
(A) A cash lump sum payment equal to the sum of three times
(1) Executive's Base Salary at the annual rate as of the date of
termination and (2) the Actual Bonus, except with respect to a
Thirteenth-Month Termination which shall be paid as provided in
Section 8(c) hereof; and
(B) a cash lump sum payment with respect to (1) the Vacation
Payment and (2) the Expense Payment which shall be paid by the
Company to Executive within 30 days after the termination of
Executive's employment by check payable to the order of Executive
or by wire transfer to an account specified by Executive;
(C) Executive shall also be entitled to the following
benefits:
(i) continued medical, dental, vision, and life
insurance coverage (excluding accident, death, and
disability insurance) and any fringe benefit or perquisites
in effect immediately prior to the date of termination for
Executive and Executive's eligible dependents or, to the
extent such benefits are not commercially available, such
other arrangements reasonably acceptable to Executive, on
the same basis as in effect prior to the date of
termination, whichever is deemed to provide for more
substantial benefits, for a period ending December 31, 2002;
(ii) immediate 100% vesting of all outstanding stock
options, stock appreciation rights and restricted stock
granted or issued by the Company to the extent not
previously vested;
(iii) all other accrued or vested benefits in
accordance with the terms of the applicable plan, which
vested benefits shall include Executive's otherwise unvested
account balances in the Company's 401(k) plan, which shall
be vested as of the date of termination; and
(iv) if so requested by Executive, outplacement
services shall be provided by a professional outplacement
provider selected by Executive; PROVIDED, HOWEVER, that such
outplacement services shall be provided to Executive at a
cost to the Company of not more than fifteen (15) percent of
such Executive's Base Salary.
(b) CURE PERIOD OF COMPANY FOR GOOD REASON TERMINATION.
Notwithstanding the foregoing, in the event that Executive provides
the Company with a notice of termination stating Good Reason, except
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in the event of a Thirteenth-Month Termination, the Company shall have
30 days thereafter in which to cure or resolve the behavior otherwise
constituting Good Reason. Any good faith determination by Executive
that Good Reason exists shall be presumed correct and shall be binding
upon the Company.
(c) PERMANENT DISABILITY OF EXECUTIVE. If Executive has a
Permanent Disability, the Company or Executive may terminate
Executive's employment on written notice thereof, and Executive shall
receive or commence receiving, as soon as practicable:
(i) amounts payable pursuant to the terms of a disability
insurance policy or similar arrangement which the Company
maintains during the term hereof;
(ii) the Actual Bonus, prorated by a fraction, the numerator
of which is the number of days of the fiscal year until
termination and the denominator of which is 365;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 4(c)
hereof, to which he is entitled pursuant to the terms of such
plans or programs.
(d) DEATH. In the event of Executive's death during the term of
his employment hereunder, Executive's estate or designated
beneficiaries shall receive or commence receiving, as soon as
practicable:
(i) the Actual Bonus, the numerator of which is the number
of days of the fiscal year until his death and the denominator of
which is 365;
(ii) any death benefits provided under the employee benefit
programs, plans and practices referred to in Section 5(a) hereof,
in accordance with their terms;
(iii) the Vacation Payment and the Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 4(c)
hereof, to which Executive's estate or designated beneficiaries
are entitled pursuant to the terms of such plans or programs.
(e) TERMINATION BY THE COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT
GOOD REASON
(i) The Company shall have the right to terminate the
employment of Executive for Cause. In the event that Executive's
employment is terminated by the Company for Cause, or by
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Executive other than for Good Reason, Executive shall only be
entitled to receive the Vacation Payment and the Expense Payment.
Executive shall not be entitled, among other things, to the
payment of any Annual Cash Bonus in respect of all or any portion
of the fiscal year in which such termination occurs. After the
termination of Executive's employment under this Section 7(e),
the obligations of the Company under this Agreement to make any
further payments or provide any benefits specified herein to
Executive shall thereupon cease and terminate.
(ii) Termination of Executive for Cause shall be made by
delivery to Executive of a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the
non-employee directors of the Board at a regular or special
meeting of such directors called and held for such purpose, after
30 days' prior written notice to Executive specifying the basis
for such termination and the particulars thereof and a reasonable
opportunity for Executive to be heard prior to or at such
meeting, finding that in the reasonable judgment of such
directors, that any conduct or event constituting Cause has
occurred and that such occurrence warrants Executive's
termination.
8. CHANGE IN CONTROL.
(a) Executive shall be entitled to the compensation provided for
in this Section 8 hereof, if within two years after a Change in
Control, Executive's employment by the Company shall be terminated (A)
by the Company for any reason other than (I) Executive's Permanent
Disability or Retirement, (II) Executive's death or (III) for Cause,
or (B) by Executive with Good Reason.
(b) In addition, Executive shall be entitled to the compensation
provided for in this Section 8, if the following events occur: (A) an
agreement is signed which, if consummated, would result in a Change of
Control, (B) Executive is terminated without Cause by the Company or
terminates employment with Good Reason prior to the anticipated Change
in Control, and (C) such termination (or the action leading to such
termination, in the case of Good Reason) is at the request or
suggestion of the acquiror or merger partner or otherwise in
connection with the anticipated Change in Control, except that any
termination of employment as set forth in clause (C), above, shall be
presumed, in the absence of clear and convincing evidence to the
contrary, to have occurred in connection with a Change in Control,
whether or not a Change in Control actually occurs.
(c) The Company shall pay or cause to be paid to Executive a cash
severance amount equal to three times the sum of (i) Executive's
annual Base Salary on the date of the Change in Control (or, if
higher, the annual Base Salary in effect immediately prior to the
giving of the notice of termination), and (ii) the Actual Bonus;
PROVIDED, HOWEVER, that in the event that Executive's employment is
terminated by a Thirteenth-Month Termination, Executive's cash
severance amount shall only be equal to two times the sum of (i) and
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(ii) above. This cash severance amount shall be payable in a lump sum
calculated without any discount or, at the election of Executive, on
any deferred payment schedule selected by Executive.
(d) No compensation or other benefit pursuant to this Section 8
hereof shall be payable under this Agreement unless and until either
(i) a Change in Control shall have occurred while Executive is an
employee of a Company and Executive's employment by the Company
thereafter shall have terminated in accordance with this Section 8
hereof or (ii) Executive's employment by the Company shall have
terminated in accordance with this Section 8 hereof in anticipation of
the occurrence of a Change in Control.
(e) Executive shall also be entitled to the (i) Vacation Payment
and the Expense Payment, (ii) the medical and other benefits under
Section 7(a)(C)(i), (iii) vesting of certain security rights under
Section 7(a)(C)(ii), (iv) other accrued and vested plans under Section
7(a)(C)(iii) and (v) outplacement services under Section 7(a)(C)(iv).
9. EXCESS PARACHUTE EXCISE TAX.
(i) If it is determined (as hereafter provided) that any payment
or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of
any other agreement, policy, plan, program or arrangement, including
without limitation any stock option, stock appreciation right or
similar right, or the lapse or termination of any restriction on or
the vesting or exercisability of any of the foregoing (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Code
by reason of being "contingent on a change in ownership or control" of
the Company, within the meaning of Section 280G of the Code (or any
successor provision thereto) or to any similar tax imposed by state or
local law, or any interest or penalties with respect to such excise
tax (such tax or taxes, together with any such interest and penalties,
are hereafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment or
payments (a "Gross-Up Payment") in an amount such that, after payment
by Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including any Excise Tax, imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(A) Subject to the provisions of this Section 9 hereof, all
determinations required to be made under this Section 9,
including whether an Excise Tax is payable by Executive and the
amount of such Excise Tax and whether a Gross-Up Payment is
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required and the amount of such Gross-Up Payment, shall be made
by the nationally recognized firm of certified public accountants
(the "Accounting Firm") used by the Company prior to the Change
in Control (or, if such Accounting Firm shall be a nationally
recognized firm of certified public accountants, as selected by
Executive). The Accounting Firm shall be directed by the Company
or Executive to submit its preliminary determination and detailed
supporting calculations to both the Company and Executive within
15 calendar days after the date of termination of employment, if
applicable, and any other such time or times as may be requested
by the Company or Executive. If the Accounting Firm determines
that any Excise Tax is payable by Executive, the Company shall
pay the required Gross-Up Payment to, or for the benefit of,
Executive within five business days after receipt of such
determination and calculations. If the Accounting Firm determines
that no Excise Tax is payable by Executive, it shall, at the same
time as it makes such determination, furnish Executive with an
opinion that he has substantial authority not to report any
Excise Tax on his/her federal, state, local income or other tax
return. Any determination by the Accounting Firm as to the amount
of the Gross-Up Payment shall be binding upon the Company and
Executive absent a contrary determination by the Internal Revenue
Service or a court of competent jurisdiction; provided, however,
that no such determination shall eliminate or reduce the
Company's obligation to provide any Gross-Up Payment that shall
be due as a result of such contrary determination. As a result of
the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the possibility of
similar uncertainty regarding state or local tax law at the time
of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by
the Company should have been made (an "Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies
pursuant to Section 6(f)(i) hereof and Executive thereafter is
required to make a payment of any Excise Tax, Executive shall
direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and
Executive as promptly as possible. Any such Underpayment shall be
promptly paid by the Company to, or for the benefit of, Executive
within five business days after receipt of such determination and
calculations.
(B) The federal, state and local income or other tax returns
filed by Executive (or any filing made by a consolidated tax
group which includes the Company) shall be prepared and filed on
a consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by Executive. Executive
11
<PAGE>
shall make proper payment of the amount of any Excise Tax, and at
the request of the Company, provide to the Company true and
correct copies (with any amendments) of his/her federal income
tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed
with the applicable taxing authority, and such other documents
reasonably requested by the Company, evidencing such payment. If
prior to the filing of Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up
Payment should be reduced, Executive shall within five business
days pay to the Company the amount of such reduction.
(ii) In the event that the Internal Revenue Service claims that
any payment or benefit received under this Agreement constitutes as
"excess parachute payment", within the meaning of Section 280G(b)(1)
of the Code, Executive shall notify the Company in writing of such
claim. Such notification shall be given as soon as practicable but no
later than 10 business days after Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30 day period
following the date on which Executive gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies Executive
in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall (1) give the Company any
information reasonably requested by the Company relating to such
claim; (2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company and reasonably satisfactory to Executive; (3) cooperate with
the Company in good faith in order to effectively contest such claim;
and (4) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including, but not limited to,
additional interest and penalties and related legal, consulting or
other similar fees) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for and
against any Excise Tax or other tax (including interest and penalties
with respect thereto) imposed as a result of such representation and
any payment of costs and expenses.
(A) The Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forgo any and all administrative appeals, proceedings,
hearings and conferences with the tax authority in respect of
such claim and may, at its sole option, either direct Executive
to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and Executive agrees to prosecute such
12
<PAGE>
contest before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs
Executive to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to Executive on an
interest-free basis, and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and provide , further, that
if Executive is required to extend the statute of limitations to
enable the Company to contest such claim, Executive may limit
this extension solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect to
which a corporate deduction would be disallowed pursuant to
Section 280G of the Code and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority. In
addition, no position may be taken nor any final resolution be
agreed to by the Company without Executive's consent if such
position or resolution could reasonably be expected to adversely
affect Executive (including adversely affecting any other tax
position of Executive unrelated to matters covered hereby).
(B) If, after the receipt by Executive of any amount
advanced by the Company in connection with the contest of the
Excise Tax claim, Executive becomes entitled to receive any
refund with respect to such claim, Executive shall promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto); provided, however, if the amount of that refund exceeds
the amount advanced by the Company or it is otherwise determined
for any reason that additional amounts could be paid by the
Company to Executive without incurring any Excise Tax, any such
amount will be promptly paid by the Company to Executive. If,
after the receipt by Executive of an amount advanced by the
Company in connection with an Excise Tax claim, a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive
in writing of its intent to contest the denial of such refund
prior to the expiration of 30 days after such determination, such
advance shall be forgiven and shall not be required to be repaid
and shall be deemed to be in consideration for services rendered
after the date of the Termination.
(iii) The Company and Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the
possession of the Company or Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determination contemplated by this Section 9.
13
<PAGE>
(iv) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by this Section 9 hereof shall be borne by the Company.
If such fees and expenses are initially advanced by Executive, the
Company shall reimburse Executive the full amount of such fees and
expenses within five business days after receipt from Executive of a
statement therefor and reasonable evidence of his payment thereof.
10. MITIGATION OF DAMAGES. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder.
11. NOTICES. All notices or communications hereunder shall be in writing,
addressed as follows:
To the Company:
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Attention: General Counsel
To Executive:
Mr. Stephen G. Schmitz
8267 East Angel Spirit Drive
Scottsdale, AZ 85255
Any such notice or communication shall be delivered by hand, by telecopy (with
machine confirmation) or by courier or sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other address
as such party may designate in a notice duly delivered as described above), and
the third business day after the actual date of mailing shall constitute the
time at which notice was given.
12. SEVERABILITY; LEGAL FEES. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. In the event that any dispute arises between
Executive and the Company as to the terms or interpretation of this Agreement,
whether instituted by formal legal proceedings or otherwise, including any
action that Executive takes to enforce the terms of this Agreement or to defend
against any action taken by the Company, Executive shall be reimbursed for all
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that Executive shall obtain a
settlement or final judgement by a court of competent jurisdiction substantially
in favor of Executive. Such reimbursement shall be paid within ten (10) days of
Executive's furnishing to the Company written evidence, which may be in the
form, among other things, of a cancelled check or receipt, of any costs or
expenses incurred by Executive.
14
<PAGE>
13. SUCCESSORS; BINDING AGREEMENT, ASSIGNMENT.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to
expressly, absolutely and unconditionally assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such agreement prior to
the effectiveness of any such succession shall be a material breach of
this Agreement and shall entitle Executive to terminate Executive's
employment with the Company or such successor for Good Reason
immediately prior to or at any time after such succession. As used in
this Agreement, "Company" shall mean (i) the Company as hereinbefore
defined, and (ii) any successor to all the stock of the Company or to
all or substantially all of the Company's business or assets (other
than with respect to sales of assets in the ordinary course,
securitization and whole loan sales provided by the Company's interim
and permanent financing arrangements) which executes and delivers an
agreement provided for in this Section 13(a) or which otherwise
becomes bound by all the terms and provisions of this Agreement by
operation of law, including any parent or subsidiary of such a
successor.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Executive should die while any amount would be
payable to Executive hereunder if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's estate or
designated beneficiary. Neither this Agreement nor any right arising
hereunder shall be assignable or otherwise subject to hypothecation by
Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise)
to all or substantially all of the stock, assets or businesses of the
Company, if such successor expressly agrees to assume the obligations
of the Company hereunder.
14. AMENDMENT. This Agreement may only be amended by written agreement of
the parties hereto.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. At any time during or after
Executive's employment with the Company, Executive shall not, without the prior
written consent of the Company, use, divulge, disclose or make accessible to any
other person, firm, partnership, corporation or other entity any confidential or
proprietary information pertaining to the business of the Company or any of its
subsidiaries, pursuant to the policies set forth in the Company's employee
handbook and compliance manual, as amended from time to time.
15
<PAGE>
16. COVENANT NOT TO COMPETE.
(a) During the period of his employment hereunder and for the
first to occur of (i) one year following the termination of employment
of Executive or (ii) December 31, 2002, Executive agrees that, without
the prior written consent of the Company, (a) he will not, directly or
indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any other
capacity, carry on, be engaged in or have any financial interest in
(other than an ownership position of less than five percent in any
company whose shares are publicly traded), any business, which is in
Competition (as defined in Section 16(b)) with the existing business
of the Company or its subsidiaries, and (b) he shall not, on his own
behalf or on behalf of any person, firm or company, directly or
indirectly, solicit or offer employment to any person who has been
employed by the Company or its subsidiaries at any time during the 12
months immediately preceding such solicitation.
(b) For purposes of this Section 16, a business shall be deemed
to be in Competition with the Company or its subsidiaries if a
significant portion of its business is providing financing to
operators in the chain restaurant, convenience store or automotive
service and parts industries in any portion of the United States.
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further
agree that if in the opinion of any court of competent jurisdiction
such restraint is not reasonable in any respect, such court shall have
the right, power and authority to excise or modify such provision or
provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended.
Executive agrees that any breach of the covenants contained in this
Section 16 would irreparably injure the Company. Accordingly,
Executive agrees that the Company may, in addition to pursuing any
other remedies it may have in law or in equity, cease making any
payments otherwise required by this Agreement and obtain an injunction
against Executive from any court having jurisdiction over the matter
restraining any further violation of this Agreement by Executive.
17. BENEFICIARIES; REFERENCES. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
18. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations, including
the provisions of Section 16 herein. The provisions of this Section 18 are in
addition to the survivorship provisions of any other section of this Agreement.
16
<PAGE>
19. GOVERNING LAW. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Arizona without reference
to rules relating to conflicts of law.
20. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior or other agreement or understanding between the Company or any affiliate
of the Company and Executive including, without limitation, the Continuity
Agreement dated as of May 12, 1999 between the Company and Executive.
21. WITHHOLDING. The Company shall be entitled to withhold from payment any
amount of withholding required by law.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
FRANCHISE FINANCE CORPORATION OF AMERICA
By /s/ Christopher H. Volk
-------------------------------------
Name: Christopher H. Volk
Title: President, Chief Operating
Officer
/s/ Stephen G. Schmitz
----------------------------------------
Stephen G. Schmitz
17
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
FFCA Loan Warehouse Corporation Delaware
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 24, 2000 included in this Form 10-K, into Franchise Finance
Corporation of America's previously filed Registration Statements on Form S-8
(File No. 333-00123), Form S-8 (File No. 333-92897), Form S-8 (File No.
333-30139), Form S-3 (File No. 333-26437), and Form S-3 (File No. 33-62769).
/s/ Arthur Andersen LLP
Phoenix, Arizona,
March 23, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,757
<SECURITIES> 0
<RECEIVABLES> 11,794
<ALLOWANCES> 1,125
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,474,758
<DEPRECIATION> 205,400
<TOTAL-ASSETS> 1,710,796
<CURRENT-LIABILITIES> 0
<BONDS> 748,359
0
0
<COMMON> 561
<OTHER-SE> 903,071
<TOTAL-LIABILITY-AND-EQUITY> 1,710,796
<SALES> 0
<TOTAL-REVENUES> 218,475
<CGS> 0
<TOTAL-COSTS> 1,884
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,312
<INCOME-PRETAX> 148,727
<INCOME-TAX> 0
<INCOME-CONTINUING> 148,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,727
<EPS-BASIC> 2.69
<EPS-DILUTED> 2.68
</TABLE>
================================================================================
SECOND AMENDED AND RESTATED
SALE AND SERVICING AGREEMENT
Dated as of January 1, 2000
among
FFCA FRANCHISE LOAN OWNER TRUST 1998-1
(Issuer)
FFCA LOAN WAREHOUSE CORPORATION
(Depositor)
FFCA ACQUISITION CORPORATION
(Loan Originator)
FRANCHISE FINANCE CORPORATION OF AMERICA
(Servicer)
and
LASALLE BANK NATIONAL ASSOCIATION f/k/a
LASALLE NATIONAL BANK
(Indenture Trustee)
FFCA FRANCHISE LOAN OWNER TRUST 1998-1
FRANCHISE LOAN BACKED NOTES ISSUABLE IN SERIES
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.01 Definitions.................................................. 1
Section 1.02 Other Definitional Provisions................................ 35
ARTICLE II
CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE
PRINCIPAL BALANCES
Section 2.01 Conveyance of the Trust Estate; Additional Note Principal
Balances................................................... 36
Section 2.02 Ownership and Possession of Loan Files....................... 37
Section 2.03 Books and Records; Intention of the Parties.................. 38
Section 2.04 Delivery of Loan Documents................................... 38
Section 2.05 Acceptance by the Indenture Trustee of the Loans; Certain
Substitutions and Repurchases; Certification by the
Custodian.................................................. 41
Section 2.06 Conditions Precedent to Transfer Dates and Collateral Value
Excess Dates............................................... 43
Section 2.07 Termination of Revolving Period.............................. 45
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.............. 45
Section 3.02 Representations and Warranties of the Loan Originator........ 47
Section 3.03 Representations, Warranties and Covenants of the Servicer.... 50
Section 3.04 Representations and Warranties Regarding Loans............... 52
Section 3.05 Purchase and Substitution.................................... 61
Section 3.06 Securitizations.............................................. 63
Section 3.07 Loan Originator Put; Servicer Call........................... 64
Section 3.08 Modification of Underwriting Guidelines...................... 64
Section 3.09 Environmental Policy and Business Interruption Insurance..... 65
Section 3.10 Whole Loan Sales............................................. 65
<PAGE>
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE LOANS
Section 4.01 Duties of the Servicer....................................... 66
Section 4.02 Vacancies and Inspections.................................... 68
Section 4.03 Fidelity Bond; Errors and Omissions Insurance................ 69
Section 4.04 Filing of Continuation Statements............................ 69
Section 4.05 Establishment and Administration of Escrow Account........... 70
Section 4.06 Subservicing................................................. 70
Section 4.07 Successor Servicers.......................................... 72
Section 4.08 Maintenance of Insurance..................................... 72
Section 4.09 Periodic Advances............................................ 73
Section 4.10 Foreclosure; Repossession and Alternatives................... 74
Section 4.11 Title, Management and Disposition of Foreclosure Property.... 75
Section 4.12 Compliance With Request for Information...................... 77
Section 4.13 Lockbox Trigger Event; Lockbox Account....................... 77
Section 4.14 Valuation of Loans, Hedge Value and Retained Securities
Value; Market Value Agent.................................. 78
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Distribution Account ................. 78
Section 5.02 Payments to Securityholders.................................. 82
Section 5.03 Trust Accounts; Trust Account Property....................... 83
Section 5.04 Advance Account.............................................. 86
Section 5.05 Transfer Obligation; Transfer Obligation Account............. 86
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Statements................................................... 87
Section 6.02 Specification of Certain Tax Matters......................... 91
ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01 Due-On-Sale; Due-on-Encumbrance.............................. 91
Section 7.02 Release of Loan Files........................................ 92
Section 7.03 Servicing Compensation....................................... 93
Section 7.04 Statement as to Compliance and Financial Statements.......... 94
Section 7.05 Independent Public Accountants' Servicing Report............. 94
-ii-
<PAGE>
Section 7.06 Right to Examine Servicer Records............................ 95
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements................................................. 95
Section 7.08 Access to Information........................................ 95
ARTICLE VIII
HEDGING
Section 8.01 Hedging Instruments.......................................... 96
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.......................... 97
Section 9.02 Merger or Consolidation of the Servicer...................... 99
Section 9.03 Limitation on Liability of the Servicer and Others........... 100
Section 9.04 Servicer Not to Resign; Assignment........................... 100
Section 9.05 Relationship of Servicer to Issuer and the Indenture Trustee. 100
Section 9.06 Servicer May Own Securities.................................. 101
ARTICLE X
DEFAULT
Section 10.01 Events of Default............................................ 101
Section 10.02 Appointment of Successor..................................... 103
Section 10.03 Waiver of Defaults........................................... 104
Section 10.04 Accounting Upon Termination of Servicer...................... 104
ARTICLE XI
TERMINATION
Section 11.01 Termination.................................................. 105
Section 11.02 Optional Termination......................................... 105
Section 11.03 Notice of Termination........................................ 105
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders.......................................... 106
Section 12.02 Amendment.................................................... 106
Section 12.03 Recordation of Agreement..................................... 107
Section 12.04 Duration of Agreement........................................ 107
-iii-
<PAGE>
Section 12.05 Governing Law................................................ 107
Section 12.06 Notices...................................................... 107
Section 12.07 Severability of Provisions................................... 108
Section 12.08 No Partnership............................................... 108
Section 12.09 Counterparts................................................. 108
Section 12.10 Successors and Assigns....................................... 108
Section 12.11 Headings..................................................... 108
Section 12.12 Actions of Securityholders................................... 108
Section 12.13 Non-Petition Agreement....................................... 109
Section 12.14 Holders of the Trust Certificates............................ 109
Section 12.15 FFCA to Guarantee Certain Loan Originator Obligations........ 109
Section 12.16 Reports in Electronic Form................................... 110
Section 12.17 Limitation of Owner Trustee Liability........................ 110
EXHIBIT A - Form of Notice of Additional Note Principal Balance
EXHIBIT B - Form of Servicer's Remittance Report to Trustee
EXHIBIT C - Form of S&SA Assignment
EXHIBIT D - Referenced Documents
EXHIBIT E - Form of Bailee Agreement
EXHIBIT F - Form of Escrow Instructions
EXHIBIT G - Form of Loan Originator Put Notice
EXHIBIT H - Form of Servicer Call Notice
-iv-
<PAGE>
THIS SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT (the
"SALE AND SERVICING Agreement") is entered into effective as of January 1, 2000,
by and among FFCA Franchise Loan Owner Trust 1998-1, a Delaware business trust
(the "ISSUER" or the "TRUST"), FFCA Loan Warehouse Corporation, a Delaware
corporation, as depositor (the "DEPOSITOR"), FFCA Acquisition Corporation, a
Delaware corporation, as loan originator (the "LOAN ORIGINATOR"), Franchise
Finance Corporation of America, a Delaware corporation ("FFCA"), as servicer
(the "SERVICER"), and LaSalle Bank National Association f/k/a LaSalle National
Bank, a national banking association, as indenture trustee on behalf of the
Noteholders (in such capacity, the "INDENTURE TRUSTEE"), which amends and
restates the Amended and Restated Sale and Servicing Agreement, dated as of
March 18, 1999 (the "AMENDED AND RESTATED SALE AND SERVICING AGREEMENT"), by and
among the parties hereto, as amended by Amendment No. 1 to the Amended and
Restated Sale and Servicing Agreement, dated as of August 27, 1999 ("AMENDMENT
NO. 1 TO THE AMENDED AND RESTATED SALE AND SERVICING AGREEMENT"), by and among
the parties hereto, which amends and restates the Sale and Servicing Agreement,
dated as of August 14, 1998 (the "ORIGINAL SALE AND SERVICING AGREEMENT"), by
and among the parties hereto, as amended by the Amendment No. 1 to the Sale and
Servicing Agreement, dated as of October 30, 1998 ("AMENDMENT NO. 1 TO THE
ORIGINAL SALE AND SERVICING AGREEMENT"), by and among the parties hereto.
WHEREAS, the parties hereto desire to amend and restate the Amended
and Restated Sale and Servicing Agreement, as amended by Amendment No. 1 to the
Amended and Restated Sale and Servicing Agreement, which amends and restates the
Original Sale and Servicing Agreement, as amended by the Amendment No. 1 to the
Original Sale and Servicing Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the Issuer, the Depositor, the Loan Originator, the Servicer and the
Indenture Trustee hereby agree for the benefit of each of them and the holders
of the Notes and the Trust Certificates issued hereunder to amend and restate
the Amended and Restated Sale and Servicing Agreement, as amended by Amendment
No. 1 to the Amended and Restated Sale and Servicing Agreement, which amends and
restates the Original Sale and Servicing Agreement, as amended by the Amendment
No. 1 to the Original Sale and Servicing Agreement, in its entirety to read as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.
<PAGE>
ACCRUAL PERIOD: With respect to the Notes, the period commencing on
and including the preceding Payment Date (or, in the case of the first Payment
Date, the period commencing on and including the first Transfer Date) and ending
on the day preceding the related Payment Date.
ACT OR SECURITIES ACT: The Securities Act of 1933, as amended.
ADDITIONAL NOTE PRINCIPAL BALANCE:
(a) With respect to each Transfer Date, the lesser of (i) the product
of (x) an amount equal to the average of the Advance Factors with respect to the
Loans conveyed on such date, weighted by Transfer Cut-off Date Principal
Balances multiplied by (y) the sum of the Transfer Cut-off Date Principal
Balances of the Loans conveyed as of such Transfer Date, and (ii) the product of
(x) the average Maximum Advance Factors of the Loans conveyed on such date
weighted by Transfer Cut-off Date Principal Balances multiplied by (y) the sum
of the Market Value of all Loans conveyed on such date, in either case
subtracting from the product any Overcollateralization Shortfall as of such
date.
(b) With respect to each Collateral Value Excess Date, an amount equal
to the Additional Note Principal Balance that the Issuer sells to the Initial
Noteholder pursuant to the Note Purchase Agreement on such Collateral Value
Excess Date.
ADJUSTABLE RATE LOAN: Any Loan, the Loan Interest Rate with respect to
which is subject to adjustment; provided that under the terms of such Loan, such
adjustments may not modify the Loan Interest Rate to a rate that is more than
six percent above or two percent below the Loan Interest Rate at the origination
of such Loan.
ADMINISTRATION AGREEMENT: The Administration Agreement, dated as of
August 14, 1998, among the Issuer and FFCA, as Administrator and as Servicer.
ADVANCE ACCOUNT: The account established and maintained pursuant to
Section 5.04.
ADVANCE FACTOR: With respect to each Loan (a) as of the related
Transfer Date, the lesser of (x) 85% or, to the extent that the Note Principal
Balance as of such day (after giving effect to the sale of such Loan to the
Trust) is greater than $300,000,000, 80% for each Loan (as selected by the
Initial Noteholder), the inclusion of which as an asset of the Trust results in
the Note Principal Balance as of such day exceeding $300,000,000 (or such other
lesser percentage as agreed in writing by the Issuer and Initial Noteholder as
the Advance Factor with respect to such Loan) and (y) the Maximum Advance Factor
with respect to such Loan and (b) thereafter, the lesser of (x) the Maximum
Advance Factor with respect to such Loan and (y) to the extent that the Note
Principal Balance as of such day is greater than $300,000,000, 80% for each Loan
(as selected by the Initial Noteholder), the inclusion of which as an asset of
the Trust results in the Note Principal Balance as of such day exceeding
$300,000,000. Notwithstanding the foregoing, with respect to any date of
determination, if the Corporate FCCR Percentage is greater than or equal to 25%
as of such date, the Advance Factor for any Loan having a Corporate Fixed Charge
Coverage Ratio less than or equal to 1.15 will be determined by the Initial
Noteholder in its sole discretion, provided that such Advance Factor shall not
be less than 50%.
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AFFILIATE: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, the term "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have corresponding meanings.
AGREEMENT: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
ALTA: The American Land Title Association and its successors in
interest.
APPROVED BRAND CD FACILITY MORTGAGE LOANS: CD Facility Mortgage Loans
for which the Brand has been approved in writing by the Majority Noteholders in
their sole discretion.
ASSIGNMENT: An LPA Assignment or S&SA Assignment.
ASSIGNMENT OF LOAN DOCUMENTS: With respect to each Loan, a blanket
assignment of the related Loan File (other than those Loan Documents in the Loan
File specifically assigned by another Loan Document) with the assignee in blank,
assigning all of the Loan Originator's right, title and interest in the related
Loan File, including but not limited to, the Promissory Note, the Mortgage and
Security Agreement.
ASSIGNMENT OF MORTGAGE: With respect to any Mortgage Loan, an
assignment in blank of the related Mortgage, notice of transfer or equivalent
instrument in recordable form, sufficient under the laws of the jurisdiction
wherein the related Mortgaged Property is located to reflect the assignment and
pledge of such Mortgage.
AUTOMOTIVE SERVICE FACILITY MORTGAGE LOANS: Mortgage Loans secured by
establishments engaged in the service, repair, maintenance and sale of products
for motor vehicles after their initial sale to the public.
BAILEE: With respect to any Table-Funded Loan, the entity approved by
the Initial Noteholder, in its sole discretion and pursuant to Section 25 of the
Custodial Agreement, (i) to act pursuant to the Bailee Agreement, (ii) to
receive the documents comprising the Indenture Trustee's Loan File and (iii) to
issue the Bailee Trust Receipt.
BAILEE AGREEMENT: A Bailee Agreement, among the Loan Originator, the
Initial Noteholder and a Bailee, substantially in the form of Exhibit E attached
hereto as the same may be amended, supplemented or otherwise modified from time
to time.
BAILEE TRUST RECEIPT: A trust receipt, in the form of Attachment B to
Exhibit E hereto, issued by the Bailee pursuant to the Bailee Agreement.
BASIC DOCUMENTS: This Agreement, the Administration Agreement, the
Custodial Agreement, the Indenture, the Loan Purchase Agreement, the Note
Purchase Agreement, the Trust Agreement, the Collection Account Letter
Agreement, each Hedging Instrument and, as and when required to be executed and
delivered, the Assignments and the Lockbox Agreement.
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BORROWER: The obligor or obligors on a Promissory Note; including any
person who has assumed or guaranteed the obligations of the obligor or obligors
under such Promissory Note. With respect to each Borrower that is a special
purpose entity, "Borrower" shall be deemed to include the lessee (including all
Affiliates of such lessee and any guarantor of the lessee's obligations under
the lease) of the related Loan Collateral.
BRAND: With respect to each Loan, the franchise concept, if any, used
by the Borrower in operating the related Loan Collateral.
BUSINESS DAY: Any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in New York City or in the city in which the
corporate trust office of the Indenture Trustee is located or the city in which
the Servicer's servicing operations are located are authorized or obligated by
law or executive order to be closed.
C&G STORE MORTGAGE LOANS: Mortgage Loans secured by convenience and
gasoline stores.
CAPITALIZED LEASE: Any lease of property by FFCA or any of its
Subsidiaries as lessee that is reflected on FFCA's consolidated balance sheet as
a capitalized lease in accordance with GAAP.
CD FACILITY MORTGAGE LOANS: Mortgage Loans secured by casual dining or
family dining establishments.
CERTIFICATEHOLDER: A holder of a Trust Certificate.
CERTIFICATE REGISTER: The register established pursuant to Section 3.4
of the Trust Agreement.
CLEAN-UP CALL DATE: The first Payment Date occurring on or after the
end of the final Revolving Period on which the Note Principal Balance declines
to 10% or less of the aggregate Note Principal Balance as of the end of such
final Revolving Period.
CLOSING DATE: August 14, 1998, or with respect to a Series of Notes
subsequent to the Series issued on the date hereof, as set forth in the related
Indenture Supplement.
CODE: The Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated by the United States Treasury thereunder.
COLLATERAL VALUE: With respect to each Loan and each Business Day, an
amount equal to (i) the product of the lesser of (x) the Principal Balance of
such Loan after giving effect to all payments received in respect of principal
thereon prior to such Business Day and (y) the Market Value of such Loan,
multiplied by the Advance Factor applicable to such Loan LESS (ii) the aggregate
unreimbursed Servicing Advances and Periodic Advances attributable to such Loan;
provided, however, that the Collateral Value shall be zero with respect to each
Loan (v) where the Unit-Level Fixed Charge Coverage Ratio is less than 1.20 or,
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with respect to the Sonic franchise finance program, 1.15, unless otherwise
specified in writing by the Majority Noteholders in their sole discretion, (w)
that is 30 or more days Delinquent, (x) that the Loan Originator is required to
repurchase pursuant to Section 2.05 or Section 3.05 hereof, (y) that is a
Table-Funded Loan and for which the Custodian has failed to receive the related
Loan Documents by the third Business Day following the applicable Transfer Date
or (z) that is a Table-Funded Loan for which the Custodian has failed to receive
a copy of the related Promissory Note and such other documents as are prescribed
in SECTION 2.04(B) on or prior to the related Transfer Date. The Collateral
Value of a Loan shall be determined taking into consideration any Hedge Value
(or any net negative value) of each Hedging Instrument (as determined by the
Market Value Agent in accordance with Section 4.14(c)) attributable to such Loan
as of such Business Day. With the written consent of the Majority Noteholders in
their sole discretion, as of such Business Day, the Collateral Value shall be
increased (but in no event to an amount greater than par) or decreased, as the
case may be, by all or any portion of the Hedge Value or net negative value of
any Hedging Instrument attributable to such Loan, as of such Business Day, as
the Majority Noteholders may, in their sole discretion, designate in writing. If
as of such Business Day, no Rapid Amortization Trigger or Event of Default shall
be in effect, the aggregate Collateral Value of the Loans shall be reduced or
increased, as the case may be, by the aggregate net Hedge Value as of such
Business Day.
COLLATERAL VALUE EXCESS: With respect to any Business Day, an amount
equal to the positive difference, if any, between (a) (i) the aggregate
Collateral Value of all Loans in the Loan Pool on such Business Day, or (ii) in
the event that a Performance Trigger shall have occurred and not been Deemed
Cured, the aggregate Collateral Value of all Loans in the Loan Pool on such
Business Day multiplied by 0.98 and (b) the Note Principal Balance on such
Business Day.
COLLATERAL VALUE EXCESS DATE: Any Business Day on which a Collateral
Value Excess exists and on which the Initial Noteholder purchases Additional
Note Principal Balance in respect thereof pursuant to SECTION 2.01 hereof.
COLLECTION ACCOUNT: The account designated as such, established and
maintained by the Servicer in accordance with SECTION 5.01(A)(1) hereof.
COLLECTION ACCOUNT LETTER AGREEMENT: the Letter Agreement dated August
14, 1998, between FFCA and the Issuer and acknowledged and agreed to by Norwest
Bank Arizona, N.A., Norwest Investment Services, Inc. and the Indenture Trustee.
CONDEMNATION PROCEEDS: With respect to a Mortgage Loan, all awards or
settlements in respect of the related Mortgaged Property, whether permanent or
temporary, partial or entire, by exercise of the power of eminent domain or
condemnation.
CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE: For any period, the
Consolidated Net Income of FFCA and its Subsidiaries plus amounts which have
been deducted, and minus amounts which have been added, for (a) interest on Debt
of FFCA and its Subsidiaries, (b) provision for taxes of FFCA and its
Subsidiaries based on income, (c) amortization of debt discount, (d) provisions
for gains and losses on properties, (e) depreciation, (f) the effect of any
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non-cash charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period and (g) amortization of deferred
charges.
CONSOLIDATED NET INCOME: For any period, the amount of consolidated
net income (or loss) of FFCA and its Subsidiaries for such period determined on
a consolidated basis in accordance with GAAP.
CORPORATE FIXED CHARGE COVERAGE RATIO: The consolidated operations of
all entities related to the Borrower, calculated as (x) earnings before
depreciation, amortization, interest, rent and taxes, inclusive of overhead,
divided by (y) rent, interest and the current maturity of long-term debt, as
computed by the Loan Originator based on the information most recently provided
by the Borrower prior to the Transfer Date prior to any discretionary "add-back"
adjustments. In computing the Corporate Fixed Charge Coverage Ratio, the Loan
Originator, with the consent of the Initial Noteholder, in its sole discretion,
may take into consideration any guarantee of the obligations of the related
Borrower. For any given Loan, the Corporate Charge Coverage Ratio shall remain
constant from the date the Loan is transferred to the Trust until it is removed
from the Trust.
CORPORATE FCCR PERCENTAGE: As of any date of determination, (x) the
Principal Balance of all Loans which have a Corporate Fixed Charge Coverage
Ratio less than or equal to 1.15, divided by (y) the Principal Balance of all
Loans as of the same date of determination.
CUSTODIAL AGREEMENT: The Amended and Restated Custodial Agreement,
dated as of March 18, 1999, among the Issuer, the Loan Originator, the Servicer,
the Indenture Trustee and the Custodian, providing for the retention of the
Indenture Trustee's Loan Files by the Custodian on behalf of the Indenture
Trustee and all amendments and supplements thereto.
CUSTODIAN: Any custodian appointed by the Indenture Trustee pursuant
to the Custodial Agreement, which custodian shall not be affiliated with the
Servicer, the Loan Originator, any Subservicer or the Depositor. LaSalle
National Bank shall be the initial Custodian pursuant to the terms of the
Custodial Agreement.
CUSTODIAN FEE: If applicable, the annual fee payable to the Custodian,
calculated and payable monthly on each Payment Date pursuant to SECTION
5.01(C)(3)(I) hereof equal to the fee, if any, set forth in the Custodial
Agreement.
DAILY INTEREST ACCRUAL AMOUNT: With respect to each day, interest
accrued at the Note Interest Rate with respect to such day on the Note Principal
Balance as of the preceding Business Day after giving effect to all changes to
the Note Principal Balance on or prior to such preceding day.
DCR: Duff & Phelps Credit Rating Co.
DEBT: Any indebtedness of FFCA or any of its Subsidiaries, whether or
not contingent, in respect of (a) borrowed money or evidenced by bonds, notes,
debentures or similar instruments, (b) indebtedness secured by any mortgage,
pledge, lien, charge, encumbrance or any security interest existing on property
owned by FFCA or any of its Subsidiaries, (c) letters of credit or amounts
representing the balance deferred and unpaid of the purchase price of any
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property except any such balance that constitutes an accrued expense or trade
payable or (d) Capitalized Leases, in the case of items of indebtedness under
(a) through (c) above to the extent that any such items (other than letters of
credit) would appear as liabilities on FFCA's consolidated balance sheet in
accordance with GAAP, and also includes, to the extent not otherwise included,
any obligation by FFCA or any of its Subsidiaries to be liable for, or to pay,
as obligor, guarantor or otherwise (other than for purposes of collection in the
ordinary course of business), indebtedness of another person (other than FFCA or
any of its Subsidiaries) (it being understood that Debt shall be deemed to be
incurred by FFCA or any of its Subsidiaries whenever FFCA or such Subsidiary
shall create, assume, guarantee or otherwise become liable in respect thereof).
DEEMED CURED: A Performance Trigger or Rapid Amortization Trigger
shall be Deemed Cured on the 25th consecutive Business Day on which the
condition that originally gave rise to such event has not continued.
DEFAULT: Any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
DEFAULTED LOAN: With respect to any date of determination, any Loan,
including, without limitation, any Liquidated Loan with respect to which any of
the following has occurred as of the end of the preceding Due Period: (a)
foreclosure or similar proceedings have been commenced; (b) any portion of a
Monthly Payment becomes 59 days past due by the related Borrower; or (c) the
Servicer or any Subservicer has determined in good faith and in accordance with
the Servicing Standard that such Loan is in default or imminent default.
DEFECTIVE LOAN: As defined in SECTION 3.05(A) hereof.
DELETED LOAN: A Loan replaced or to be replaced by one or more than
one Qualified Substitute Loan.
DELINQUENT: A Loan is "Delinquent" if any Monthly Payment due thereon
is not made by the close of business on the day such Monthly Payment is required
to be paid. A Loan is "30 days Delinquent" if any Monthly Payment due thereon
has not been received by the close of business on the corresponding day of the
month immediately succeeding the month in which such Monthly Payment was
required to be paid or, if there is no such corresponding day (e.g., as when a
30-day month follows a 31-day month in which a payment was required to be paid
on the 31st day of such month), then on the last day of such immediately
succeeding month. The determination of whether a Loan is "60 days Delinquent,"
"90 days Delinquent", etc. shall be done in like manner.
DELIVERY: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of
physical delivery (except with respect to Trust Account Property consisting
of certificated securities (as defined in Section 8-102(a)(4) of the UCC)),
physical delivery to the Indenture Trustee or its custodian endorsed to the
Indenture Trustee or its custodian or endorsed in blank;
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(b) with respect to a certificated security (i) delivery of such
certificated security endorsed to, or registered in the name of, the
Indenture Trustee or endorsed in blank to a securities intermediary (as
defined in Section 8-102(a)(14) of the UCC) and the making by such
securities intermediary of appropriate entries in its records identifying
such certificated securities as credited to the securities account (as
defined in Section 8-501(a) of the UCC) of the Indenture Trustee, or (ii)
by delivery thereof to a "clearing corporation" (as defined in Section
8-102(5) of the UCC) and the making by such clearing corporation of
appropriate entries in its records crediting the securities account of a
securities intermediary by the amount of such certificated security and the
making by such securities intermediary of appropriate entries in its
records identifying such certificated securities as credited to the
securities account of the Indenture Trustee (all of the Trust Account
Property described in subsections (a) and (b), "PHYSICAL PROPERTY");
and, in any event, any such Physical Property in registered form shall
be registered in the name of the Indenture Trustee or its nominee or
custodian; and such additional or alternative procedures as may hereafter
become appropriate to effect the complete transfer of ownership of any such
Trust Account Property (as defined herein) to the Indenture Trustee or its
nominee or custodian, consistent with then applicable law or regulations or
the interpretation thereof;
(c) with respect to any security issued by the U.S. Treasury, FNMA or
FHLMC that is a book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations, the following procedures, all
in accordance with applicable law, including applicable federal regulations
and Articles 8 and 9 of the UCC: the making by a Federal Reserve Bank of an
appropriate entry crediting such Trust Account property to an account of a
securities intermediary that is also a "participant" pursuant to applicable
federal regulations; the making by such securities intermediary of
appropriate entries in its records crediting such book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations and Articles 8 and 9 of the UCC to the securities account of
the Indenture Trustee; and such additional or alternative procedures as may
hereafter become appropriate to effect complete transfer of ownership of
any such Trust Account Property to the Indenture Trustee or its nominee or
custodian, consistent with then applicable law or regulations or the
interpretation thereof; and
(d) with respect to any item of Trust Account Property that is an
uncertificated security (as defined in Section 8-102(a)(18) of the UCC) and
that is not governed by clause (c) above, registration in the records of
the Issuer thereof in the name of the securities intermediary, and the
making by such securities intermediary of appropriate entries in its
records crediting such uncertificated certificates to the Indenture
Trustee.
DENOMINATION: With respect to a Note, the portion of the Note
Principal Balance represented by such Note as specified on the face thereof.
DEPOSITOR: FFCA Loan Warehouse Corporation, a Delaware corporation,
and any successor thereto.
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DETERMINATION DATE: With respect to any Payment Date, the tenth
calendar day of the month in which such Payment Date occurs or if such day is
not a Business Day, the immediately preceding Business Day.
DISPOSITION TRIGGER EVENT: Either (i) FFCA or any Subsidiary of FFCA
shall incur any Debt such that the ratio of Consolidated Income Available for
Debt Service to Quarterly Service Charge for the most recent fiscal quarter for
which consolidated financial statements of FFCA are available is less than 2.0
to 1.0 on a pro forma basis after giving effect to the incurrence of such Debt
and the application of the proceeds therefrom or (ii) the rating of the
long-term, senior, unsecured debt obligations of the Servicer is withdrawn by
Moody's or S&P or is downgraded below Ba2, by Moody's, or BB, by S&P.
DISTRIBUTION ACCOUNT: The account established and maintained pursuant
to SECTION 5.01(A)(2) hereof.
DUE DATE: The day of the month on which the Monthly Payment is due
from the Borrower with respect to a Loan.
DUE DILIGENCE PACKAGE: With respect to a Loan, collectively, (i) a
complete and accurate internal credit write-up with respect to the related
Borrower, (ii) a site inspection and valuation report with respect to the
Mortgaged Property consistent with the Underwriting Guidelines, (iii) (x) if
such Loan is a C&G Store Mortgage Loan, a copy of the schedule to the insured
properties declaration of the Environmental Policy or letter from an
Environmental Insurer evidencing that such Mortgage Loan is covered by the
Environmental Policy and (y) in the case of each other Mortgage Loan, (I) (x) a
copy of a Phase I environmental assessment conducted with respect to the related
Mortgaged Property, that concluded that no further investigation of the related
Mortgaged Property was necessary or (y) in those cases where the Phase I
environmental assessment concluded that further investigation of such Mortgaged
Property was necessary, copies of the Phase II environmental assessments
conducted with respect to the related Mortgaged Property, evidencing that no
remediation or other further action was required with respect to such Mortgaged
Property or (II) a copy of the schedule to the insured properties declaration of
the Environmental Policy or letter from an Environmental Insurer evidencing that
such Mortgage Loan is covered by the Environmental Policy, (iv) a complete
description of any modifications made to such Loan since the completion of
funding contemplated under the applicable Loan Documents, without limitation,
any information concerning any prior borrower with respect to any of the related
Loan Collateral, (v) the Corporate Fixed Charge Coverage Ratio and the
Unit-Level Fixed Charge Coverage Ratio, (vi) information concerning all pending
or overtly threatened lawsuits and legal actions related to the Borrower and
actually known by the Loan Originator which are reasonably expected to result in
cumulative liabilities of $100,000 or more net of expected recoveries from
insurance or other third party sources, together with an estimate by the Loan
Originator as to the potential financial and operational magnitude of the
related lawsuit and (vii) such other information as may be reasonably requested
by the Majority Noteholders from time to time.
DUE PERIOD: With respect to any Determination Date or Payment Date,
the calendar month immediately preceding such Determination Date or Payment
Date, as the case may be.
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ELIGIBLE ACCOUNT: At any time, an account which is: (i) maintained
with a depository institution or trust company (A) the long-term debt
obligations of which are at such time rated by each Rating Agency in one of
their three highest long-term rating categories or (B) the short-term debt
obligations of which are then rated by each Rating Agency in their highest
short-term rating category; (ii) fully insured by either the Bank Insurance Fund
or the Savings Association Insurance Fund of the FDIC; (iii) a trust account
(which shall be a "segregated trust account") maintained with the corporate
trust department of a federal or state chartered depository institution or trust
company with trust powers and acting in its fiduciary capacity for the benefit
of the Indenture Trustee and the Issuer, which depository institution or trust
company shall have capital and surplus of not less than $50,000,000; or (iv)
with the prior written consent of the Majority Noteholders, any other account.
(Each reference in this definition of "Eligible Account" to the Rating Agency
shall be construed as a reference to Moody's and DCR).
ELIGIBLE SERVICER: A Person that (a) (i) has demonstrated the ability
professionally and competently to service a portfolio of commercial mortgage
loans similar to the Loans and (ii) has a net worth calculated in accordance
with GAAP of at least $5,000,000 or (b) any other Person to which the Majority
Noteholders may consent in writing.
ENVIRONMENTAL INSURER: American International Specialty Lines
Insurance Company, a member company of American International Group, Inc., or
such other environmental insurer as the Majority Noteholders in their sole
discretion may consent to in writing.
ENVIRONMENTAL POLICY: Any one of the secured creditor impaired
property policies issued by an Environmental Insurer, together with any
endorsements thereto, insuring the Loan Originator and the Indenture Trustee, as
their interests appear, for losses with respect to certain Mortgage Loans caused
by the presence of hazardous substances on or the migration of hazardous
substances from the related Mortgage Properties, acceptable to the Majority
Noteholders in their reasonable discretion, provided that the Environmental
Policy issued by American International Specialty Lines Insurance Company shall
be deemed acceptable to the Majority Noteholders.
EQUIPMENT: All personalty, furniture, securities and any other
property or assets of any kind securing an Equipment Loan.
EQUIPMENT LOAN: A Loan secured by a valid and enforceable security
interest in Equipment of the related Borrower, evidenced by a Security Agreement
and, if applicable, Loan Agreement with respect to such Equipment.
ESCROW ACCOUNT: The separate account or accounts, each of which shall
be an Eligible Account, created and maintained pursuant to SECTION 4.05 hereof.
ESCROW INSTRUCTIONS: Escrow Instructions to the Settlement Agent,
substantially in the form of EXHIBIT F attached hereto as the same may be
amended, supplemented or otherwise modified from time to time.
ESCROW PAYMENTS: With respect to any Mortgage Loan, the amounts
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, fire, hazard, liability and other insurance premiums,
condominium charges, and any other payments required to be escrowed by the
related Borrower with the lender pursuant to the Mortgage or any other document.
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EVENT OF DEFAULT: As described in SECTION 10.01 hereof.
EXTENSION DATE: Any day on which there occurs a Securitization of
Loans with an aggregate Principal Balance at least equal to 66.67% (or such
lesser amount as may be agreed to in writing by the Majority Noteholders) of the
Pool Principal Balance as of the closing date with respect to such
Securitization, and with respect to which Securitization (i) the sum of (x) the
cash Securitization Proceeds and (y) the Retained Securities Value of any
Retained Securities issued in connection therewith was at least equal to the
aggregate Principal Balance of the Loans included in such Securitization as of
the closing date with respect to such Securitization and (ii) immediately after
giving effect to the sale of Loans pursuant to such Securitization, no Borrower
has an Individual Borrower Concentration greater than $30,000,000.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FFCA: Franchise Finance Corporation of America, a Delaware
corporation.
FFCA ACQUISITION CORP.: FFCA Acquisition Corporation, a Delaware
corporation.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
FIDELITY BOND: As described in SECTION 4.03 hereof.
FNMA: The Federal National Mortgage Association and any successor
thereto.
FORECLOSED LOAN: As of any date of determination, (a) any Mortgage
Loan that has been discharged as a result of (i) the completion of foreclosure
or comparable proceedings; (ii) the Owner Trustee's acceptance of the deed or
other evidence of title to the related Mortgaged Property in lieu of foreclosure
or other comparable proceeding; or (iii) the acquisition by the Owner Trustee of
title to the related Mortgaged Property by operation of law and (b) any
Equipment Loan that has been discharged as a result of a repossession or
comparable conversion of the ownership of the related Equipment.
FORECLOSURE PROPERTY: Any real property securing a Foreclosed Loan
that has been acquired by the Servicer through foreclosure, deed in lieu of
foreclosure or similar proceedings in respect of the related Loan if such
Foreclosed Loan is a Mortgage Loan or personalty securing a Foreclosed Loan
acquired by the Servicer pursuant to a foreclosure or other appropriate
procedure in accordance with applicable law if such Foreclosed Loan is an
Equipment Loan.
GAAP: Generally accepted accounting principles as in effect in the
United States.
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GROUND LEASE: A lease for which the related Borrower has a leasehold
interest as a lessee of either the land, or the land and the improvements,
located at the related Mortgaged Property.
HAZARDOUS MATERIAL: Each of (a) those substances included within the
definitions of any one or more of the terms "contaminants," "pollutants,"
"hazardous substances," "hazardous materials" and "toxic substances" in CERCLA,
RCRA, and the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
ss.ss. 1801 et seq., and in the regulations promulgated pursuant thereto; (b)
those substances listed in the United States Department of Transportation Table
(49 CFR ss. 172. 101 and amendments thereto) or by the Environmental Protection
Agency (or any successor agency) (40 CFR ss. 302 and amendments thereto) as
hazardous substances; (c) such other substances, materials and wastes that are
or become regulated under applicable local, state or federal laws or
regulations, or that are classified as hazardous or toxic under federal, state
or local laws or regulations; and (d) any materials, wastes or substances that
are (i) petroleum, (ii) polychlorinated biphenyl, (iii) within the definition of
"hazardous substance" set forth in Section 311 of the Clean Water Act, (33
U.S.C. ss. 1321) or designated as "toxic pollutants" subject to Chapter 26 of
the Clean Water Act pursuant to SECTION 307 to the Clean Water Act (33 U.S.C.
ss. 1317), (iv) flammable substances or explosives, or (v) radioactive
materials.
HEDGE FUNDING REQUIREMENT: With respect to any day, all amounts
required to be paid or delivered by the Issuer under any Hedging Instrument,
whether in respect of payments thereunder or in order to meet margin, collateral
or other requirements thereof.
HEDGE VALUE: With respect to any Business Day and a specific Hedging
Instrument, the amount, if any, that is equal to the amount that would be paid
to the Issuer (expressed as a positive number) or paid by the Issuer (expressed
as a negative number) in consideration of an agreement between the Issuer and an
unaffiliated third party, that would have the effect of preserving for the
Issuer the net economic equivalent, as of such Business Day, of all payment and
delivery requirements payable to and by the Issuer under such Hedging Instrument
until the termination thereof, as determined by the Market Value Agent in
accordance with SECTION 4.14 hereof.
HEDGING COUNTERPARTY: A Person (i) (A) the long-term and commercial
paper or short-term deposit ratings of which are acceptable to the Majority
Noteholders and (B) which shall agree in writing that, in the event that any of
its long-term or commercial paper or short-term deposit ratings cease to be at
or above the levels deemed acceptable by the Majority Noteholders, it shall
secure its obligations in accordance with the reasonable request of the Majority
Noteholders, (ii) that has entered into a Hedging Instrument and (iii) that is
acceptable to the Majority Noteholders; provided, that as of the date hereof,
NationsBank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and the
Bank of Montreal shall be deemed to be acceptable to the Majority Noteholders.
HEDGING INSTRUMENT: Any interest rate cap agreement, interest rate
floor agreement, interest rate swap agreement or other interest rate hedging
agreement entered into by the Issuer with a Hedging Counterparty, and which
requires the Hedging Counterparty to deposit all amounts payable thereby
directly to the Collection Account. Each Hedging Instrument shall meet the
requirements set forth in ARTICLE VIII hereof with respect thereto.
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IDENTIFICATION CERTIFICATE: A certificate originated by the Loan
Originator, substantially in the form of Attachment A to the Bailee Agreement,
attached hereto as Exhibit E.
INDENTURE: The Indenture dated as of August 14, 1998, together with
the Indenture Supplement, between the Issuer and the Indenture Trustee.
INDENTURE SUPPLEMENT: With respect to a Series of Notes, the Indenture
Supplement pursuant to which such Series of Notes was issued.
INDENTURE TRUSTEE: LaSalle National Bank, a national banking
association, as Indenture Trustee under the Indenture and this Agreement acting
on behalf of the Noteholders, or any successor indenture trustee under the
Indenture or this Agreement.
INDENTURE TRUSTEE FEE: As to any Payment Date, $750.
INDENTURE TRUSTEE'S LOAN FILE: As defined in SECTION 2.04(A) hereof.
INDEPENDENT: When used with respect to any specified Person, such
Person (i) is in fact independent of the Loan Originator, the Servicer, the
Depositor or any of their respective Affiliates, (ii) does not have any direct
financial interest in, or any material indirect financial interest in, any of
the Loan Originator, the Servicer, the Depositor or any of their respective
Affiliates and (iii) is not connected with any of the Loan Originator, the
Servicer, the Depositor or any of their respective Affiliates, as an officer,
employee, promoter, underwriter, trustee, partner, director or Person performing
similar functions; provided, however, that a Person shall not fail to be
Independent of the Loan Originator, the Servicer, the Depositor or any of their
respective Affiliates merely because such Person is the beneficial owner of 1%
or less of any class of securities issued by the Loan Originator, the Servicer,
the Depositor or any of their respective Affiliates, as the case may be.
INDEPENDENT ACCOUNTANTS: A firm of nationally recognized certified
public accountants which is Independent.
INDIVIDUAL BORROWER CONCENTRATION: With respect to each Borrower and
as of any date of determination, the aggregate Principal Balance of Loans in the
Loan Pool with respect to which such Borrower (including all Affiliates thereof)
is an obligor or guarantor under the related Promissory Note.
INITIAL CERTIFICATION: The meaning set forth in the Custodial
Agreement.
INITIAL NOTEHOLDER: MSSFI.
INSURANCE POLICIES: With respect to any Loan Collateral, any related
insurance policy.
INSURANCE PROCEEDS: With respect to any Loan Collateral, all amounts
collected in respect of Insurance Policies and not required either pursuant to
applicable law or the related Loan Documents to be applied to the restoration of
the related Loan Collateral or paid to the related Borrower.
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INSURED CLOSING LETTER: A letter addressed to the Initial Noteholder
and the Indenture Trustee from the title insurance underwriter for which the
Settlement Agent is serving as an agent for each Table-Funded Loan, which letter
shall be in form and substance reasonably acceptable to the Initial Noteholder.
INTEREST CARRY-FORWARD AMOUNT: With respect to any Payment Date, the
excess, if any, of (A) the Interest Payment Amount for such Payment Date plus
the Interest Carry-Forward Amount for the prior Payment Date over (B) the amount
in respect of interest that is actually paid from the Distribution Account on
such Payment Date in respect of the interest for such Payment Date.
INTEREST PAYMENT AMOUNT: With respect to any Payment Date, the sum of
the Daily Interest Accrual Amounts for all days in the related Accrual Period.
LASALLE NATIONAL BANK: LaSalle Bank National Association f/k/a LaSalle
National Bank, a national banking association.
LIBOR: With respect to each day, the rate for United States dollar
deposits for one month that appears on the Telerate Screen Page 3750 as of 11:00
a.m., London time, on the related LIBOR Determination Date. If such rate does
not appear on such page (or such other page as may replace that page on that
service, or if such service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be reasonably selected by the
Initial Noteholder), LIBOR for the applicable day will be the Reference Bank
Rate. If no such quotations can be obtained by the Initial Noteholder and no
Reference Bank Rate is available, LIBOR will be LIBOR applicable to the first
preceding day on which LIBOR has been determined in accordance with this
definition.
LIBOR BUSINESS DAY: Any day on which banks are open for dealing in
foreign currency and exchange in London and New York City.
LIBOR DETERMINATION DATE: With respect to each day that is a LIBOR
Business Day, such LIBOR Business Day, and with respect to any day that is not a
LIBOR Business Day, the LIBOR Business Day preceding such day, as determined by
the Initial Noteholder.
LIBOR MARGIN: With respect to each day, a percentage equal to the sum
of:
(a) in the case of Other Mortgage Loans: (I) the sum for all Other
Mortgage Loans of the product for each Other Mortgage Loan of (A) the applicable
Loan Margin and (B) the applicable Other Margin Balance as of such day, divided
by (II) the Note Principal Balance as of such day,
(b) in the case of Mortgage Loans (exclusive of Other Mortgage Loans)
up to $300,000,000 of related Note Principal Balance: 0.70% multiplied by a
fraction, (I) the numerator of which is the positive difference, if any, of (A)
the lesser of (i) $300,000,000 and (ii) the Note Principal Balance as of such
day minus (B) the sum of all Other Margin Balances as of such day and (II) the
denominator of which is the Note Principal Balance as of such day, and
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(c) in the case of Mortgage Loans (exclusive of Other Mortgage Loans)
in excess of $300,000,000 of related Note Principal Balance: 1.00% multiplied by
a fraction, (I) the numerator of which is the positive difference, if any, of
(A) the Note Principal Balance as of such day minus (B) the sum of (i) the sum
of all Other Margin Balances as of such day and (ii) the amount stated in clause
(b)(I) above, as of such day, and (II) the denominator of which is the Note
Principal Balance as of such day.
The intent of the foregoing LIBOR Margin formula is to calculate the
LIBOR Margin attributable to Other Mortgage Loans solely in clause (a) and to
calculate the LIBOR Margin attributable to Mortgage Loans in clauses (b) and (c)
based on the relative portion of Note Principal Balance attributable to such
Mortgage Loans under and in excess of $300,000,000, calculated, in the case of
(b) and (c), without counting Other Mortgage Loans.
LIQUIDATED LOAN: With respect to any date of determination, any
Foreclosure Property or any Loan in respect of which a Monthly Payment is in
excess of 30 days past due and as to which the Servicer has determined, in
accordance with the Servicing Standard, that all amounts which it reasonably and
in good faith expects to collect have been recovered from or on account of such
Loan or the related Foreclosure Property; provided, however, that in any event
such Loan or the related Foreclosure Property shall be deemed uncollectible and
therefore be a Liquidated Loan upon the earliest to occur of: (a) the
liquidation of the related Foreclosure Property, (b) the determination by the
Servicer, in accordance with the Servicing Standard, that no further amounts are
collectible from the Loan and any related Loan Collateral, or (c) the date on
which any portion of a Monthly Payment on any Loan is in excess of 59 days past
due (without regard to any applicable grace periods).
LIQUIDATED LOAN LOSSES: With respect to any date of determination, the
difference between (i) the aggregate Principal Balances as of such date of all
Loans that became Liquidated Loans and (ii) all Liquidation Proceeds allocable
to principal received prior to such date.
LIQUIDATION PROCEEDS: With respect to a Liquidated Loan, any cash
amounts received in connection with the liquidation of such Liquidated Loan,
whether through trustee's sale, foreclosure sale or other disposition, any cash
amounts received in connection with the management of the Loan Collateral from
Defaulted Loans and any other amounts required to be deposited in the Collection
Account pursuant to SECTION 5.01(B)(1) hereof, in each case other than Insurance
Proceeds, Released Loan Collateral Proceeds and any proceeds of Retained
Interests, provided, however, that no Liquidation Proceeds shall be allocated to
Retained Interest until all other amounts owing under the Promissory Note shall
have been paid.
LOAN: Any Equipment Loan or Mortgage Loan.
LOAN AGREEMENT: With respect to each Loan, the related loan agreement
between the Borrower and the Loan Originator.
LOAN COLLATERAL: With respect to an Equipment Loan, all of the
Equipment securing such Equipment Loan, with respect to a Mortgage Loan, all of
the Mortgaged Property securing such Mortgage Loan and with respect to a Senior
Loan, all of the Equipment and/or Mortgaged Property securing such Senior Loan.
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LOAN DOCUMENTS: With respect to a Loan, the documents comprising the
Indenture Trustee's Loan File for such Loan.
LOAN FILE: With respect to each Loan, the Indenture Trustee's Loan
File and the Servicer's Loan File.
LOAN INTEREST RATE: With respect to each Loan, the annual rate of
interest borne by the related Promissory Note, as shown on the Loan Schedule, as
the same may be modified by the Servicer in accordance with SECTION 4.01(A)
hereof and, in the case of an Adjustable Rate Loan, as the same may be
periodically adjusted in accordance with the terms of such Loan.
LOAN MARGIN: With respect to each Other Mortgage Loan, the applicable
margin over LIBOR for the Note Principal Balance relating to each such Other
Mortgage Loan. The Loan Margin for each Other Mortgage Loan is 0.70% unless
otherwise agreed in writing between the Servicer and the Majority Noteholders.
LOAN ORIGINATOR: FFCA Acquisition Corporation, in its capacity as the
Loan Originator hereunder.
LOAN ORIGINATOR PUT: The mandatory repurchase by the Loan Originator,
at the option of the Majority Noteholders, of a Loan pursuant to SECTION 3.07(A)
hereof.
LOAN POOL: As of any date of determination, the pool of all Loans
conveyed to the Issuer pursuant to this Agreement on all Transfer Dates up to
and including such date of determination, which Loans have not been released
from the Lien of the Indenture pursuant to the terms thereof, together with the
rights and obligations of a holder thereof, and the payments thereon and
proceeds therefrom received after the applicable Transfer Cutoff Date, as
identified from time to time on the Loan Schedule.
LOAN PURCHASE AGREEMENT: The Loan Purchase Agreement between the Loan
Originator and the Depositor, dated as of August 14, 1998, and all amendments
and supplements thereto.
LOAN SCHEDULE: The schedule of Loans conveyed to the Issuer and
delivered to the Initial Noteholder in the form of a computer-readable
transmission specifying the following information with respect to each Loan
conveyed on such date: (i) the Loan Originator's internal loan identifying
number; (ii) the Borrower's name as it appears on the related Promissory Note;
(iii) the name of the Borrower group (to be input consistently for purposes of
computing the Individual Borrower Concentration); (iv) in the case of a Mortgage
Loan, the street address, city, state and zip code of the Mortgaged Property;
(v) the original Principal Balance; (vi) the Transfer Cutoff Date Principal
Balance; (vii) the Loan Interest Rate at origination; (viii) the date of
origination; (ix) the industry segment (e.g., CD Facility, C&G Store, QSR
Store); (x) the type of Loan (e.g., Mortgage, Equipment); (xi) the Monthly
Payment as of such Transfer Cutoff Date; (xii) the scheduled maturity date under
the Promissory Note; (xiii) the Corporate Fixed Charge Coverage Ratio; (xiv)
with respect to the Unit-Level Fixed Charge Coverage Ratio, a flag indicating
whether such figure is a calculation of the Unit-Level Fixed Charge Coverage
Ratio with respect to the single unit or in the aggregate; (xv) the Brand; (xvi)
a Prepayment Code; (xvii) a Product Code with respect to such Loan; (xviii) if
such Loan is an Adjustable Rate Loan, the interest rate spread over LIBOR; (xix)
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in the case of a Mortgage Loan, the loan to replacement cost ratio for the
related Mortgaged Property (if obtained); (xx) the Maximum Advance Factor, to
the extent changed by written agreement between the Servicer and the Majority
Noteholders in their sole discretion; (xxi) a code indicating whether the Loan
is a Table-Funded Loan; and (xxii) such other information as may be reasonably
requested by the Majority Noteholders.
LOAN SCHEDULE AND EXCEPTIONS REPORT: The meaning set forth in the
Custodial Agreement.
LOCKBOX ACCOUNT: A demand deposit account or an Eligible Account held
by the Lockbox Bank acceptable to the Majority Noteholders.
LOCKBOX AGREEMENT: An agreement acceptable to the Indenture Trustee
and the Majority Noteholders among the Lockbox Bank, the Servicer, the
Depositor, the Issuer and the Indenture Trustee.
LOCKBOX BANK: A depository institution named by the Servicer and
agreed to by the Majority Noteholders.
LOCKBOX TRIGGER EVENT: The Majority Noteholders, in their sole
discretion may declare the occurrence of a Lockbox Trigger Event at any time
after the Closing Date if the long-term unsecured debt obligations of FFCA (i)
fail to be rated at least BBB- by DCR and Baa3 by Moody's or are not rated by
either of DCR or Moody's and (ii) such condition continues for 30 days after the
occurrence thereof.
LONDON BUSINESS DAY: A day on which dealings in deposits in United
States dollars are transacted in the London interbank market.
LPA ASSIGNMENT: An Assignment of Loans from the Loan Originator to the
Depositor under the Loan Purchase Agreement.
MAJORITY NOTEHOLDERS: The holder or holders of in excess of 50% of the
Note Principal Balance. In the event of the release of the Lien of the Indenture
in accordance with the terms thereof, the Majority Noteholders shall mean the
Majority Certificateholders.
MAJORITY CERTIFICATEHOLDERS: The meaning set forth in the Trust
Agreement.
MARKET VALUE: With respect to each Loan and each Business Day, the
Market Value of such Loan as of such Business Day as determined by the Market
Value Agent in accordance with SECTION 4.14 hereof.
MARKET VALUE AGENT: Morgan Stanley & Co. Incorporated and its
successors and assigns.
MATURITY DATE: With respect to the Notes of a given Series, as set
forth in the related Indenture Supplement or such later date as may be agreed in
writing by the Majority Noteholders.
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MAXIMUM ADVANCE FACTOR: With respect to each Loan and any date of
determination, a percentage determined as follows:
(i) with respect to QSR Store Mortgage Loans with the related
Borrower's Individual Borrower Concentration of (a) less than
$20,000,000, 92.5%, (b) equal to or greater than $20,000,000 and less
than $40,000,000, 90.0% and (c) equal to or greater than $40,000,000,
85.0%;
(ii) with respect to C&G Store Mortgage Loans with the related
Borrower's Individual Borrower Concentration of (a) less than
$20,000,000, 92.5%, (b) equal to or greater than $20,000,000 and less
than $40,000,000, 90.0% and (c) equal to or greater than $40,000,000,
85.0%;
(iii) with respect to Approved Brand CD Facility Mortgage Loans
with the related Borrower's Individual Borrower Concentration of (a)
less than $20,000,000, 85.0%, (b) equal to or greater than $20,000,000
and less than $40,000,000, 80.0% and (c) equal to or greater than
$40,000,000, 75.0%;
(iv) with respect to Other CD Facility Mortgage Loans with the
related Borrower's Individual Borrower Concentration of (a) less than
$20,000,000, 85.0%, (b) equal to or greater than $20,000,000 and less
than $40,000,000, 80.0% and (c) equal to or greater than $40,000,000,
0.0%;
(v) with respect to Automotive Service Facility Mortgage Loans
with the related Borrower's Individual Borrower Concentration of (a)
less than $20,000,000, 85.0%, (b) equal to or greater than $20,000,000
and less than $40,000,000, 80.0% and (c) equal to or greater than
$40,000,000, 75.0%;
(vi) with respect to Other Mortgage Loans, the percentage or
percentages to which the Majority Noteholders and the Issuer have
agreed in writing prior to the Transfer Date relating thereto;
(vii) with respect to each Equipment Loan, the Maximum Advance
Factor applicable to the related Mortgage Loan; and
(viii) in the event the Corporate FCCR Percentage is greater than
or equal to 25% with respect to each Loan having a Corporate Fixed
Charge Coverage Ratio less than or equal to 1.15, such amount (not to
be less than 50%) as the Initial Noteholder may designate in its sole
discretion;
provided that, with respect to Loans (a) having Retained
Interests, to the extent the aggregate Principal Balance of such Loans
equals or exceeds 5% of the Pool Principal Balance as of such date,
each such Loan in excess thereof shall have a Maximum Advance Factor
of 0.0%, (b) that have been included in the Trust Estate (i) for a
period in excess of one year from the Transfer Date thereof or (ii)
after completion of two Securitizations since the applicable Transfer
Date for such Loan, each such Loan shall have a Maximum Advance Factor
of 0.0% and (c) which are Senior Loans (ignoring the proviso to the
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definition thereof), to the extent that the aggregate Principal
Balance of such Senior Loans equals or exceeds 20% of the Pool
Principal Balance as of such date, each such Senior Loan in excess
thereof shall have a Maximum Advance Factor of 0.0%. The Maximum
Advance Factor with respect to each Loan may also be reduced as
provided in SECTION 3.09(C) hereof.
The definition of Maximum Advance Factor may be changed upon the
written agreement of the Majority Noteholders, in their sole
discretion, and the Servicer.
MAXIMUM NOTE PRINCIPAL BALANCE: For any Series of Notes, as set forth
in the related Indenture Supplement.
MONTHLY PAYMENT: The scheduled monthly payment of principal and/or
interest required to be made by an Borrower on the related Loan, as set forth in
the related Promissory Note.
MOODY'S: Moody's Investors Service, Inc., or any successor thereto.
MORTGAGE: With respect to any Mortgage Loan, the mortgage, deed of
trust or other instrument securing the related Promissory Note, which creates a
first lien on the fee in real property and/or a first lien on the leasehold
estate in real property securing the Promissory Note and the assignment of rents
and leases related thereto.
MORTGAGE LOAN: Any C&G Store Mortgage Loan, CD Facility Mortgage Loan,
QSR Store Mortgage Loan, Automotive Service Facility Mortgage Loan or Other
Mortgage Loan pledged to the Indenture Trustee pursuant to the Indenture, and
which Mortgage Loan includes, without limitation, (i) a Mortgage Note and
related Mortgage and (ii) all right, title and interest of the Loan Originator
in and to the Mortgaged Property covered by such Mortgage. The term Mortgage
Loan shall be deemed to include the related Mortgage Note, related Mortgage and
related Foreclosure Property, if any. The term Mortgage Loan shall exclude any
Retained Interest.
MORTGAGED PROPERTY: With respect to a Mortgage Loan, the related
mortgagor's fee and/or leasehold interest in the real property (and/or all
improvements, buildings, fixtures, building equipment and personal property
thereon (to the extent applicable) and all additions, alterations and
replacements made at any time with respect to the foregoing) and all other
collateral securing repayment of the debt evidenced by the related Promissory
Note.
MSSFI: Morgan Stanley Securitization Funding Inc.
NEGATIVE AMORTIZATION: With respect to each Adjustable Rate Loan, any
amounts in respect of interest accrued thereon for any Payment Period in excess
of the amount of the Monthly Payment thereon for the related Due Date, which
amounts are capitalized and added to the Principal Balance of such Adjustable
Rate Loan.
NEGATIVE AMORTIZATION CAP: With respect to any Adjustable Rate Loan,
the fixed percentage specified in the related Promissory Note as the percentage
of the original principal balance of such Loan for purposes of determining
whether any Negative Amortization Payment is payable as a part of the Monthly
Payment on such Loan for any Due Date.
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NEGATIVE AMORTIZATION PAYMENT: With respect to any Adjustable Rate
Loan and any Due Date immediately succeeding a Due Date on which the addition of
Negative Amortization to the Principal Balance of such Loan caused such
Principal Balance to be more than the product of the Negative Amortization Cap
for such Loan and the original principal balance of such Loan, a prepayment of
principal that is payable (without penalty) by the related Borrower on such
immediately succeeding Due Date in an amount equal to the difference between the
Principal Balance of such Loan and the original principal balance of such Loan.
NET LIQUIDATION PROCEEDS: With respect to any Payment Date,
Liquidation Proceeds received during the period commencing on the preceding
Payment Date and ending on the Business Day immediately prior to such Payment
Date, net of any reimbursements to the Servicer made from such amounts for any
unreimbursed Servicing Compensation, Servicing Advances and Periodic Advances
(including Nonrecoverable Servicing Advances and Nonrecoverable Periodic
Advances) made and any other fees and expenses paid in connection with the
foreclosure, conservation and liquidation of the related Liquidated Loans or
Foreclosure Properties pursuant to SECTION 4.11 hereof.
NET LOAN INTEREST RATE: With respect to each Loan, the related Loan
Interest Rate, less the rate at which the Servicing Fee is calculated.
NET LOAN LOSSES: With respect to any Defaulted Loan that is subject to
a modification pursuant to SECTION 4.01(E) hereof, an amount equal to the
portion of the Principal Balance, if any, released in connection with such
modification.
NONRECOVERABLE PERIODIC ADVANCE: Any portion of a Periodic Advance
previously made or proposed to be made in respect of a Loan which has not been
previously reimbursed to the Servicer and which, in the good faith judgment of
the Servicer, will not, or in the case of a proposed Periodic Advance would not,
be ultimately recoverable from Liquidation Proceeds or other recoveries in
respect of the related Loan. The determination by the Servicer that (i) it has
made a Nonrecoverable Periodic Advance or (ii) that any proposed advance, if
made, would constitute a Nonrecoverable Periodic Advance, shall be evidenced by
a certificate of a Servicing Officer promptly delivered to the Initial
Noteholder detailing the reasons for such determination.
NONRECOVERABLE SERVICING ADVANCE: With respect to any Foreclosure
Property, (a) any Servicing Advance previously made and not reimbursed from late
collections, Liquidation Proceeds, Insurance Proceeds or the Released Property
Proceeds or (b) a Servicing Advance proposed to be made in respect of a Loan or
Foreclosure Property either of which, in the good faith business judgment of the
Servicer, as evidenced by an Officer's Certificate delivered to the Initial
Noteholder, would not be ultimately recoverable.
NOTE: The meaning assigned thereto in the Indenture.
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NOTE INTEREST RATE: Interest will accrue on the Notes on each day at a
per annum interest rate equal to LIBOR for the related LIBOR Determination Date
plus the LIBOR Margin for such day.
NOTE PRINCIPAL BALANCE: With respect to the Notes, as of any date of
determination (a) the sum of the Additional Note Principal Balances of all Notes
purchased on or prior to such date pursuant to the Note Purchase Agreement less
(b) all amounts previously distributed in respect of principal of the Notes
prior to such day.
NOTE PURCHASE AGREEMENT: The Note Purchase Agreement among MSSFI, the
Issuer, the Depositor and the Loan Originator, dated as of August 14, 1998 and
all amendments and supplements thereto.
NOTE REDEMPTION AMOUNT: As of any date of determination, an amount
without duplication equal to the sum of (i) then outstanding Note Principal
Balance plus all accrued and unpaid interest thereon (ii) any Trust Fees and
Expenses due and unpaid on such date, (iii) any Servicing Advance Reimbursement
Amount and (iv) any Nonrecoverable Periodic Advances.
NOTEHOLDER: The meaning assigned thereto in the Indenture.
OFFICER'S CERTIFICATE: A certificate delivered to the Indenture
Trustee or the Issuer signed by the President or a Vice President or an
Assistant Vice President of the Depositor, the Servicer or the Loan Originator,
in each case, as required by this Agreement.
OPINION OF COUNSEL: A written opinion of counsel who may be employed
by the Loan Originator, the Servicer, the Depositor or any of their respective
Affiliates.
OPTIMAL PRINCIPAL PAYMENT AMOUNT: On each Payment Date, an amount
equal to the sum of (a) the positive difference, if any, between (i) aggregate
Collateral Value of all Loans in the Loan Pool for the prior Payment Date and
(ii) the aggregate Collateral Value of all Loans in the Loan Pool for such
Payment Date, (b) the Overcollateralization Shortfall for such Payment Date, and
(c) on each Payment Date on which a Securitization shall occur, an amount equal
to the cash Securitization Proceeds, provided, however, that on (A) the Maturity
Date, or (B) the Payment Date on which the Trust is to be terminated pursuant to
SECTION 11.02 hereof, the Optimal Principal Payment Amount shall be equal to the
Note Principal Balance. Notwithstanding anything to the contrary herein, in no
event shall the Optimal Principal Payment Amount with respect to any Payment
Date exceed the Note Principal Balance as of such date.
OTHER CD FACILITY MORTGAGE LOANS: CD Facility Mortgage Loans other
than Approved Brand CD Facility Mortgage Loans.
OTHER MARGIN BALANCES: With respect to each date and each Other
Mortgage Loan, (i) the product of (a) the Principal Balance of such Other
Mortgage Loan as of such date, (b) the Maximum Advance Factor for such Other
Mortgage Loan as of such date and (c) the Note Principal Balance as of such
date, divided by (ii) the sum for all Loans of the product of (a) the Principal
Balance of each such Loan as of such date and (b) the Maximum Advance Factor for
each such Loan as of such date.
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OTHER MORTGAGE LOANS: Senior Loans and Mortgage Loans other than QSR
Store Mortgage Loans, C&G Store Mortgage Loans, CD Facility Mortgage Loans,
Equipment Loans or Automotive Service Facility Mortgage Loans and as to which
the Majority Noteholders, in their sole discretion, have consented in writing
delivered pursuant to the terms hereof and which may include, without
limitation, truck stops, automotive parts and/or service facilities and car
washes.
OUTSTANDING: As defined in the Indenture.
OVERCOLLATERALIZATION SHORTFALL: With respect to any Business Day, an
amount equal to the positive difference, if any, between (a) the Note Principal
Balance on such Business Day and (b) (i) the aggregate Collateral Value of all
Loans in the Loan Pool on such Business Day, or (ii) in the event that a
Performance Trigger shall have occurred and not been Deemed Cured, the aggregate
Collateral Value of all Loans in the Loan Pool on such Business Day multiplied
by 0.98.
OWNER TRUSTEE: Wilmington Trust Company, as owner trustee under the
Trust Agreement, and any successor owner trustee under the Trust Agreement.
OWNER TRUSTEE FEE: The annual fee of $2,500 pursuant to the agreement
mentioned in Section 8.1 of the Trust Agreement, payable in equal monthly
installments to the Servicer which shall in turn pay, in one lump sum, such
$2,500 to the Owner Trustee on the Payment Date occurring in August each year
during the term of this Agreement, commencing in August 1999.
PAYMENT DATE: The second Business Day following each Determination
Date. From time to time, the Majority Noteholders and the Issuer may agree, upon
written notice to the Indenture Trustee, to additional Payment Dates in
accordance with SECTION 5.01(C)(3).
PAYMENT PERIOD: With respect to each Adjustable Rate Loan, the period
commencing on the first day of each calendar year and ending on the last day of
such calendar year.
PAYMENT RESET DATE: With respect to each Adjustable Rate Loan, the
first day of the calendar year or, if such day is not a Business Day, the next
succeeding Business Day.
PAYMENT STATEMENT: As defined in SECTION 6.01(B) hereof.
PERCENTAGE INTEREST: As defined in the Trust Agreement.
PERFORMANCE TRIGGER: With respect to any Business Day, a Performance
Trigger shall mean the existence of one or more of the following conditions as
of such Business Day:
(i) (x) the aggregate Principal Balance of all Loans that are 30
days or more Delinquent as of such Business Day divided by (y)
the Pool Principal Balance as of such Business Day is greater
than 1.0%; and
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(ii) the aggregate Liquidated Loan Losses from the later of (A) the
Closing Date or (B) the most recent Securitization, through such
Business Day are greater than $25,000.
A Performance Trigger shall continue to exist until Deemed Cured.
PERIODIC ADVANCE: The aggregate of the advances made by the Servicer
on any Payment Date pursuant to SECTION 4.09, the amount of any such advances
being equal to the total of all Monthly Payments (net of the related Servicing
Fee) on the Loans, that (x) were Delinquent as of the close of business on the
Business Day preceding the related Payment Date and (y) have not been determined
by the Servicer to be Nonrecoverable Periodic Advances.
PERMITTED INVESTMENTS: Each of the following:
(1) obligations of, or guaranteed as to principal and interest by, the
United States or any agency or instrumentality thereof if backed by the
full faith and credit of the United States;
(2) direct U.S. government obligations or obligations of a federal
agency that are backed by the full faith and credit of the U.S. government
or by FNMA or FHLMC, which are subject to a repurchase agreement that
satisfies the following criteria: (A) it must be between the Indenture
Trustee and either (x) primary dealers on the Federal Reserve reporting
dealer list which are rated in one of the three highest categories for
long-term unsecured debt obligations by each Rating Agency or (y) banks or
bank holding companies rated in one of the three highest categories for
long-term unsecured debt obligations by each Rating Agency; and (B) it must
be in writing and include the following terms: (a) a term no greater than
60 days for any repurchase transaction; (b) except as may be otherwise
provided in the Collection Account Letter Agreement with respect to the
investment of funds on deposit in the Collection Account, the collateral
must be delivered to the Indenture Trustee or a third party custodian
acting as agent for the Indenture Trustee by appropriate book entries and
confirmation statements, and must have been delivered before or
simultaneously with payment (i.e., perfection by possession of certificated
securities); and (c) the securities sold thereunder must be valued weekly,
marked-to-market at current market price plus accrued interest and the
value of the collateral must be equal to at least 104% of the amount of
cash transferred by or on behalf of the Indenture Trustee under the
repurchase agreement and, if the value of the securities held as collateral
declines to an amount below 104% of the cash transferred by or on behalf of
the Indenture Trustee plus accrued interest (i.e., a margin call), then
additional cash and/or acceptable securities must be transferred to the
Indenture Trustee (except as may be otherwise provided in the Collection
Account Letter Agreement with respect to the investment of funds on deposit
in the Collection Account) to satisfy such margin call; provided, however,
that if the securities used as collateral are obligations of FNMA or FHLMC,
then the value of the securities held as collateral must equal at least
105% of the cash transferred by or on behalf of the Indenture Trustee under
such repurchase agreement;
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(3) certificates of deposit, time deposits and bankers acceptances of
any United States depository institution or trust company incorporated
under the laws of the United States or any state thereof, including the
Indenture Trustee; provided, however, that the debt obligations of such
depository institution or trust company at the date of the acquisition
thereof have been rated by each Rating Agency in one of its three highest
long-term rating categories;
(4) deposits, including deposits with the Indenture Trustee, that are
fully insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC;
(5) commercial paper of any corporation incorporated under the laws of
the United States or any state thereof, including corporate Affiliates of
the Indenture Trustee, which at the time the investment is made is rated by
each Rating Agency in its highest short-term rating category and which has
an original maturity of not more than 365 days;
(6) debt obligations rated by each Rating Agency at the time the
investment is made in one of its three highest long-term rating categories
(or those investments specified in paragraph (3) above with depository
institutions which have debt obligations rated by each Rating Agency in one
of its three highest long-term rating categories);
(7) money market funds that are rated by each Rating Agency at the
time the investment is made in one of its three highest long-term rating
categories; provided, that money market funds that allow for withdrawals on
demand shall be deemed to satisfy any maturity requirements for Permitted
Investments set forth in this Agreement; or
(8) any other investments that the Majority Noteholders may consent to
in writing prior to the time at which such investment is made;
PROVIDED, HOWEVER, that no instrument described in foregoing subparagraphs (1)
through (7) shall evidence either the right to receive (a) only interest with
respect to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument where the
interest and principal payments with respect to such instrument provide a yield
to maturity at par greater than 120% of the yield to maturity at par of the
underlying obligations; and provided, further, that no instrument described in
the foregoing subparagraphs may be purchased at a price greater than par if such
instrument may be prepaid or called at a price less than its purchase price
prior to its stated maturity.
Each reference in this definition of "Permitted Investments" to the
Rating Agency shall be construed, in the case of each subparagraph above
referring to each Rating Agency, as a reference to each of DCR and Moody's.
PERSON: Any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust, national
banking association, unincorporated organization or government or any agency or
political subdivision thereof.
PHYSICAL PROPERTY: As defined in clause (b) of the definition of
"Delivery" above.
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POOL PRINCIPAL BALANCE: With respect to any date of determination, the
aggregate Principal Balances of the Loans as of the end of the preceding day;
provided, however, that the Pool Principal Balance on any Distribution Date on
which the Termination Price is to be paid to Noteholders will be deemed to have
been equal to zero as of such date.
POSTSECURITIZATION UNFUNDED TRANSFER OBLIGATION: With respect to any
Series of Notes and any date of determination after an Extension Date, an amount
equal to (x) the sum of (A) the Transfer Obligation Carry-Forward Amount, plus
(B) 10% of the aggregate Collateral Value of all Loans sold hereunder since such
Extension Date plus (C) any amounts withdrawn from the Transfer Obligation
Account for return to the Loan Originator pursuant to SECTION 5.05(J) hereof
since such Extension Date less (y) the sum of the aggregate amount of payments
actually made by the Loan Originator in respect of the Transfer Obligation
pursuant to Section 2.3(b) of the Loan Purchase Agreement since such Extension
Date and the aggregate amount of the Purchase Prices paid by Servicer in respect
of any Loan Originator Puts since such Extension Date. With respect to any
Series of Notes subsequent to the first Series of Notes, the Postsecuritization
Unfunded Transfer Obligation may be modified as set forth in the Indenture
Supplement.
PREPAYMENT CODE: With respect to each Loan, a code agreed to in
writing by the Loan Originator and the Initial Noteholder, which code shall
identify certain prepayment terms with respect to such Loan as may be agreed in
writing from time to time between the Loan Originator and the Initial
Noteholder.
PRINCIPAL BALANCE: With respect to any Loan or related Foreclosure
Property, (i) at the Transfer Cutoff Date, the outstanding unpaid principal
balance of the Mortgage Loan as of the Transfer Cutoff Date and (ii) with
respect to any other date of determination, the outstanding unpaid principal
balance of the Loan as of the prior Business Day (after giving effect to all
payments received thereon and the allocation of any Net Loan Losses with respect
thereto for a Defaulted Loan on such Business Day); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero.
PRINCIPAL CARRY-FORWARD AMOUNT: With respect to any Payment Date, the
excess, if any, of (A) the Optimal Principal Payment Amount for such Payment
Date plus the Principal Carry-Forward Amount for the prior Payment Date over (B)
the amount in respect of principal that is actually distributed from the
Distribution Account on such Payment Date.
PRINCIPAL PREPAYMENT: With respect to any Loan and any day, any
principal amount received on a Loan in excess of the principal of the Monthly
Payment due on such day.
PRODUCT CODE: With respect to each Loan, a code agreed to in writing
by the Loan Originator and the Initial Noteholder, which code shall identify
whether such Loan is an Adjustable Rate Loan or a fixed rate Loan, whether such
Loan has a Retained Interest and such other attributes of such Loan as may be
agreed in writing from time to time between the Loan Originator and the Initial
Noteholder.
PROMISSORY NOTE: With respect to a Loan, the original executed
promissory note or other evidence of the indebtedness of the related Borrower or
Borrowers.
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PURCHASE PRICE: With respect to a Loan, the Principal Balance thereof
as of the date of purchase or repurchase, plus all accrued and unpaid interest
on such Loan to and including the date of purchase or repurchase computed at the
applicable Loan Interest Rate, plus the amount of any unreimbursed Servicing
Advances and any unreimbursed Periodic Advances made by the Servicer with
respect to such Loan (after deducting therefrom any amounts received in respect
of such purchased or repurchased Loan and being held in the Collection Account
for future distribution to the extent such amounts represent recoveries of
principal not yet applied to reduce the related Principal Balance or interest
(net of the Servicing Fee) for the period from and after the date of
repurchase). To the extent the Servicer does not reimburse itself for amounts,
if any, in respect of the Servicing Advance Reimbursement Amount or
Nonrecoverable Periodic Advances pursuant to SECTION 5.01(C)(1) hereof, with
respect to such Loan, the Purchase Price shall be reduced by such amounts.
QSR STORE MORTGAGE LOANS: Mortgage Loans secured by quick service
restaurants.
QUALIFIED INSURER: An insurance company duly qualified as such under
the laws of the states in which any applicable Loan Collateral is located, duly
authorized and licensed or otherwise qualified in such states to transact the
applicable insurance business and to write the insurance provided, approved as
an insurer in accordance with the Servicing Standard, and whose claims-paying
ability is rated "A" or better (or the equivalent in any successor rating
system) by Best's Key Rating Guide or rated "A" or better by Standard & Poor's
Ratings Services or the equivalent by any Rating Agency as to claims-paying
ability with respect to hazard and flood insurance.
QUALIFIED SUBSTITUTE LOAN: A Loan or Loans substituted for a Deleted
Loan pursuant to SECTION 3.05 hereof, which (i) has or have been approved in
writing by the Majority Noteholders and (ii) complies or comply as of the date
of substitution with each representation and warranty set forth in SECTION 3.04
hereof and is or are not more than 29 days Delinquent as of the date of
substitution for such Deleted Loan or Loans.
QUARTERLY SERVICE CHARGE: The interest expense of FFCA and its
Subsidiaries for the quarter most recently ended, including, without limitation,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, net costs pursuant to hedging
obligations, the interest component of all payments associated with Capitalized
Leases, amortization of debt issuance costs, amortization of original issue
discount, non-cash interest payments and the interest component of any deferred
payment obligations.
RAPID AMORTIZATION TRIGGER: With respect to any Business Day, a Rapid
Amortization Trigger shall mean the existence of one or more of the following
conditions as of such Business Day:
(i) the aggregate Principal Balance of all Loans that are 30 to 59
days Delinquent as of such Business Day divided by the Pool
Principal Balance as of such Business Day is greater than 2.0%;
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(ii) the aggregate Principal Balance of all Loans that are 60 to 89
days Delinquent as of such Business Day divided by the Pool
Principal Balance as of such Business Day is greater than 1.0%;
(iii) the aggregate Principal Balance of all Loans that are 90 days or
more Delinquent as of such Business Day divided by the Pool
Principal Balance as of such Business Day is greater than 0.50%;
(iv) the aggregate Liquidated Loan Losses since the Reset Date are
greater than $100,000; and
(v) (x) the aggregate Liquidated Loan Losses for the three calendar
month period preceding such Business Day divided by (y) the
average Transfer Cutoff Date Principal Balance of all Loans
conveyed to the Issuer hereunder during such three calendar
month period is greater than 0.10%.
A Rapid Amortization Trigger shall continue to exist until it is
Deemed Cured.
RATING AGENCIES: DCR and Moody's or such other nationally recognized
credit rating agencies as may from time to time be designated in writing by the
Majority Noteholders in their sole discretion.
RECORD DATE: With respect to each Payment Date, the close of business
on the prior Business Day.
REFERENCE BANK RATE: With respect to any day, the arithmetic mean
(rounded upwards, if necessary, to the nearest one sixteenth of a percent) of
the offered rates for United States dollar deposits for one month that are
offered by the Reference Banks as of 11:00 a.m., New York City time, on the
related LIBOR Determination Date to prime banks in the London interbank market
for a period of one month in amounts approximately equal to the Note Principal
Balance, provided that at least two such Reference Banks provide such rate. If
fewer than two offered rates appear, the Reference Bank Rate will be arithmetic
mean of the rates quoted by one or more major banks in New York City, selected
by the Initial Noteholder, as of 11:00 a.m., New York City time, on such day for
loans in U.S. Dollars to leading European Banks for a period of one month in
amounts approximately equal to the outstanding Note Principal Balance. If no
such quotation can be obtained, the Reference Bank Rate will be the Reference
Bank Rate applicable to the preceding day.
REFERENCE BANKS: Three money center banks selected by the Initial
Noteholder.
RELEASED LOAN COLLATERAL PROCEEDS: With respect to any Loan, proceeds
received by the Servicer in connection with (i) a taking of an entire Mortgaged
Property by exercise of the power of eminent domain or condemnation or (ii) any
release of part of the Loan Collateral from the lien of the related Mortgage or
Security Agreement, as the case may be, whether by partial condemnation, sale or
otherwise; which proceeds in either case are not released to the Borrower in
accordance with applicable law, the Servicing Standard or this Agreement.
RESET DATE: The later of the latest Closing Date and the latest
Extension Date.
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RESPONSIBLE OFFICER: When used with respect to (i) the initial
Indenture Trustee or the initial Custodian, any officer in its Asset Backed
Securities Trust Services Group with particular responsibility for the
transactions contemplated by this Agreement and (ii) any successor Indenture
Trustee or Custodian, any officer within the corporate trust office of such
successor Indenture Trustee or Custodian, including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary or any other officer of
such successor Indenture Trustee or Custodian customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer, any officer in the
corporate trust administration department of the Owner Trustee with direct
responsibility for the administration of the Trust Agreement and this Agreement
on behalf of the Issuer. When used with respect to the Depositor, the Loan
Originator or the Servicer, the President or any Executive Vice President,
Senior Vice President or the Treasurer.
RETAINED INTEREST: With respect to any Loan, any interest payable
under the related Promissory Note other than default interest and interest at
the related Loan Interest Rate (and excluding any prepayment charges and yield
maintenance premiums). Without limiting the generality of the foregoing,
Retained Interest shall include interest designated or defined as "Shared
Appreciation," "Contingent Interest," "Participating Interest," "Additional
Interest," "Fixed Bumps" or "Payment Escalations" under the terms of any Loan.
RETAINED SECURITIES: With respect to a Securitization, any
subordinated securities issued or expected to be issued, or excess collateral
value retained or expected to be retained, in connection therewith to the extent
the Loan Originator or an Affiliate thereof decides in its sole discretion to
retain, instead of sell, such securities.
RETAINED SECURITIES VALUE: With respect to any Business Day and a
Retained Security, the market value thereof as determined by the Market Value
Agent in accordance with SECTION 4.14(D) hereof.
REVOLVING PERIOD: The period commencing on the Closing Date and ending
on the earlier of (i) the date on which the Revolving Period is terminated
pursuant to SECTION 2.07 and (ii) with respect to a Note of a given Series, the
date set forth in the related Indenture Supplement.
S&SA ASSIGNMENT: An Assignment, in the form of Exhibit C hereto, of
Loans and other property from the Depositor to the Issuer pursuant to this
Agreement.
SECURITIES: The Notes or Trust Certificates.
SECURITIZATION: A sale or transfer of loans, including Loans, to an
Affiliate of the Depositor in order to effect one or a series of
structured-finance securitization transactions involving the issuance of
securities treated for federal income tax purposes as indebtedness of FFCA or
one or more of its wholly-owned subsidiaries.
SECURITIZATION PARTICIPANT: With respect to a Securitization, any
"depositor" with respect to such Securitization, the Majority Noteholders, the
Issuer, the Servicer, the trustee and the custodian thereunder, any nationally
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recognized credit rating agency, the related underwriters, the related placement
agent, the related credit enhancer, the related purchaser of securities and/or
any other party necessary or, in the good faith belief of any of the foregoing,
desirable to effect a Securitization.
SECURITIZATION PROCEEDS: With respect to a Securitization, (x) the
proceeds of the Securitization remitted to the Issuer in respect of the Loans
transferred on the date of and with respect to such Securitization, including
without limitation, any cash and Retained Securities created in such
Securitization less all costs, fees and expenses incurred in connection with
such Securitization, including, without limitation, all amounts deposited into
any reserve funds upon the closing thereof plus or minus (y) the net positive or
net negative value of all Hedging Instruments terminated in connection with such
Securitization minus (z) all other amounts agreed upon in writing by the Initial
Noteholder, the Issuer and the Servicer.
SECURITY AGREEMENT: (a) With respect to any Equipment Loan, the pledge
agreement, security agreement or similar instrument that secures the related
Promissory Note and creates a lien on the related Equipment and (b) with respect
to any Mortgage Loan, any security agreement, contract, instrument or other
document related to security for repayment thereof (other than the related
Mortgage and Promissory Note), executed by the Borrower and/or others in
connection with such Mortgage Loan, and in either case including without
limitation, any guaranty, title insurance policy, hazard insurance policy,
chattel mortgage, letter of credit or certificate of deposit, other pledged
accounts, pledge of stock or other equity interest in the related Borrower, and
any other documents and records relating to any of the foregoing.
SECURITYHOLDER: Any Noteholder or Certificateholder.
SENIOR LOAN: A Loan secured by Loan Collateral with respect to which a
Unit-Level Fixed Charge Coverage Ratio is not provided on the related Loan
Schedule, provided, however, that (i) a Senior Loan which is secured only by
Equipment shall be deemed an Equipment Loan for purposes of this Agreement, (ii)
a Senior Loan which is secured by Mortgaged Property shall be deemed a Mortgage
Loan for purposes of this Agreement, and (iii) a Senior Loan which is secured
only by both Equipment and Mortgaged Property shall be deemed a Mortgage Loan
for purposes of this Agreement.
SERIES: With respect to a Note, the related series of which such Note
is a part, as specified in the Indenture Supplement.
SERVICER: FFCA, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.
SERVICER CALL: The optional repurchase by the Servicer of a Loan
pursuant to SECTION 3.07(B) hereof.
SERVICER'S FISCAL YEAR: January 1st through December 31st of each
year.
SERVICER'S LOAN FILE: With respect to each Loan, the file held by the
Servicer, consisting of originals of all documents relating to such Loan that
are not delivered to the Custodian, copies of all of the Loan Documents included
in the related Indenture Trustee's Loan File and (i) a closing instruction
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letter (if any) with respect to the Loan, (ii) a copy of the Borrower's opinion
of counsel (if any), (iii) a copy of the franchise agreement with all amendments
thereto (if any), (iv) a copy of the site inspection and valuation report and
(v) if such Loan is a Mortgage Loan, a survey (if any) of the related Mortgaged
Property and a Title Matters Indemnity Agreement (if any).
SERVICER'S REMITTANCE REPORT: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.
SERVICER TERMINATION EVENT: The termination of the Servicer pursuant
to SECTION 10.01(B) hereof.
SERVICING ADVANCE REIMBURSEMENT AMOUNT: With respect to any date of
determination, the amount of any Servicing Advances that have not been
reimbursed as of such date, including Nonrecoverable Servicing Advances.
SERVICING ADVANCES: Subject to SECTION 4.01(B) hereof, all reasonable,
customary and necessary "out of pocket" costs and expenses advanced or paid by
the Servicer with respect to the Loans in accordance with the performance by the
Servicer of its servicing obligations hereunder, including, but not limited to,
the costs and expenses for (i) the preservation, restoration and protection of
Loan Collateral, including without limitation, advances in respect of real
estate taxes and assessments, (ii) any collection, enforcement or judicial
proceedings, including, without limitation, foreclosures, collections, reports
and liquidations pursuant to SECTION 4.10 hereof and (iii) the conservation,
management and sale or other disposition of a Foreclosure Property pursuant to
SECTION 4.11 hereof.
SERVICING COMPENSATION: The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to SECTION 7.01 and SECTION 7.03 hereof.
SERVICING FEE: As to each Loan (including any Loan that has been
foreclosed and has become a Foreclosure Property, but excluding any Liquidated
Loan), the fee payable monthly to the Servicer on each Payment Date, which (i)
in the case of fixed rate Loans shall be the product of 0.25% (25 basis points)
and the Principal Balance of such Loan as of the beginning of the immediately
preceding Due Period, divided by 12 and (ii) in the case of Adjustable Rate
Loans shall be the product of 0.375% (37.5 basis points) and the Principal
Balance of such Loan as of the beginning of the immediately preceding Due
Period, divided by 12. The Servicing Fee includes any servicing fees owed or
payable to any Subservicer, which fees shall be paid from the Servicing Fee.
SERVICING OFFICER: Any officer of the Servicer or Subservicer involved
in, or responsible for, the administration and servicing of the Loans whose name
and specimen signature appears on a list of servicing officers annexed to an
Officer's Certificate furnished by the Servicer or the Subservicer,
respectively, on the Closing Date to the Issuer and the Indenture Trustee, on
behalf of the Noteholders, as such list may from time to time be amended.
SERVICING STANDARD: With respect to the servicing of the Loans, the
servicing and administration of the Loans with the same care, skill, prudence
and diligence with which prudent institutional commercial lenders and loan
servicers service comparable loans which are owned, for federal income tax
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purposes, by entities which qualify as real estate investment trusts under
Section 856 of the Code (and at least with the same care, skill, prudence and
diligence with which the Servicer generally services loans owned by it), with a
view to the timely collection of all scheduled payments of principal and
interest under the Loans or, if a Loan comes into and continues in default and
no satisfactory arrangements can be made for the collection of the delinquent
payments, the maximization of the recovery on such Loan to the Noteholders on a
present value basis (the relevant discounting of anticipated collections to be
performed at the related Loan Interest Rate), but without regard to:
(i) any relationship that the Servicer, any Subservicer or any
Affiliate of the Servicer or any Subservicer may have with the
related Borrower;
(ii) the ownership of any Notes or the Trust Certificates by the
Servicer or any Affiliate of the Servicer;
(iii) the Servicer's obligation to make Servicing Advances or Periodic
Advances; or
(iv) the Servicer's or any Subservicer's right to receive
compensation for its services or reimbursement of its costs
hereunder or with respect to any particular transaction.
SETTLEMENT AGENT: With respect to any Table-Funded Loan, the entity
approved by the Initial Noteholder, in its sole discretion and pursuant to
Section 25 of the Custodial Agreement (which may be a title company, escrow
company or attorney in accordance with local law and practice in the
jurisdiction where the related Table-Funded Loan is being originated), (i) to
act pursuant to the Escrow Instructions, (ii) to which the proceeds of such
Table-Funded Loan are to be wired by the Initial Noteholder and (iii) to
disburse such proceeds pursuant to a written authorization from the Initial
Noteholder.
SUBSERVICER: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in SECTION 4.06(A) hereof in respect of the
qualifications of a Subservicer.
SUBSERVICING ACCOUNT: An account established by a Subservicer pursuant
to a Subservicing Agreement, which account must be an Eligible Account.
SUBSERVICING AGREEMENT: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Loans
as provided in SECTION 4.06(A) hereof, copies of which shall be made available,
along with any modifications thereto, to the Issuer and the Indenture Trustee.
SUBSIDIARY: With respect to FFCA, (a) any corporation, association,
joint venture or other business entity of which more than 50% of the total
voting power of shares of stock or other ownership interests entitled to vote in
the election of the directors, managers, trustees or other persons having the
power to direct or cause the direction of the management and policies thereof is
at the time owned or controlled, directly or indirectly, by FFCA or one or more
of the other Subsidiaries of FFCA, and (b) any partnership or limited liability
company in which FFCA or one or more of the other Subsidiaries of FFCA, directly
or indirectly, possesses more than a 50% interest in the total capital or total
income of such partnership or limited liability company.
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SUBSTITUTION ADJUSTMENT: As to any date on which a substitution occurs
pursuant to SECTION 2.05 or SECTION 3.05 hereof, the amount, if any, by which
(a) the sum of the aggregate principal balance (after application of principal
payments received on or before the date of substitution) of any Qualified
Substitute Loans as of the date of substitution, plus any accrued and unpaid
interest thereon to the date of substitution, is less than (b) the sum of the
aggregate of the Principal Balances, together with accrued and unpaid interest
thereon to the date of substitution, of the related Deleted Loans.
TABLE-FUNDED LOAN: A Loan which is pledged to the Indenture Trustee
simultaneously with the origination thereof by the Loan Originator, which
origination is funded in part or in whole with proceeds advanced directly to a
Settlement Agent. A Loan shall cease to be a Table-Funded Loan upon the later to
occur of (i) the delivery of the Loan Schedule and Exceptions Report by the
Custodian to the Initial Noteholder for such Table-Funded Loan on the Business
Day of receipt of the related Indenture Trustee's Loan File by the Custodian and
(ii) the disbursement of funds by the Settlement Agent to the Borrower.
TEN YEAR TREASURY YIELD: As of any date of determination, the yield on
United States treasury securities with maturities of ten years, as most recently
reported in the Wall Street Journal, or in the event that the Wall Street
Journal ceases publication, in such source as shall be designated in writing by
the Indenture Trustee.
TERMINATION PRICE: As of any date of determination, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Loan included in the Trust as of the
Payment Date of the termination of the Trust; (ii) all unpaid interest accrued
on the Principal Balance of each such Loan at the related Net Loan Interest Rate
to such Payment Date; and (iii) the aggregate fair market value of each
Foreclosure Property included in the Trust on such Payment Date, as determined
by an Independent appraiser acceptable to the Majority Noteholders as of a date
not more than 30 days prior to such Payment Date.
TITLE MATTERS INDEMNITY AGREEMENT: With respect to each Mortgage Loan,
an agreement (if any) between the Borrower and the Loan Originator, indemnifying
the Loan Originator for any losses arising from title matters, including without
limitation, zoning, use, covenants, conditions and restrictions and
encroachments.
TITLE POLICY: With respect to any Mortgaged Property, an ALTA
(extended coverage) loan title insurance policy or such other form as is
customarily acceptable to prudent lending institutions in the jurisdiction in
which the Mortgaged Property is located (or other satisfactory title insurance
as confirmed in writing by the Majority Noteholders) consistent with the
Underwriting Guidelines.
TRANSFER CUTOFF DATE: With respect to each Loan, the first day of the
month in which the Transfer Date with respect to such Loan occurs.
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TRANSFER CUTOFF DATE PRINCIPAL BALANCE: As to each Loan for which its
Transfer Date occurs (i) from and including the first of a calendar month to and
including the Business Day preceding the Payment Date in such calendar month,
its Principal Balance as of the opening of business on the Transfer Cutoff Date
(after giving effect to any payments received on the Loan before the Transfer
Cutoff Date) and (ii) from and including the Payment Date to and including the
last day of a calendar month, its Principal Balance as of the close of business
on the Transfer Cutoff Date (after giving effect to any payments due on the Loan
on or before the Transfer Cutoff Date).
TRANSFER DATE: With respect to each Loan, the day such Loan is sold to
the Depositor pursuant to the Loan Purchase Agreement and to the Issuer pursuant
to SECTION 2.01 hereof.
TRANSFER OBLIGATION: The obligation of the Loan Originator under
Section 2.3(b) of the Loan Purchase Agreement to make certain payments in
connection with Securitizations and other related matters.
TRANSFER OBLIGATION ACCOUNT: The account designated as such,
established and maintained pursuant to SECTION 5.05 hereof.
TRANSFER OBLIGATION CARRY-FORWARD AMOUNT: With respect to any
Extension Date, the lesser of (x) the Unfunded Transfer Obligation as of such
date (immediately after giving effect to any Securitization occurring on such
date) and (y) 10% of the aggregate Collateral Value of all Loans remaining in
the Loan Pool as of such date.
TRANSFER OBLIGATION TARGET AMOUNT: With respect to any date of
determination, the cumulative total of all withdrawals pursuant to SECTION
5.05(E), 5.05(F), 5.05(G) and 5.05(H) hereof from the Transfer Obligation
Account since the Closing Date, after deducting from such total all amounts
returned to the Loan Originator pursuant to SECTION 5.05(J) hereof.
TRUST: The Issuer.
TRUST ACCOUNT PROPERTY: The Trust Accounts, all amounts and
investments held from time to time in the Trust Accounts and all proceeds of the
foregoing.
TRUST ACCOUNTS: The Distribution Account, the Collection Account, the
Transfer Obligation Account, the Lockbox Account, if any, and each Escrow
Account, if any.
TRUST AGREEMENT: The Trust Agreement dated as of March 13, 1998, as
amended, among the Depositor, the Loan Originator and the Owner Trustee.
TRUST CERTIFICATE: The meaning assigned thereto in the Trust
Agreement.
TRUST ESTATE: The assets subject to this Agreement, the Trust
Agreement and the Indenture and assigned to the Trust, which assets consist of:
(i) such Loans as from time to time are subject to this Agreement as listed in
the Loan Schedule, as the same may be amended or supplemented on each Transfer
Date, by the removal of Deleted Loans and by the addition of Qualified
Substitute Loans, together with the Servicer's Loan Files and the Indenture
Trustee's Loan Files relating thereto and all proceeds thereof, (ii) the
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Mortgages, Security Agreements and security interests in Loan Collateral, (iii)
all payments in respect of interest due with respect to each Loan on or after
the related Transfer Cutoff Date and all payments in respect of principal
received after such Transfer Cutoff Date net of any Retained Interest (iv) such
assets as from time to time are identified as Foreclosure Property, (v) such
assets and funds as are from time to time deposited in the Distribution Account,
Collection Account, the Transfer Obligation Account, the Lockbox Account, if
any, and each Escrow Account, if any, including, without limitation, amounts on
deposit in such accounts that are invested in Permitted Investments, (vi)
lenders' rights under all Insurance Policies and to any Insurance Proceeds,
(vii) lenders' rights to any Condemnation Proceeds, (viii) Net Liquidation
Proceeds and Released Loan Collateral Proceeds, (ix) all right, title and
interest of the Issuer (but none of the obligations) in and to the obligations
of Hedging Counterparties under Hedging Instruments, (x) all right, title and
interest of the Depositor in and to the obligations of the Loan Originator under
the Loan Purchase Agreement pursuant to which the Depositor acquired the Loans
from the Loan Originator, and all proceeds of any of the foregoing and (xi) all
of the Loan Originator's right, title and interest in, to and under (but none of
its obligations) any Environmental Policy to the extent relating to Mortgage
Loans.
TRUST FEES AND EXPENSES: As of each Payment Date, an amount equal to
the Servicing Compensation, the Indenture Trustee Fee, the Owner Trustee Fee and
the Custodian Fee, if any.
UCC: The Uniform Commercial Code as in effect in the State of New
York.
UCC-1 FINANCING STATEMENT: A financing statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction.
UCC ASSIGNMENT: A form "UCC-2" or "UCC-3" statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction to
reflect an assignment of a secured party's interest in collateral.
UNDERWRITING GUIDELINES: The underwriting guidelines (including the
loan origination guidelines) provided to the Initial Noteholder on or prior to
the Closing Date by the Loan Originator or an Affiliate thereof.
UNFUNDED TRANSFER OBLIGATION: With respect to any Series of Notes and
any date of determination on or prior to an Extension Date, an amount equal to
(x) the sum of (A) 10% of the aggregate Collateral Value of all Loans sold
hereunder since the related Closing Date, plus (B) any amounts withdrawn from
the Transfer Obligation Account for return to the Loan Originator pursuant to
SECTION 5.05(J) hereof since the related Closing Date less (y) the sum of the
aggregate amount of payments actually made by the Loan Originator in respect of
the Transfer Obligation pursuant to Section 2.3(b) of the Loan Purchase
Agreement since the related Closing Date and the aggregate amount of the
Purchase Prices paid by Servicer in respect of any Loan Originator Puts since
the related Closing Date. With respect to any Series of Notes subsequent to the
first Series of Notes, the Unfunded Transfer Obligation may be modified as set
forth in the Indenture Supplement.
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UNIT-LEVEL FIXED CHARGE COVERAGE RATIO: With respect to a Loan, as of
any date of determination and for any period, the applicable "Fixed Charge
Coverage Ratio" determined in accordance with, and defined in, the Underwriting
Guidelines and any applicable Loan Documents, as computed by the Loan Originator
based on the information most recently provided by the Borrower prior to any
discretionary "add-back" adjustments.
WHOLE LOAN SALE: A sale of Loans as whole loans.
WILMINGTON TRUST COMPANY: Wilmington Trust Company, a Delaware banking
corporation.
WIRE INSTRUCTIONS: Instructions, originated by the Loan Originator,
substantially in the form of Attachment A to the Escrow Instructions, attached
hereto as Exhibit F.
SECTION 1.02 OTHER DEFINITIONAL PROVISIONS.
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture and the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under GAAP. To the extent that the definitions of accounting terms in this
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under GAAP, the definitions contained in this Agreement
or in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
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ARTICLE II
CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL
BALANCES
SECTION 2.01 CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL
BALANCES.
(a) (i) On the terms and conditions of this Agreement, on each
Transfer Date, the Depositor agrees to offer for sale and to sell Loans and
deliver related Loan Documents to or at the direction of the Issuer. To the
extent the Issuer has or is able to obtain sufficient funds for the purchase
thereof, the Issuer agrees to purchase such Loans offered for sale by the
Depositor.
(ii) In consideration of the payment of the Additional Note
Principal Balance pursuant to SECTION 2.06 hereof, the Depositor, as of the
Closing Date and concurrently with the execution and delivery hereof, does
hereby sell, transfer, assign, set over and otherwise convey to the Issuer,
without recourse, but subject to the other terms and provisions of this
Agreement, all of the right, title and interest of the Depositor in and to the
Trust Estate.
(iii) During the Revolving Period, on each Transfer Date, subject
to the conditions precedent set forth in SECTION 2.06(A) and in accordance with
the procedures set forth in SECTION 2.01(C), the Depositor, pursuant to an S&SA
Assignment, will assign to the Issuer without recourse all the right, title and
interest of the Depositor in and to the Loans and all proceeds thereof listed on
the Loan Schedule attached to such S&SA Assignment, including all interest and
principal (i) for each Loan having a Transfer Date from and including the first
day of a calendar month to and including the Business Day preceding a Payment
Date, received on or after the opening of business of the Transfer Cutoff Date
and (ii) for each Loan having a Transfer Date from and including a Payment Date
to and including the last day of a calendar month, due on the Loan after the
Transfer Cutoff Date, in each case whether received by the Loan Originator, the
Depositor or the Servicer, together with all right, title and interest in and to
the proceeds of any related Insurance Policies and all of the Depositor's right,
title and interest in and to (but none of its obligations under) the Loan
Purchase Agreement and all proceeds of the foregoing.
(iv) The foregoing sales, transfers, assignments, set overs and
conveyances do not, and are not intended to, result in a creation or an
assumption by the Issuer of any obligation of the Depositor, the Loan Originator
or any other Person in connection with the Trust Estate or under any agreement
or instrument relating thereto except as specifically set forth herein.
(b) As of the Closing Date and as of each Transfer Date, the Issuer
acknowledges (or will acknowledge pursuant to the S&SA Assignment) the
conveyance to it of the Trust Estate, including all right, title and interest of
the Depositor in and to the Trust Estate, receipt of which is hereby
acknowledged by the Issuer. Concurrently with such delivery, as of the Closing
Date and as of each Transfer Date, the Issuer pledges (or will pledge pursuant
to the S&SA Assignment) the Trust Estate to the Indenture Trustee. In addition,
concurrently with such delivery and in exchange therefor, the Owner Trustee,
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pursuant to the instructions of the Depositor, has executed (not in its
individual capacity, but solely as Owner Trustee on behalf of the Issuer) and
caused the Trust Certificates to be authenticated and delivered to the
Depositor.
(c) (i) Pursuant to and subject to the Note Purchase Agreement, the
Issuer may, at its sole option, from time to time request that the Initial
Noteholder advance on any Transfer Date and on any Collateral Value Excess Date,
Additional Note Principal Balances and the Initial Noteholder shall remit on
such Transfer Date or Collateral Value Excess Date, as the case may be, to the
Advance Account an amount equal to the Additional Note Principal Balance.
(ii) Notwithstanding anything to the contrary herein, in no event
shall the Initial Noteholder be required to advance Additional Note Principal
Balances on a Transfer Date if the conditions precedent to a transfer of the
Loans under SECTION 2.06(A) and the conditions precedent to the purchase of
Additional Note Principal Balances set forth in Section 3.01 of the Note
Purchase Agreement have not been fulfilled.
(iii) Notwithstanding anything to the contrary herein, in no
event shall the Initial Noteholder be required to advance Additional Note
Principal Balance on a Collateral Value Excess Date if the conditions precedent
thereto set forth in SECTION 2.06(B) and the conditions precedent to the
purchase of Additional Note Principal Balances set forth in Section 3.01 of the
Note Purchase Agreement have not been fulfilled.
(iv) The Servicer shall appropriately note such Additional Note
Principal Balance (and the increased Note Principal Balance) in the next
succeeding Payment Statement; provided, however, that failure to make any such
notation in such Payment Statement or any error in such notation shall not
adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest and principal payments in respect of
the Note Principal Balance held by such Noteholder. The Initial Noteholder shall
record on the schedule attached to such Noteholder's Note, the date and amount
of any Additional Note Principal Balance advanced by it; provided, that failure
to make such recordation on such schedule or any error in such schedule shall
not adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest payments in respect of the Note
Principal Balance held by such Noteholder.
(v) Absent manifest error, the Note Principal Balance of each
Note as set forth in the Initial Noteholder's records shall be binding upon the
Noteholders and the Issuer, notwithstanding any notation made by the Servicer in
its Payment Statement pursuant to the preceding paragraph.
SECTION 2.02 OWNERSHIP AND POSSESSION OF LOAN FILES.
With respect to each Loan, as of the related Transfer Date the
ownership of the related Promissory Note, the related Mortgage or Security
Agreement and the contents of the related Servicer's Loan File and Indenture
Trustee's Loan File shall be vested in the Issuer and pledged to the Indenture
Trustee for the benefit of the Securityholders, although possession of the
Servicer's Loan File (other than items required to be maintained in the
Indenture Trustee's Loan Files) on behalf of and for the benefit of the
Securityholders shall remain with the Servicer, and the Custodian shall take
possession of the Indenture Trustee's Loan Files as contemplated in SECTION 2.05
hereof.
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SECTION 2.03 BOOKS AND RECORDS; INTENTION OF THE PARTIES.
(a) As of each Transfer Date, the sale of each of the Loans conveyed
on such Transfer Date shall be reflected on the balance sheets and other
financial statements of the Depositor or the Loan Originator, as the case may
be, as a sale of assets by the Depositor or the Loan Originator, as the case may
be, under GAAP. Each of the Servicer and the Custodian shall be responsible for
maintaining, and shall maintain, a complete set of books and records for each
Loan which shall be clearly marked to reflect the ownership of each Loan, as of
the related Transfer Date, by the Owner Trustee and pledged, as of such Transfer
Date, to the Indenture Trustee for the benefit of the Securityholders.
(b) It is the intention of the parties hereto that, other than for
federal, state and local income or franchise tax purposes, the transfers and
assignments of the Trust Estate on the Closing Date, on each Transfer Date and
as otherwise contemplated by the Basic Documents and the Assignments shall
constitute a sale of the Trust Estate including, without limitation, the Loans
and all other property comprising the Trust Estate specified in SECTION 2.01(A)
hereof, from the Depositor to the Issuer and such property shall not be property
of the Depositor. The parties hereto shall treat the Notes as indebtedness for
federal, state and local income and franchise tax purposes.
(c) If any of the assignments and transfers of the Loans and the other
property of the Trust Estate specified in SECTION 2.01(A) hereof to the Owner
Trustee pursuant to this Agreement or the conveyance of the Loans or any of such
other property of the Trust Estate to the Owner Trustee, other than for federal,
state and local income or franchise tax purposes, is held or deemed not to be a
sale or is held or deemed to be a pledge of security for a loan, the Depositor
intends that the rights and obligations of the parties shall be established
pursuant to the terms of this Agreement and that, in such event, with respect to
such property, (i) consisting of Loans and related property, the Depositor shall
be deemed to have granted, as of the related Transfer Date, to the Owner Trustee
a first priority security interest in the entire right, title and interest of
the Depositor in and to such Loans and proceeds and all other property conveyed
to the Owner Trustee as of such Transfer Date, (ii) consisting of any other
property specified in SECTION 2.01(A), the Depositor shall be deemed to have
granted, as of the Closing Date, to the Owner Trustee a first priority security
interest in the entire right, title and interest of the Depositor in and to such
property and the proceeds thereof. In such event, with respect to such property,
this Agreement shall constitute a security agreement under applicable law.
(d) Within ten (10) days of the date first above written, the
Depositor shall, at Depositor's sole expense, cause to be filed UCC-1 financing
statements naming the Owner Trustee as "secured party" and describing the Trust
Estate being sold by the Depositor to the Issuer with the office of the
Secretary of State of the state in which the Depositor is located.
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SECTION 2.04 DELIVERY OF LOAN DOCUMENTS.
(a) With respect to each Loan that is not a Table-Funded Loan, the
Loan Originator and/or the Depositor, as the case may be, shall, on or before
the related Transfer Date, deliver or cause to be delivered to the Custodian, as
the designated agent of the Indenture Trustee, each of the following documents
(collectively, the "INDENTURE TRUSTEE'S LOAN FILE"):
(i) With respect to each Mortgage Loan:
(1) The original Promissory Note, endorsed by the Loan Originator in
blank in the following form: "Pay to the order of ______________________,
without recourse", with all prior and intervening endorsements showing a
complete chain of endorsement from origination of the Mortgage Loan to the
Loan Originator;
(2) The original Mortgage with evidence of recording thereon (or, if
the original Mortgage has not been returned from the applicable public
recording office or is not otherwise available, a copy of the original
Mortgage submitted for recording) and, if the Mortgage was executed
pursuant to a power of attorney, the original power of attorney with
evidence of recording thereon (or, if the original power of attorney has
not been returned from the applicable public recording office or is not
otherwise available, a copy of the original power of attorney submitted for
recording);
(3) The original executed Assignment of Mortgage, in recordable form.
The Assignment of Mortgage may be a blanket assignment, to the extent such
assignment is effective under applicable law, for Mortgages covering
Mortgaged Properties situated within the same county. If the Assignment of
Mortgage is in blanket form, an Assignment of Mortgage need not be included
in the individual Indenture Trustee's Loan File;
(4) All original intervening assignments of mortgage, with evidence of
recording thereon, showing a complete chain of assignment from origination
of the Mortgage Loan to the Loan Originator (or, if any such assignment of
mortgage has not been returned from the applicable public recording office
or is not otherwise available, a copy of such assignment of mortgage
submitted for recording);
(5) The original of the guaranty (if any) executed in connection with
the Promissory Note or related lease;
(6) The originals of all assumption, modification, consolidation or
extension agreements relating to the Mortgage with evidence of recording
thereon, (or, if the originals have not been returned from the applicable
public recording office or are not otherwise available, a copy of such
originals submitted for recording);
(7) The original attorney's opinion of title and abstract of title or
the original mortgagee title insurance policy, or if the original mortgagee
title insurance policy has not been issued, the irrevocable commitment to
issue the same;
(8) The original of any security agreement, chattel mortgage or
equivalent document executed in connection with the Mortgage Loan;
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(9) The original assignment of leases and rents, if separate from the
related Mortgage, with evidence of recording thereon, or a copy of the
original that has been or will, on or prior to the related Transfer Date be
submitted for recordation in the appropriate governmental recording office
of the jurisdiction where the Mortgaged Property is located;
(10) The original assignment of assignment of leases and rents, if the
assignment of leases and rents is separate from the related Mortgage, from
the Loan Originator in blank, in form and substance acceptable for
recording;
(11) A copy of the UCC-1 Financing Statements and all necessary UCC
continuation statements with evidence of filing and/or recording thereon or
copies thereof that have been sent for filing and/or recording on or
promptly after closing, and UCC Assignments executed by the Loan Originator
in blank, which UCC Assignments shall be in form and substance acceptable
for filing and/or recording;
(12) An environmental indemnity agreement (if any);
(13) An Assignment of Loan Documents; and
(14) the original Loan Agreement.
(ii) With respect to each Equipment Loan:
(1) The original Promissory Note, endorsed by the Loan Originator in
blank in the following form: "Pay to the order of ______________________,
without recourse", with all prior and intervening endorsements showing a
complete chain of endorsement from origination of the Loan to the Loan
Originator;
(2) The original Security Agreement and, if the Security Agreement was
executed pursuant to a power of attorney, the original power of attorney;
(3) The original Loan Agreement, to the extent not encompassed in the
Loan Agreement with respect to the related Mortgage Loan;
(4) The original of the guaranty (if any) executed in connection with
the Promissory Note or related lease;
(5) The originals of all assumption, modification, consolidation or
extension agreements relating to the Security Agreement, or true and
correct copies thereof;
(6) A true and correct copy of the UCC-1 Financing Statements and all
necessary UCC continuation statements with evidence of filing and/or
recording thereon or true copies thereof that have been sent for filing
and/or recording on or promptly after closing, and UCC Assignments executed
by the Loan Originator in blank, which UCC Assignments shall be in form and
substance acceptable for filing and/or recording; and
(7) An Assignment of Loan Documents.
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(b) With respect to each Table-Funded Loan:
(i) By no later than 2:00 p.m., New York City time, on the Transfer
Date, the Loan Originator shall cause the Bailee to deliver, by facsimile,
copies of:
(1) a fully executed Bailee Agreement (to the extent that the Bailee
Agreement has not been previously delivered to the Custodian and Initial
Noteholder) and Bailee Trust Receipt issued thereunder (as required in the
Bailee Agreement) to the Custodian and Initial Noteholder; and
(2) the fully executed Promissory Note to the Custodian (to the extent
that the original Promissory Note has not been previously delivered to the
Custodian).
(ii) Within three Business Days following the Transfer Date, the Loan
Originator shall have delivered or caused to be delivered to the Custodian,
by overnight courier, the Indenture Trustee's Loan File documents not
previously delivered pursuant hereto.
(iii) By no later than 2:00 p.m., New York City time, on the Transfer
Date, the Loan Originator shall cause the Settlement Agent to deliver, by
facsimile, copies of fully executed Escrow Instructions and any Insured
Closing Letter, if any, to the Custodian and Initial Noteholder;
(c) With respect to each Loan, the Loan Originator and the Depositor
shall, on the related Transfer Date, deliver or caused to be delivered to the
Servicer for the benefit of the Indenture Trustee, as secured party on behalf of
the Noteholders, the related Servicer's Loan File.
(d) The Indenture Trustee shall cause the Custodian to take and
maintain continuous physical possession of the Indenture Trustee's Loan Files in
the State of Illinois and, in connection therewith, shall act solely as agent
for the Securityholders in accordance with the terms hereof and not as agent for
the Loan Originator, the Servicer or any other party.
(e) Upon the delivery by the Loan Originator to the Custodian of any
copies of Loan Documents, the Loan Originator shall be deemed to certify and
hereby certifies that each such copy is a true, correct and complete copy of the
related original.
SECTION 2.05 ACCEPTANCE BY THE INDENTURE TRUSTEE OF THE LOANS; CERTAIN
SUBSTITUTIONS AND REPURCHASES; CERTIFICATION BY THE CUSTODIAN.
(a) The Indenture Trustee declares that it will cause the Custodian to
hold the Indenture Trustee's Loan Files and any additions, amendments,
replacements or supplements to the documents contained therein, as well as any
other assets included in the Trust Estate and delivered to the Custodian, in
trust, upon and subject to the conditions set forth herein. The Indenture
Trustee further agrees to cause the Custodian to execute and deliver such
certifications as are required under the Custodial Agreement and to otherwise
direct the Custodian to perform all of its obligations with respect to the
Indenture Trustee's Loan Files in strict accordance with the terms of the
Custodial Agreement.
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(b) (i) With respect to any Loans which are set forth as exceptions
in the Initial Certification or the Loan Schedule and Exceptions Report, the
Loan Originator shall cure such exception by delivering such missing documents
to the Custodian or otherwise curing the defect no later than (A) 5 Business
Days after the receipt of the Initial Certification or the first Loan Schedule
and Exceptions Report with respect to such Mortgage Loan (or in the case of a
Table-Funded Loan, 5 Business Days after the related Transfer Date with respect
thereto) or (B) in the case of Loan Documents which have been delivered to
recording or filing offices and have not been returned to the Loan Originator to
permit their delivery to the Custodian at the time required, 90 days after the
related Transfer Date.
(ii) In the event that, with respect to any Loan, the Loan
Originator does not comply with the document delivery requirements of this
SECTION 2.05, the Loan Originator shall purchase such Loan at the Purchase Price
with respect to such Loan by depositing such Purchase Price in the Collection
Account. The Loan Originator shall provide the Servicer, the Indenture Trustee,
the Issuer and the Initial Noteholder with a certification of a Responsible
Officer prior to such repurchase indicating that the Loan Originator intends to
repurchase such Loan. In lieu of such a repurchase, the Depositor and Loan
Originator may comply with the substitution provisions of SECTION 3.05 hereof.
(iii) It is understood and agreed that the obligation of the Loan
Originator to repurchase any such Loan pursuant to this SECTION 2.04(B) shall
constitute the sole remedy against it with respect to such failure to comply
with the foregoing delivery requirements.
(c) In performing its reviews of the Indenture Trustee's Loan Files
pursuant to the Custodial Agreement, the Custodian shall have no responsibility
to determine the genuineness of any document contained therein and any signature
thereon. The Custodian shall not have any responsibility for determining whether
any document is valid and binding, whether the text of any assignment or
endorsement is in proper or recordable form, whether any document has been
recorded in accordance with the requirements of any applicable jurisdiction or
whether a blanket assignment is permitted in any applicable jurisdiction.
(d) The Servicer's Loan File shall be held in the custody of the
Servicer (i) for the benefit of, and as agent for, the Noteholders and (ii) for
the benefit of the Indenture Trustee, as secured party on behalf of the
Noteholders, for so long as the Indenture continues in full force and effect;
after the Indenture is terminated in accordance with the terms thereof, the
Servicer's Loan File shall be held in the custody of the Servicer for the
benefit of, and as agent for, the Certificateholders. It is intended that, by
the Servicer's agreement pursuant to this SECTION 2.05(D), the Indenture Trustee
shall be deemed to have possession of the Servicer's Loan Files for purposes of
Section 9-305 of the UCC of the state in which such documents or instruments are
located. The Servicer shall promptly report to the Indenture Trustee any failure
by it to hold the Servicer's Loan File as herein provided and shall promptly
take appropriate action to remedy any such failure. In acting as custodian of
such documents and instruments, the Servicer agrees not to assert any legal or
beneficial ownership interest in the Loans or such documents or instruments. The
Servicer agrees to indemnify the Securityholders and the Indenture Trustee, its
officers, directors, employees, agents and "control persons" as such term is
used under the Act and under the Securities Exchange Act of 1934, as amended for
any and all liabilities, obligations, losses, damages, payments, costs or
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expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Securityholders or the Indenture Trustee as the result of any act or
omission by the Servicer relating to the maintenance and custody of such
documents or instruments which have been delivered to the Servicer; provided,
however, that the Servicer will not be liable for any portion of any such amount
resulting from the negligence or willful misconduct of any Securityholders or
the Indenture Trustee; and provided, further, that the Servicer will not be
liable for any portion of any such amount resulting from the Servicer's
compliance with any instructions or directions consistent with this Agreement
issued to the Servicer by the Indenture Trustee. The Indenture Trustee shall
have no duty to monitor or otherwise oversee the Servicer's performance as
custodian hereunder.
SECTION 2.06 CONDITIONS PRECEDENT TO TRANSFER DATES AND COLLATERAL
VALUE EXCESS DATES.
(a) On each Transfer Date, the Depositor shall convey to the Issuer,
the Loans and the other property and rights related thereto described in the
related S&SA Assignment, the Issuer, only upon the satisfaction of each of the
conditions set forth below on or prior to such Transfer Date, shall deposit or
cause to be deposited cash in the amount of the Additional Note Principal
Balance in the Advance Account in respect thereof, and the Servicer shall,
promptly after such deposit, withdraw the amount deposited in respect of
applicable Additional Note Principal Balance from the Advance Account, and
distribute such amount to or at the direction of the Depositor. In the case of
Table-Funded Loans, the Initial Noteholder (acting pursuant to the instructions
of the Issuer and Depositor, which are hereby given) shall disburse the related
amount in respect of Additional Note Principal Balances to the Settlement Agent
for distribution in accordance with the related Escrow Instructions, as
applicable.
(i) the Depositor shall have delivered to the Issuer and the
Initial Noteholder duly executed Assignments, which shall
have attached thereto a Loan Schedule setting forth the
appropriate information with respect to all Loans conveyed
on such Transfer Date and shall have delivered to the
Initial Noteholder a computer readable transmission of
such Loan Schedule;
(ii) the Depositor shall have deposited in the Collection
Account all collections received with respect to each of
the Loans after but not including the applicable Transfer
Cutoff Date;
(iii) as of such date, neither the Loan Originator, the Issuer
nor the Depositor shall (A) be insolvent, (B) be made
insolvent by its respective sale of Loans or (C) have
reason to believe that its insolvency is imminent;
(iv) the Revolving Period shall not have terminated;
(v) the Initial Noteholder shall have received the Due
Diligence Packages for such Loans as are to be transferred
on such Transfer Date at least five Business Days prior to
the related Transfer Date, shall have such completed its
due diligence investigation of such Loans and shall have
approved, in its sole discretion, each such Loan;
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(vi) the Issuer shall have either (x) delivered the Indenture
Trustee's Loan File to the Custodian in accordance with
the Custodial Agreement and the Initial Noteholder shall
have received a copy of the Loan Schedule and Exceptions
Report reflecting such delivery and for any Loans having
Exceptions (as defined in the Custodial Agreement)
thereon, the Initial Noteholder shall have approved in its
sole discretion each such Loan or (y) in the case of a
Table-Funded Loan, delivered the documentation specified
in SECTION 2.04(B)(I) to the Custodian and shall have
received consent from the Initial Noteholder (in its sole
discretion) to the sale of the Table-Funded Loan;
(vii) each of the representations and warranties made by the
Depositor pursuant to SECTION 3.04 with respect to the
Loans shall be true and correct as of the related Transfer
Date with the same effect as if then made, and the
Depositor shall have performed all obligations to be
performed by it under the Basic Documents on or prior to
such Transfer Date;
(viii) the Depositor shall, at its own expense, on or prior to
the Transfer Date, indicate in its computer files that the
Loans identified in the LPA Assignment and S&SA Assignment
have been sold to the Issuer pursuant to this Agreement
and the S&SA Assignment;
(ix) the Depositor shall have taken any action required to
maintain the ownership interest of the Issuer in the Trust
Estate and the first perfected security interest therein
of the Indenture Trustee;
(x) no selection procedures believed by the Depositor to be
adverse to the interests of the Noteholders shall have
been utilized in selecting the Loans to be conveyed on
such Transfer Date;
(xi) the Depositor shall have provided the Issuer, the
Indenture Trustee and the Initial Noteholder no later than
two Business Days prior to such date a Notice of
Additional Note Principal Balance in the form of Exhibit A
hereto;
(xii) after giving effect to the Additional Note Principal
Balance associated therewith, the Note Principal Balance
will not exceed the Maximum Note Principal Balance;
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(xiii) all conditions precedent to the Depositor's purchase of
Loans pursuant to the Loan Purchase Agreement shall have
been fulfilled as of such Transfer Date;
(xiv) all conditions precedent to the Noteholders' purchase of
Additional Note Principal Balance pursuant to the Note
Purchase Agreement shall have been fulfilled as of such
date; and
(xv) if any Loan sold on the Transfer Date is a Table-Funded
Loan, the Loan Originator shall have provided the Initial
Noteholder, Depositor, Issuer, Settlement Agent and
Custodian with a copy of any related Bailee Agreement,
Bailee Trust Receipt and Escrow Instructions on or prior
to such Transfer Date.
(b) On each Collateral Value Excess Date, the Issuer shall deposit or
cause to be deposited into the Advance Account cash in the amount equal to the
Additional Note Principal Balance with respect to such Collateral Value Excess
Date, only upon the satisfaction of conditions set forth in subclauses (iii),
(iv), (ix), (xi), (xii) and (xiv) of Section 2.06(a) on such Collateral Value
Excess Date. The Servicer shall withdraw the amount deposited in respect of
Additional Note Principal Balance from the Advance Account in respect of such
deposit and distribute such amount to or at the direction of the Depositor.
SECTION 2.07 TERMINATION OF REVOLVING PERIOD.
Upon the occurrence of (i) an Event of Default or Default under this
Agreement or the Indenture or (ii) a Rapid Amortization Trigger, the Initial
Noteholder (if still a Noteholder) may, in its sole discretion, terminate the
Revolving Period.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.
The Depositor hereby represents and warrants to the Loan Originator,
the Servicer, the Indenture Trustee, the Owner Trustee and the Noteholders that
as of the Closing Date, as of each Transfer Date and as of each Collateral Value
Excess Date:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has, and had at
all relevant times, full power to own its property, to carry on its business as
currently conducted, to enter into and perform its obligations under each Basic
Document to which it is a party;
(b) The execution and delivery of each Basic Document to which it is a
party by the Depositor and its performance of and compliance with all of the
terms thereof will not violate the Depositor's certificate of incorporation or
by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
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acceleration of, any material contract, agreement or other instrument to which
the Depositor is a party or which may be applicable to the Depositor or any of
its assets;
(c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by each Basic Document to which it is a
party, has duly authorized the execution, delivery and performance of each Basic
Document to which it is a party and has duly executed and delivered each Basic
Document to which it is a party. Each Basic Document to which it is a party,
assuming due authorization, execution and delivery by the other party or parties
thereto, constitutes a valid, legal and binding obligation of the Depositor,
enforceable against it in accordance with the terms thereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law);
(d) The Depositor is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Depositor and its
performance and compliance with the terms of each Basic Document to which it is
a party will not constitute a violation with respect to, any order or decree of
any court or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations of the
Depositor or its properties or materially and adversely affect the performance
of its duties hereunder;
(e) There are no actions or proceedings against, or investigations of,
the Depositor currently pending with regard to which the Depositor has received
service of process and no action or proceeding against, or investigation of, the
Depositor is, to the knowledge of the Depositor, threatened or otherwise pending
before any court, administrative agency or other tribunal that (A) if determined
adversely to the Depositor, would prohibit its entering into any of the Basic
Documents to which it is a party or render the Notes invalid, (B) seek to
prevent the issuance of the Notes or the consummation of any of the transactions
contemplated by any of the Basic Documents to which it is a party or (C) if
determined adversely to the Depositor, would prohibit or materially and
adversely affect the performance by the Depositor of its obligations under, or
the validity or enforceability of, any of the Basic Documents to which it is a
party or the Notes;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, any of the
Basic Documents to which it is a party or the Notes, or for the consummation of
the transactions contemplated by any of the Basic Documents to which it is a
party, except for such consents, approvals, authorizations and orders, if any,
that have been obtained prior to the Closing Date;
(g) The Depositor is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
any of the Basic Documents to which it is a party or the assumption of any of
its obligations thereunder; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Depositor;
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(h) As of the Transfer Date related thereto, the Depositor did not
sell the Mortgage Loans sold thereon to the Trust with any intent to hinder,
delay or defraud any of its creditors; nor will the Depositor be rendered
insolvent as a result of such sale;
(i) As of the Transfer Date related thereto, the Depositor had good
title to, and was the sole owner of, each Loan sold thereon free and clear of
any lien other than any such lien released simultaneously with the sale
contemplated herein, and, immediately upon each transfer and assignment herein
contemplated, the Depositor will have delivered to the Trust good title to, and
the Trust will be the sole owner of, each Mortgage Loan transferred thereon free
and clear of any lien;
(j) As of the Transfer Date related thereto, the Depositor acquired
title to each of the Loans sold thereon in good faith, without notice of any
adverse claim;
(k) The Basic Documents and other information identified in Exhibit D
hereto (collectively, the "REFERENCED DOCUMENTS"), when taken as a whole, do not
contain any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Depositor to
the Initial Noteholder or any Affiliate thereof in connection with the
Referenced Documents and the transactions contemplated thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified. Except as disclosed in writing to the Initial Noteholder,
there is no fact known to a Responsible Officer of the Depositor, after due
inquiry, that could reasonably be expected to have a material adverse effect on
(a) the property, business, operations, financial condition or prospects of the
Depositor, (b) the ability of the Depositor to perform its obligations under any
Basic Document to which it is a party, (c) the validity or enforceability of any
of the Basic Documents, (d) the rights and remedies of the Noteholders and the
Indenture Trustee under any of the Basic Documents, (e) the timely payment of
the principal of or interest on the Notes or other amounts payable in connection
therewith or (f) the Loans;
(l) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended; and
(m) As of the Transfer Date related thereto, the transfer, assignment
and conveyance of the Loans by the Depositor thereon pursuant to this Agreement
is not subject to the bulk transfer laws or any similar statutory provisions in
effect in any applicable jurisdiction.
(n) The Depositor's principal place of business and chief executive
offices are located at The Perimeter Center, 17207 North Perimeter Drive,
Scottsdale, Arizona 85255.
SECTION 3.02 REPRESENTATIONS AND WARRANTIES OF THE LOAN ORIGINATOR.
The Loan Originator hereby represents and warrants to the Servicer,
the Indenture Trustee, the Owner Trustee, the Noteholders and the Depositor that
as of the Closing Date, as of each Transfer Date and as of each Collateral Value
Excess Date:
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(a) The Loan Originator is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (i) is
duly qualified, in good standing and licensed to carry on its business in each
state where any Loan Collateral is located and (ii) is in compliance with the
laws of any such state, in both cases, to the extent necessary to ensure the
enforceability of the Loans in accordance with the terms thereof and had at all
relevant times, full corporate power to originate the Loans, to own its
property, to carry on its business as currently conducted and to enter into and
perform its obligations under each Basic Document to which it is a party;
(b) The execution and delivery by the Loan Originator of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate the Loan Originator's articles of incorporation
or by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any contract, agreement or other instrument to which the Loan
Originator is a party or which may be applicable to the Loan Originator or any
of its assets;
(c) The Loan Originator has the full power and authority to enter into
and consummate all transactions contemplated by the Basic Documents to be
consummated by it, has duly authorized the execution, delivery and performance
of each Basic Document to which it is a party and has duly executed and
delivered each Basic Document to which it is a party. Each Basic Document to
which it is a party, assuming due authorization, execution and delivery by each
of the other parties thereto, constitutes a valid, legal and binding obligation
of the Loan Originator, enforceable against it in accordance with the terms
hereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);
(d) The Loan Originator is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Loan Originator
and its performance and compliance with the terms of each Basic Document to
which it is a party will not constitute a violation with respect to, any order
or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Loan Originator or its properties or materially and adversely
affect the performance of its duties under any Basic Document to which it is a
party;
(e) There are no actions or proceedings against, or investigations of,
the Loan Originator currently pending with regard to which the Loan Originator
has received service of process and no action or proceeding against, or
investigation of, the Loan Originator is, to the knowledge of the Loan
Originator, threatened or otherwise pending before any court, administrative
agency or other tribunal that (A) if determined adversely to the Loan
Originator, would prohibit its entering into any Basic Document to which it is a
party or render the Notes invalid, (B) seek to prevent the issuance of the Notes
or the consummation of any of the transactions contemplated by any Basic
Document to which it is a party or (C) if determined adversely to the Loan
Originator, would prohibit or materially and adversely affect the sale of the
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Loans to the Depositor, the performance by the Loan Originator of its
obligations under, or the validity or enforceability of, any Basic Document to
which it is a party or the Notes;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Loan Originator of, or compliance by the Loan Originator
with, any Basic Document to which it is a party, (2) the issuance of the Notes,
(3) the sale of the Loans under the Loan Purchase Agreement or (4) the
consummation of the transactions required of it by any Basic Document to which
it is a party, except such as shall have been obtained before such date;
(g) Immediately prior to the Transfer Date related thereto, the Loan
Originator had good title to the Loans sold on such Transfer Date without notice
of any adverse claim;
(h) The information, reports and schedules furnished in writing by or
on behalf of the Loan Originator to the Initial Noteholder or any Affiliate
thereof with regard to the Loans, the Due Diligence Packages, the Basic
Documents and other information identified in Exhibit D hereto (collectively,
the "REFERENCED DOCUMENTS"), when taken as a whole, do not contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written information furnished after the date
hereof by or on behalf of the Loan Originator to the Initial Noteholder or any
Affiliate thereof in connection with the Referenced Documents and the
transactions contemplated thereby will be true, complete and accurate in every
material respect, or (in the case of projections) based on reasonable estimates,
on the date as of which such information is stated or certified. Except as
disclosed in writing to the Initial Noteholder, there is no fact known to a
Responsible Officer of the Loan Originator, after due inquiry, that could
reasonably be expected to have a material adverse effect on (a) the property,
business, operations, financial condition or prospects of the Loan Originator,
(b) the ability of the Loan Originator to perform its obligations under any
Basic Document to which it is a party, (c) the validity or enforceability of any
of the Basic Documents, (d) the rights and remedies of the Noteholders and the
Indenture Trustee under any of the Basic Documents, (e) the timely payment of
the principal of or interest on the Notes or other amounts payable in connection
therewith or (f) the Loans;
(i) The Loan Originator is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations under each Basic Document to which it is a party; it will not be
rendered insolvent by the execution and delivery of this Agreement or by the
performance of its obligations under each Basic Document to which it is a party;
no petition of bankruptcy (or similar insolvency proceeding) has been filed by
or against the Loan Originator prior to the date hereof;
(j) As of the Transfer Date related thereto, the Loan Originator has
transferred the Loans transferred on or prior to such Transfer Date without any
intent to hinder, delay or defraud any of its creditors; and
(k) As of the Transfer Date related thereto, the Loan Originator has
received fair consideration and reasonably equivalent value in exchange for the
Loans sold on such Transfer Date to the Depositor.
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It is understood and agreed that the representations and warranties
set forth in this SECTION 3.02 shall survive delivery of the respective
Indenture Trustee's Loan Files to the Custodian (as the agent of the Indenture
Trustee) and shall inure to the benefit of the Securityholders, the Depositor,
the Servicer, the Indenture Trustee, the Owner Trustee and the Trust. Upon
discovery by any of the Loan Originator, the Depositor, the Servicer, the
Indenture Trustee or the Owner Trustee of a breach of any of the foregoing
representations and warranties that materially and adversely affects the value
of any Loan or the interests of the Securityholders therein, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties. The
obligations of the Loan Originator set forth in SECTIONS 2.05 and 3.05 hereof to
cure any breach or to substitute for or repurchase an affected Loan shall
constitute the sole remedies available hereunder to the Securityholders, the
Depositor, the Servicer, the Indenture Trustee or the Owner Trustee respecting a
breach of the representations and warranties contained in this SECTION 3.02. The
fact that the Initial Noteholder has conducted or has failed to conduct any
partial or complete due diligence investigation of the Loan Files shall not
affect the Noteholders' rights to demand repurchase or substitution as provided
under this Agreement.
SECTION 3.03 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
SERVICER.
The Servicer hereby represents and warrants to and covenants with the
Owner Trustee, the Indenture Trustee, the Noteholders, the Depositor and the
Loan Originator that as of the Closing Date, as of each Transfer Date and as of
each Collateral Value Excess Date:
(a) The Servicer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and (i) is duly
qualified, in good standing and licensed to carry on its business in each state
where any Loan Collateral is located, and (ii) is in compliance with the laws of
any such state, in both cases, to the extent necessary to ensure the
enforceability of the Loans in accordance with the terms thereof and to perform
its duties under each Basic Document to which it is a party and had at all
relevant times, full corporate power to own its property, to carry on its
business as currently conducted, to service the Loans and to enter into and
perform its obligations under each Basic Document to which it is a party;
(b) The execution and delivery by the Servicer of each Basic Document
to which it is a party and its performance of and compliance with the terms
thereof will not violate the Servicer's articles of incorporation or by-laws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach or acceleration of,
any material contract, agreement or other instrument to which the Servicer is a
party or which may be applicable to the Servicer or any of its assets;
(c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by each Basic Document to which it is a
party, has duly authorized the execution, delivery and performance of each Basic
Document to which it is a party and has duly executed and delivered each Basic
Document to which it is a party. Each Basic Document to which it is a party,
assuming due authorization, execution and delivery by each of the other parties
thereto, constitutes a valid, legal and binding obligation of the Servicer,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law);
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(d) The Servicer is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Servicer and its
performance and compliance with the terms of each Basic Document to which it is
a party will not constitute a violation with respect to, any order or decree of
any court or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations of the
Servicer or materially and adversely affect the performance of its duties under
any Basic Document to which it is a party;
(e) There are no actions or proceedings against, or investigations of,
the Servicer currently pending with regard to which the Servicer has received
service of process and no action or proceeding against, or investigation of, the
Servicer is, to the knowledge of the Servicer, threatened or otherwise pending
before any court, administrative agency or other tribunal that (A) if determined
adversely to the Servicer, would prohibit its entering into any Basic Document
to which it is a party, (B) seek to prevent the consummation of any of the
transactions contemplated by any Basic Document to which it is a party or (C) if
determined adversely to the Servicer, would prohibit or materially and adversely
affect the performance by the Servicer of its obligations under, or the validity
or enforceability of, any Basic Document to which it is a party or the Notes;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, any Basic
Document to which it is a party or the Notes, or for the consummation of the
transactions contemplated by any Basic Document to which it is a party, except
for such consents, approvals, authorizations and orders, if any, that have been
obtained prior to such date;
(g) The Basic Documents and other information identified in Exhibit D
hereto (collectively, the "REFERENCED DOCUMENTS"), when taken as a whole, do not
contain any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Servicer to
the Initial Noteholder or any Affiliate thereof in connection with the
Referenced Documents and the transactions contemplated thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified. Except as disclosed in writing to the Initial Noteholder,
there is no fact known to a Responsible Officer of the Servicer, after due
inquiry, that could reasonably be expected to have a material adverse effect on
(a) the property, business, operations, financial condition or prospects of the
Servicer, (b) the ability of the Servicer to perform its obligations under any
Basic Document to which it is a party, (c) the validity or enforceability of any
of the Basic Documents, (d) the rights and remedies of the Noteholders and the
Indenture Trustee under any of the Basic Documents, (e) the timely payment of
the principal of or interest on the Notes or other amounts payable in connection
therewith or (f) the Loans;
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(h) The Servicer is solvent and will not be rendered insolvent as a
result of the performance of its obligations pursuant to under the Basic
Documents to which it is a party; and
(i) The Servicer acknowledges and agrees that the Servicing Fee
represents reasonable compensation for the performance of its services hereunder
and that the entire Servicing Fee shall be treated by the Servicer, for
accounting purposes, as compensation for the servicing and administration of the
Loans pursuant to this Agreement.
It is understood and agreed that the representations, warranties and
covenants set forth in this SECTION 3.03 shall survive delivery of the
respective Indenture Trustee's Loan Files to the Indenture Trustee and shall
inure to the benefit of the Depositor, the Noteholders and the Indenture
Trustee. Upon discovery by any of the Loan Originator, the Depositor, the
Servicer, the Indenture Trustee or the Owner Trustee of a breach of any of the
foregoing representations, warranties and covenants that materially and
adversely affects the value of any Loans or the interests of the Noteholders
therein, the party discovering such breach shall give prompt written notice (but
in no event later than two Business Days following such discovery) to the other
parties. The fact that the Initial Noteholder has conducted or has failed to
conduct any partial or complete due diligence investigation shall not affect the
Noteholders' rights to exercise their remedies as provided under this Agreement.
SECTION 3.04 REPRESENTATIONS AND WARRANTIES REGARDING LOANS.
The Loan Originator hereby represents and warrants to the Depositor,
the Issuer, the Indenture Trustee and the Noteholders, with respect to each Loan
as of the related Transfer Date (except as otherwise expressly agreed in writing
by the Majority Noteholders):
(a) Immediately prior to sale to the Depositor, the Loan Originator is
the sole owner and holder of the Loan.
(b) Immediately prior to sale to the Depositor, the Loan Originator
has full right and authority to sell, assign, transfer and pledge the Loan.
(c) The Loan Originator is transferring the Loan free and clear of any
and all liens, pledges, equities, charges, claims or security interests of any
nature encumbering the Loan, except those removed immediately prior to sale to
the Depositor and except any security interest created pursuant to the terms of
this Agreement.
(d) With respect to each Mortgage Loan, the related Servicer's Loan
File includes a survey, certified to the Loan Originator and the title insurance
company, which is prepared in accordance with minimum standards for surveys as
determined by ALTA or equivalent at the time of origination of such Mortgage
Loan and contains the signature and seal of a licensed engineer or surveyor
affixed thereto.
(e) With respect to each Mortgage Loan, the related Assignment of
Mortgage and assignment of assignment of leases and rents (if any), except for
the name of the assignee, which is left blank, constitutes the legal, valid and
binding assignment of the Mortgage and the related assignment of leases and
rents from the Loan Originator. The endorsement of each Promissory Note, except
for the name of the assignee, which is left blank, constitutes the legal, valid
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and binding assignment of the Promissory Note, and together with the Assignment
of Mortgage and Assignment of Loan Documents, legally and validly conveys all
right, title and interest in the subject Loan to the Indenture Trustee.
(f) With respect to each Equipment Loan, the endorsement of the
related Promissory Note, except for the name of the assignee, which is left
blank, constitutes the legal, valid and binding assignment of the Promissory
Note, and together with the Assignment of Loan Documents, legally and validly
conveys all right, title and interest in the subject Equipment Loan to the
Indenture Trustee.
(g) With respect to each Mortgage Loan, the lien of the related
Mortgage is insured by an ALTA lender's title insurance policy (or a policy on
an equivalent form), issued (or to be issued pursuant to a binding irrevocable
commitment therefor) by a Qualified Insurer, insuring (subject to the exceptions
referred to in subsection (ac) below) the Loan Originator, its successors and
assigns, that the related Mortgage is a valid first lien on the Mortgaged
Property. Such title insurance policy is in full force and effect and will inure
to the benefit of the owner of such Mortgage Loan. Such title insurance policy
insures the Mortgaged Property for not less than the original principal amount
of the Mortgage Loan after all advances of principal. The title policy does not
contain any special exceptions (other than the standard exclusions) for zoning
or uses to the extent that such exceptions would, in the aggregate, materially
and adversely affect the value of the related Mortgaged Property or the intended
use thereof and, where available, has been marked to delete the standard survey
exception or to replace the standard survey exception with a specific survey
reading. No Person claiming through the Loan Originator has done, by act or
omission, anything, or has knowledge of any fact, which would materially impair
the coverage of any such title insurance policy. The title policy has been
marked to delete the intervening lien exception. All premiums for such policy,
including any premiums for endorsements and special endorsements, have been
paid. With respect to each Adjustable Rate Loan, the related title policy
contains an ALTA 6.02 endorsement, or its equivalent, to the extent available.
(h) With respect to the Indenture Trustee's Loan File for such Loan,
all copies contained therein are true, correct and complete copies of the
related originals.
(i) The Unit-Level Fixed Charge Coverage Ratio for such Loan is not
less than 1.20 or, with respect to the Sonic franchise finance program, 1.15.
(j) (i) With respect to each Mortgage Loan that is secured by the
related Borrower's fee simple ownership interest in the related Mortgaged
Property, such Borrower is the owner and holder of the landlord's interest under
any lease for use and occupancy of all or any portion of the related Mortgaged
Property. Each Mortgage provides for the appointment of a receiver for rents in
the event of default or allows the mortgagee to enter into possession to collect
the rents. Neither the Loan Originator nor the Borrower has made any assignments
of the landlord's interest in any such lease or any portion of the rents,
additional rents, charges, issues or profits due and payable or to become due
and payable under any such lease, which assignments are presently outstanding
and have priority over the related Mortgage or any related assignment of leases,
rents and profits given in connection with the origination of the related
Mortgage, other than as may be disclosed in the related lender's title insurance
policy referred to in subsection (g) above. An assignment of leases and/or rents
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and any security agreement, chattel mortgage or equivalent document related to
and delivered in connection with the Mortgage Loan establishes and creates a
valid and enforceable first lien and first priority security interest on the
property described therein except as enforceability may be limited by (A)
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, (B) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law) and (C) applicable state laws, which state laws will not materially
interfere with the practical realization of the principal benefits or security
provided thereby.
(ii) With respect to each Equipment Loan, all Equipment subject
to the related Security Agreement is either subject to a UCC-1 Financing
Statement filed and/or recorded (or sent for filing and/or recording on or prior
to the Transfer Cutoff Date) in all places necessary to perfect a valid first
priority lien thereon or, to the extent the related Equipment is securities or
other instruments, the Loan Originator or its agent has a valid first priority
lien thereon perfected by possession.
(k) In reliance on the Borrower's counsel's opinion contained in the
Servicer's Loan File, if any, and the Title Policy contained in the Indenture
Trustee's Loan File, with respect to each Mortgage that is a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has either been
properly designated and currently so serves or may be substituted in accordance
with applicable law. Except in connection with a trustee's sale or as otherwise
required by applicable law, after default by the Borrower, no fees or expenses
are payable to such trustee.
(l) The Servicer's Loan File contains a site inspection and valuation
report of the related Mortgaged Property which site inspection and valuation
report conforms to the requirements contained in the Underwriting Guidelines and
such site inspection and valuation report was conducted by a Person whose
compensation was and is not affected by the approval or disapproval of such
Loan.
(m) The information set forth in the Loan Schedule for such Loan is
true, correct and complete in all material respects.
(n) The Loan has been originated in accordance with applicable law and
the Underwriting Guidelines.
(o) The Borrower and/or its lessees and/or operator are in possession
of all material licenses, permits, and authorizations required for use and/or
possession of the Loan Collateral.
(p) The Loan has been serviced in accordance with applicable law and
the terms of the related Loan Documents.
(q) Since the completion of funding contemplated under the applicable
Loan Documents of the Loan, the terms of the related Promissory Note, Mortgage,
if applicable, and Security Agreements, if applicable, have not been impaired,
waived, modified, altered, satisfied, canceled or subordinated by the Loan
Originator in any respect, except, in each of the foregoing instances, by
written instruments that are a part of the related Indenture Trustee's Loan
File, recorded in the applicable public recording office if necessary to
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maintain the priority of the lien of the related Mortgage, if applicable, and
Security Agreements, if applicable, delivered to the Indenture Trustee or its
designee.
(r) No fraud, error, omission, misrepresentation or negligence with
respect to the origination of a Loan has taken place on the part of any Person,
including, without limitation, the Borrower, any appraiser or any other party
involved in the origination of the Loan. The Loan Originator has reviewed all of
the documents constituting the Indenture Trustee's Loan File, the Servicer's
Loan File and internal credit write-up and has made such inquiries as it deems
necessary to make and confirm the accuracy of the representations set forth
herein.
(s) The Loan is not a participation interest in a loan, but is a whole
loan, and the Loan Originator does not own and is not entitled to own any equity
interest in the Borrower. Except as disclosed in the Due Diligence Package
related thereto, such Loan does not provide for any Retained Interest.
(t) The Loan does not contain a shared appreciation feature or any
terms providing for a contingent interest.
(u) No taxes, ground rents, water charges, sewer rents, insurance
premiums, governmental assessments (including the current portion of assessments
payable in future installments) or other charges affecting the related Loan
Collateral that, prior to the related Transfer Cutoff Date became due and owing
in respect of such Loan Collateral, are delinquent.
(v) Any escrow deposits and payments relating to the Loan are under
the control of the Loan Originator or Servicer and any amounts required to be
deposited by the Borrower have been deposited.
(w) There is no material default, breach, violation or event of
acceleration on the part of the related Borrower existing under the related
Mortgage or Security Agreement or the related Promissory Note, and no event
which, with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration occurred during
the preceding twelve months. The Loan Originator has not waived any material
default, breach, violation or event of acceleration of any of the foregoing,
and, pursuant to the terms of the related Mortgage or Security Agreement or the
related Promissory Note, no person or party other than the holder of such
Promissory Note may declare any event of default or accelerate the related
indebtedness under either of such Mortgage or Promissory Note.
(x) There is no pending total or partial condemnation of the related
Mortgaged Property, and the Loan Collateral is free and clear of any damage or
waste that would materially and adversely affect its value or marketability as
security for the Loan and the related Loan Collateral is in good repair and has
not been materially damaged by fire, wind or other cause, which damage has not
been fully repaired or for which insurance proceeds have not been received or
are not expected to be received.
(y) With respect to each Mortgage Loan, none of the improvements that
are or are intended to be, security for the Mortgage Loan lie outside of the
boundaries and building restriction lines of the Mortgaged Property except for
certain immaterial encroachments therefrom, and no improvements on adjoining
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properties materially encroach upon the Mortgaged Property, except for those
material encroachments insured over by title insurance or the subject of a Title
Matters Indemnity Agreement contained in the Servicer's Loan File with respect
to such Mortgage Loan.
(z) The Loan Collateral is covered by acceptable insurance meeting the
minimum requirements set forth in the Mortgage or Security Agreement. The Loan
Collateral is insured by a fire and extended perils insurance policy that
provides coverage in an amount not less than the lesser of the Principal Balance
of the related Promissory Note and full replacement value of the Loan
Collateral.
(aa) With respect to each Mortgage Loan, the related Loan Documents
require that the related Mortgaged Property be insured by a fire and extended
perils insurance policy, issued by a Qualified Insurer that has a claims-paying
ability rated at least "A:VI" by A.M. Best's Key Rating Guide, providing
coverage against loss or damage sustained by reason of fire, lightning,
windstorm, hail, explosion, riot, riot attending a strike, civil commotion,
aircraft, vehicles and smoke, and, to the extent required under such Loan
Documents, against earthquake and other risks insured against by Persons
operating like properties in the locality of such Mortgaged Property, in an
amount that is not less than 100% of the full insurable replacement cost of such
Mortgaged Property (exclusive of land, footings and foundations). If such
Mortgaged Property is located in a Special Flood Hazard Area (as defined by the
Federal Emergency Management Agency) and flood insurance is available, such Loan
Documents require that a flood insurance policy be in effect. The related Loan
Documents also require the related Mortgaged Property to be covered by
comprehensive general liability insurance in amounts generally required by
institutional lenders for similar properties. The related Loan Documents require
that each such Insurance Policy (i) contain a standard mortgagee clause naming
the Loan Originator, its successors and assigns as mortgagee and (ii) provide
for prior notice to the mortgagee, as additional insured, of termination or
cancellation (and no such notice has been received). In addition, each such
Insurance Policy will be required to be subject to deductibles not greater than
those customarily carried for similar Mortgaged Property, considering the
creditworthiness of the Borrower. The Loan Documents for such Mortgage Loan
obligate the related Borrower to maintain all such insurance, and if such
Borrower fails to do so, authorize the mortgagee to obtain and maintain such
insurance at such Borrower's cost and expense and to seek reimbursement therefor
from such Borrower;
(ab) The Loan is not thirty (30) or more days delinquent in payment of
principal or interest and has not been delinquent by thirty (30) or more days
more than once during the preceding twelve (12) months.
(ac) With respect to each Mortgage Loan, the related Mortgage is a
valid and enforceable first lien on the fee or leasehold estate of the Borrower
in the related Mortgaged Property (as applicable), which Mortgaged Property is
free and clear of all encumbrances and liens having priority over the first lien
of the Mortgage, except (i) for liens for real estate taxes and special
assessments either not yet delinquent or not yet due and payable, (ii) for
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage, which
exceptions do not, in the aggregate, materially and adversely affect the value
of the related Mortgaged Property or the intended use thereof, (iii) to the
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extent such Loan Collateral consists of patents, trademarks or copyrights, or
property as to which perfection of a security interest is effected through
possession, notation on a document of title or recording or filing under any law
other than the UCC, such security interest is perfected as a first priority
security interest under the UCC and (iv) for other matters to which like
properties are commonly subject which do not, individually or in the aggregate,
materially interfere with the benefits of the security intended to be provided
by such Mortgage.
(ad) With respect to each Mortgage Loan, no claims have been made by
the Loan Originator under the related Title Policy. No prior holder of the
related Mortgage has done, by act or omission, anything which would materially
impair the coverage of any such Title Policy and such Title Policy is in full
force and effect, is freely assignable and will inure to the benefit of the
Indenture Trustee or its designee as mortgagee of record. All applicable
premiums for the Title Policy, endorsements and all special endorsements, if
any, have been paid.
(ae) The Loan Originator has, and all parties to the related
Promissory Note, Mortgage or Security Agreement, and any related agreements or
guaranties had, the power, authority and legal capacity to enter into, execute
and deliver the same and such Promissory Note, Mortgage or Security Agreement,
related agreements and guaranties, if any, have been duly and properly executed
and delivered by the Loan Originator and all other parties.
(af) In connection with each Loan, the related Promissory Note,
Mortgage or Security Agreement and other agreements executed in connection
therewith:
(i) have been completed in compliance with, or are exempt from,
applicable state, federal and local laws and rules and regulations relating to
the origination of and performance under the Loan, including, without
limitation, usury, land sales, the offer and sale of securities and equal credit
opportunity or disclosure, the Federal Truth-in-Lending Act, the Real Estate
Settlement Procedure Act and other consumer protection laws and neither
origination of such Loan nor consummation of the transactions contemplated
hereby involved or will involve the violation of any such laws; and
(ii) are genuine and are the legal, valid and binding obligation
of the Borrower or Borrowers thereof (subject to any non-recourse provisions
therein), and enforceable in accordance with their respective terms, without
defense, offset, counterclaim or right of rescission, except as enforcement may
be limited by (A) bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, (B) general principles
of equity (regardless of whether such enforcement is considered in a proceeding
in equity or at law) and (C) applicable state laws, which state laws will not
materially interfere with the practical realization of the principal benefits or
security provided thereby.
(ag) The related Promissory Note, Mortgage or Security Agreement, as
applicable, and other agreements executed in connection therewith contain
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Loan Collateral of the benefits
of the security provided thereby.
(ah) The Loan Documents have not been modified to (i) provide for any
holdbacks, other than any holdbacks previously approved by the parties hereto,
(ii) require future advances thereunder, or (iii) require disbursements of any
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escrow funds for completion of any on-site or off-site improvements, other than
any requirements for disbursement of escrow funds held pursuant to the
applicable Loan Documents. All applicable costs, fees and expenses incurred in
making, closing or recording such Loan will have been paid on or before the
related Transfer Cutoff Date.
(ai) With respect to each Mortgage Loan, the Loan Originator has a
first lien priority perfected security interest in all Condemnation Proceeds and
casualty proceeds relating to such Mortgaged Property.
(aj) The Loan Collateral is not in construction or substantial
rehabilitation.
(ak) The Loan is not cross-collateralized with any obligation other
than a Loan. For each Senior Loan, the related Borrower's obligations thereunder
are cross-defaulted with such Borrower's obligations under the Mortgage Loans
and the Equipment Loans (if any) associated with such Senior Loan.
(al) The conveyance of the Loan on such Transfer Date shall be deemed
a certification by a Responsible Officer of the Loan Originator that no default
by a Borrower is threatened or imminent with respect to such Loan.
(am) With respect to each Mortgage Loan, there is access to the
Mortgaged Property and such access is insured by title insurance (to the extent
available), and each Mortgaged Property, in every case, is serviced by public or
private water and sewer systems. The Loan Originator inspected, or caused to be
inspected, the related Mortgaged Property in connection with the origination of
such Mortgage Loan and the Loan Originator has inspected, or caused to be
inspected, such Mortgaged Property in accordance with the Underwriting
Guidelines.
(an) [Reserved.]
(ao) The Loan Originator has not, directly or indirectly, advanced
funds under the related Promissory Note to a party other than the related
Borrower or its designee. The Loan Originator has not received any advance of
funds by a party other than the related Borrower, for the payment of any amount
required by the related Promissory Note or the related Mortgage or Security
Agreement, as the case may be.
(ap) The related Borrower is not a debtor in any state or federal
bankruptcy or insolvency proceeding.
(aq) The Mortgage or Security Agreement, as the case may be, prohibits
any further pledge or lien on the Loan Collateral, whether equal or subordinate
to the lien of the Mortgage or Security Agreement, as the case may be, without
the prior written consent of the holder.
(ar) All Loan Collateral is located within one of the 50 United States
or the District of Columbia.
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(as) Each Loan that is a Mortgage Loan is secured by the related
Borrower's (x) fee simple estate ("FEE INTEREST") or (y) leasehold estate in a
Ground Lease. With respect to each Ground Lease:
(i) Such Ground Lease, or a memorandum thereof, has been
recorded, and either any provisions of such Ground Lease that prohibit the
related leasehold estate to be mortgaged have been waived or the lessor has
consented to the leasehold mortgage;
(ii) Except as disclosed in the Due Diligence Package related to
such Loan, such Ground Lease or the related estoppel certificate provides that
the Borrower's interest in such Ground Lease is assignable to successors and
assigns of the mortgagee with the consent of, the lessor thereunder which
consent shall not be unreasonably withheld;
(iii) The lessor has delivered an estoppel certificate stating
that at the date of delivery of such estoppel certificate, such Ground Lease is
in full force and effect and no default has occurred under such Ground Lease nor
is there any existing condition which, but for the passage of time or the giving
of notice, or both, would result in a default thereunder;
(iv) The mortgagee under such Ground Lease is permitted a
reasonable opportunity to cure any default under such Ground Lease which is
curable after the receipt of notice of such default before the lessor thereunder
may terminate such Ground Lease;
(v) Such Ground Lease or applicable estoppel certificate does not
restrict the use of the related Mortgaged Property by the related Borrower, its
successors or assigns in a manner that would materially and adversely affect the
security provided by the related Mortgage. The Ground Lease or applicable
estoppel certificate contains a covenant or agreement that the lessor thereunder
is not permitted, in the absence of an uncured default, to disturb the
possession, interest or quiet enjoyment of any lessee in the relevant portion of
the Mortgaged Property for any reason; and
(vi) Such Ground Lease has an original term that, together with
any term or terms for which such Ground Lease may be renewed or extended by the
related Borrower, extends to not earlier than the fifth anniversary of the
stated maturity date of the related Mortgage Loan.
(at) (i) Each Mortgage Loan that is a C&G Store Mortgage Loan is
insured under the Environmental Policy; and
(ii) With respect to each Mortgage Loan that is not a C&G Store
Mortgage Loan, either (A) (x) a Phase I environmental assessment was
conducted with respect to the related Mortgaged Property, that
concluded that no further investigation of the related Mortgaged
Property was necessary or (y) if such Phase I environmental assessment
concluded that further investigation of such Mortgaged Property was
necessary, a Phase II environmental assessment was conducted with
respect to the related Mortgaged Property, and such Phase II
environmental assessment evidenced that no remediation or further
action was required with respect to the related Mortgaged Property or
(B) such Mortgage Loan is insured under the Environmental Policy.
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(au) With respect to each Mortgage Loan, the related Mortgage provides
that the Borrower will defend and hold the Loan Originator and its successors
and/or assigns harmless from and against claims of any kind whatsoever
(including attorney's fees and costs) paid, incurred, or suffered by, or
asserted against, any such other party resulting from a breach of any
representation, warranty or covenant given by the Borrower under the related
Mortgage.
(av) As of the related Transfer Date, after giving effect to the
transfer of such Loan, the aggregate Principal Balance of all Other CD Facility
Mortgage Loans in the Loan Pool will not exceed the greater of (i) 10% of the
Pool Principal Balance and (ii) $20,000,000.
(aw) With respect to each Equipment Loan, the related Security
Agreement creates a valid, existing and enforceable first priority security
interest in the related Equipment and such security interest is perfected as a
first priority security interest under the UCC.
(ax) The information contained in the Due Diligence Package covering
the characteristics of such Loan and the related Borrower and Loan Collateral is
true and correct in all material respects.
(ay) (i) With respect to each Loan that is not identified as an
Adjustable Rate Loan on the Loan Schedule, the Loan Interest Rate with respect
thereto is fixed throughout the term to maturity of such Loan (without regard to
any Retained Interest). The amount of interest accrued on each such Loan will be
calculated based on a 360-day year consisting of twelve 30-day months.
(ii) With respect to each Loan that is an Adjustable Rate Loan,
the Loan Interest Rate is subject to adjustment on the first day of each
calendar month to equal the sum of LIBOR (as defined in the related Loan
Documents) for such date and a fixed percentage, subject to a maximum rate and
minimum rate in accordance with the terms thereof. The initial amount of the
Monthly Payment related to each Adjustable Rate Loan will fully amortize the
original Principal Balance of such Loan over its original term to maturity at
the initial Loan Interest Rate thereon. The Monthly Payments on each such Loan
will be equal to such amount until the first Payment Reset Date for such Loan,
at which time, and on each succeeding Payment Reset Date thereafter, the amount
of the Monthly Payments to be paid by the related Borrower will be adjusted for
the next succeeding Payment Period to an amount that will fully amortize the
Principal Balance of such Loan on such Payment Reset Date at the Loan Interest
Rate for such Loan as determined on each December 15th prior to the next Payment
Period over its remaining term to maturity. The amount of interest accrued on
each of the Adjustable Rate Loans will be calculated based on a 360-day year and
the actual number of days elapsed. Any Negative Amortization will be added to
the Principal Balance of such Loan on such Due Date. If the Principal Balance of
any Adjustable Rate Loan exceeds the product of the related Negative
Amortization Cap and the original Principal Balance thereof after adding any
Negative Amortization thereto, the related Borrower will be required to prepay
such Loan on the immediately succeeding Due Date in an amount equal to the
difference between such Principal Balance and such original principal balance.
All adjustments to the Loan Interest Rate on any Adjustable Rate Loan have been
made in compliance with the terms of applicable law and the related Promissory
Note.
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(az) As of the related Transfer Date, after giving effect to the
transfer of such Loan, the aggregate Principal Balance of all Automotive Service
Facility Mortgage Loans in the Loan Pool will not exceed the greater of (i) 20%
of the Pool Principal Balance and (ii) $50,000,000.
(ba) As of the related Transfer Date, after giving effect to the
transfer of such Loan, the aggregate Principal Balance of all Mortgage Loans in
the Loan Pool for which the related store, dining establishment or other
business operated on the Mortgaged Property has been in continuous operation for
less than twelve months will not exceed such amounts as may periodically be
specified by the Majority Noteholder to the Servicer in writing.
SECTION 3.05 PURCHASE AND SUBSTITUTION.
(a) It is understood and agreed that the representations and
warranties set forth in SECTION 3.04 hereof shall survive the conveyance of the
Loans to the Issuer, the pledge of the Loans to the Indenture Trustee and the
delivery of the Notes to the Noteholders. Upon discovery by the Depositor, the
Servicer, the Loan Originator, the Custodian, the Issuer, the Indenture Trustee
or any Securityholder of a breach of any of such representations and warranties
or the representations and warranties set forth in SECTION 3.02 which materially
and adversely affects the value of the Loans or the interests of the
Securityholders in the related Loan (notwithstanding that such representation
and warranty was made to the Loan Originator's best knowledge), the party
discovering such breach shall give prompt written notice to the others. The Loan
Originator shall within 5 Business Days of any breach of a representation or
warranty, including any breach of the representation set forth in SECTION
3.04(AW) hereof as a result of an attribute of the aggregate Loan Pool which
would not otherwise cause a breach of any other representation or warranty,
promptly cure such breach in all material respects. If within 5 Business Days
after the earlier of the Loan Originator's discovery of such breach or the Loan
Originator's receiving notice thereof such breach has not been remedied by the
Loan Originator and such breach materially and adversely affects the interests
of the Securityholders or in the related Loan (the "DEFECTIVE LOAN"), the Loan
Originator shall promptly upon receipt of written instructions from the Majority
Noteholders either (i) remove such Defective Loan from the Trust (in which case
it shall become a Deleted Loan) and substitute one or more Qualified Substitute
Loans in the manner and subject to the conditions set forth in this SECTION 3.05
or (ii) purchase such Defective Loan at a purchase price equal to the Purchase
Price with respect to such Defective Loan by depositing such Purchase Price in
the Collection Account. The Loan Originator shall provide the Servicer, the
Indenture Trustee, the Initial Noteholder and the Issuer with a certification of
a Responsible Officer on the Determination Date next succeeding the end of such
5 Business Days period indicating whether the Loan Originator is purchasing the
Defective Loan or substituting in lieu of such Defective Loan a Qualified
Substitute Loan.
Any substitution of Loans pursuant to this SECTION 3.05(A) shall be
accompanied by payment by the Loan Originator of the Substitution Adjustment, if
any, to be deposited in the Collection Account pursuant to SECTION 5.01(B)(1)
hereof.
It is understood and agreed that the obligation of the Loan Originator
to repurchase or substitute any such Loan pursuant to this SECTION 3.05 shall
constitute the sole remedy against it with respect to such breach of the
foregoing representations or warranties or the existence of the foregoing
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conditions. With respect to representations and warranties made by the Loan
Originator pursuant to SECTION 3.04 hereof that are made to the Loan
Originator's best knowledge, if it is discovered by any of the Depositor, the
Loan Originator, the Indenture Trustee or the Owner Trustee that the substance
of such representation and warranty is inaccurate and such inaccuracy materially
and adversely affects the value of the related Loan, notwithstanding the Loan
Originator's lack of knowledge, such inaccuracy shall be deemed a breach of the
applicable representation and warranty.
(b) As to any Deleted Loan for which the Loan Originator substitutes a
Qualified Substitute Loan or Loans, the Loan Originator shall effect such
substitution by delivering to the Issuer (i) a certification executed by a
Responsible Officer of the Loan Originator to the effect that the Substitution
Adjustment has been credited to the Collection Account and (ii) the documents
constituting the Indenture Trustee's Loan File for such Qualified Substitute
Loan or Loans.
The Servicer shall deposit in the Collection Account all payments
received in connection with such Qualified Substitute Loan or Loans after the
date of such substitution. Monthly Payments received with respect to Qualified
Substitute Loans on or before the date of substitution will be retained by the
Loan Originator. The Issuer will be entitled to all payments received on the
Deleted Loan on or before the date of substitution and the Loan Originator shall
thereafter be entitled to retain all amounts subsequently received in respect of
such Deleted Loan. The Loan Originator shall give written notice to the Issuer,
the Servicer (if the Loan Originator is not then acting as such), the Indenture
Trustee and Owner Trustee that such substitution has taken place and the
Servicer shall amend the Loan Schedule to reflect (i) the removal of such
Deleted Loan from the terms of this Agreement and (ii) the substitution of the
Qualified Substitute Loan. The Loan Originator shall promptly deliver to the
Issuer, the Servicer (if the Loan Originator is not then acting as such), the
Indenture Trustee and Owner Trustee, a copy of the amended Loan Schedule. Upon
such substitution, such Qualified Substitute Loan or Loans shall be subject to
the terms of this Agreement in all respects, and the Loan Originator shall be
deemed to have made with respect to such Qualified Substitute Loan or Loans, as
of the date of substitution, the covenants, representations and warranties set
forth in SECTION 3.04 hereof. On the date of such substitution, the Loan
Originator will deposit into the Collection Account an amount equal to the
related Substitution Adjustment, if any. In addition, on the date of such
substitution, the Servicer shall cause the Indenture Trustee to release the
Deleted Loan from the lien of the Indenture and the Servicer will cause such
Qualified Substitute Loan to be pledged to the Indenture Trustee under the
Indenture as part of the Trust Estate.
(c) With respect to all Defective Loans or other Loans repurchased by
the Loan Originator pursuant to this Agreement, upon the deposit of the Purchase
Price therefor into the Collection Account, the Indenture Trustee shall assign
to the Loan Originator, without recourse, representation or warranty, all the
Indenture Trustee's right, title and interest in and to such Defective Loans or
Loans, which right, title and interest were conveyed to the Indenture Trustee
pursuant to SECTION 2.01 hereof. The Indenture Trustee shall, at the expense of
the Loan Originator, take any actions as shall be reasonably requested by the
Loan Originator to effect the repurchase of any such Loans.
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(d) It is understood and agreed that the obligations of the Loan
Originator set forth in this SECTION 3.05 to cure, purchase or substitute for a
Defective Loan (and to indemnify the Trust for certain losses as described
herein in connection with a Defective Loan) constitute the sole remedies
hereunder of the Depositor, the Issuer, the Indenture Trustee, Owner Trustee and
the Securityholders respecting a breach of the representations and warranties
contained in SECTION 3.02 and SECTION 3.04 hereof. Any cause of action against
the Loan Originator relating to or arising out of a defect in a Indenture
Trustee's Loan File as contemplated by SECTION 2.05 hereof or against the Loan
Originator relating to or arising out of a breach of any representations and
warranties made in SECTION 3.04 hereof shall accrue as to any Loan upon (i)
discovery of such defect or breach by any party and notice thereof to the Loan
Originator or notice thereof by the Loan Originator to the Indenture Trustee,
(ii) failure by the Loan Originator to cure such defect or breach or purchase or
substitute such Loan as specified above, and (iii) demand upon the Loan
Originator, as applicable, by the Issuer or the Majority Noteholders for all
amounts payable in respect of such Loan.
(e) Neither the Issuer nor the Indenture Trustee shall have any duty
to conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase or
substitution of any Loan pursuant to this Section or the eligibility of any Loan
for purposes of this Agreement.
SECTION 3.06 SECURITIZATIONS.
(a) In accordance with the terms of Section 2.3(a) of the Loan
Purchase Agreement, the Loan Originator shall effect Securitizations at the
direction of the Majority Noteholders. In connection therewith, the Issuer
agrees to assist the Loan Originator in such Securitizations and accordingly it
shall, at the request and direction of the Majority Noteholders:
(i) transfer, deliver and sell all or a portion of the Loans,
as of the "cutoff dates" of the related Securitizations,
to such Securitization Participants as may be necessary to
effect the Securitizations; PROVIDED, that any such sale
shall be for "fair market value," as determined by the
Majority Noteholders in their reasonable discretion;
(ii) deposit the cash Securitization Proceeds into the
Collection Account pursuant to SECTION 5.01(B)(1) and
retain any Retained Securities created in Securitizations
in accordance with the terms of the Trust Agreement;
(iii) to the extent that a Securitization creates any Retained
Securities, to accept such Retained Securities as a part
of the Securitization Proceeds, PROVIDED, that any such
acceptance of such Retained Securities shall be subject to
the Issuer's reasonable approval; and
(iv) take such further actions as may be reasonably necessary
to effect such Securitizations.
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(b) The Servicer hereby covenants that it will take such actions as
may be reasonably necessary to effect Securitizations as the Majority
Noteholders may request and direct.
(c) The right of the Majority Noteholders to require the Issuer and
the Loan Originator to effect Securitizations is subject to (i) the conditions
set forth in Section 2.3(a) of the Loan Purchase Agreement and (ii) the Issuer's
right of approval with respect to the Securitization; provided, however, that no
such Issuer right of approval shall be required if a Disposition Trigger Event
has occurred.
(d) The Issuer covenants that no Loan shall remain pledged as
Collateral for a single Series of Notes past the date ending on the second
Securitization which occurs while such Loan was pledged as Collateral.
(e) The Loan Originator shall, in connection with a Securitization,
cause FFCA to obtain an Opinion of Counsel to the effect that the securities
issued shall be treated as the issuance of debt instruments by FFCA or an
Affiliate thereof.
SECTION 3.07 LOAN ORIGINATOR PUT; SERVICER CALL.
(a) LOAN ORIGINATOR PUT. The Loan Originator shall promptly
repurchase, upon the written demand of the Majority Noteholders, in the form of
Exhibit G attached hereto, any (i) Loan that has become 30 or more days
Delinquent, (ii) Defaulted Loan, (iii) Loan that has been in default for a
period of 30 days or more, (iv) Loan that has been determined to be ineligible
for a Securitization by mutual agreement of the Majority Noteholders and the
Servicer and (v) Mortgage Loan with respect to which the Loan Originator did not
enforce a due-on-sale or due-on-encumbrance clause pursuant to SECTION 7.01
hereof (each such Loan, a "Put/Call Loan").
(b) SERVICER CALL. The Servicer may repurchase any Put/Call Loan (as
defined in SECTION 3.07(A) hereof). Such Servicer Calls shall be solely at the
option of the Servicer. Prior to exercising a Servicer Call, the Servicer shall
deliver written notice to the Majority Noteholders and the Indenture Trustee in
the form of Exhibit H attached hereto, which notice shall identify each Loan to
be repurchased and the Purchase Price therefor.
(c) In connection with each Loan Originator Put, the Loan Originator
shall remit to the Servicer for deposit into the Collection Account, the
Purchase Price for the Loans to be repurchased. In connection with each Servicer
Call, the Servicer shall deposit into the Collection Account the Purchase Price
for the Loans to be repurchased. The aggregate Purchase Price of all Loans
transferred pursuant to Section 3.07(a) shall in no event exceed the Unfunded
Transfer Obligation or the Postsecuritization Unfunded Transfer Obligation, as
applicable, at the time of such Loan Originator Put.
SECTION 3.08 MODIFICATION OF UNDERWRITING GUIDELINES.
The Loan Originator shall give the Initial Noteholder prompt written
notification of any material modification or change to the Underwriting
Guidelines.
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SECTION 3.09 ENVIRONMENTAL POLICY AND BUSINESS INTERRUPTION INSURANCE.
(a) The Loan Originator shall perform all actions required under the
Environmental Policy to validly assign such policy to the Indenture Trustee with
respect to each Mortgage Loan insured thereunder.
(b) The Loan Originator shall remit to the Collection Account all
amounts received by it under the Environmental Policy with respect to each Loan
insured thereunder; provided that to the extent the Servicer decides in
accordance with the Servicing Standard to apply such proceeds to remediate the
related Mortgaged Property, the Servicer shall retain such amounts for such use.
(c) The Loan Originator hereby covenants that in the event that the
Majority Noteholders determine that it is generally required by national
statistical rating organizations, in connection with securitization transactions
with respect to the Loans (regardless of whether such a Securitization is
expected to occur with respect to the Loans), it shall promptly obtain or cause
to be obtained for each Mortgaged Property, business interruption or rent
insurance, in an amount at least equal to six (6) months of operations of such
Mortgaged Property, or if the Loan Originator shall not obtain or cause such
insurance to be obtained for any Mortgage Loan, the parties hereto agree that
the Majority Noteholders may proportionately reduce the Maximum Advance Factor
for such Mortgage Loan in an amount equal to the aggregate reduction in
anticipated Securitization Proceeds attributable to such failure to obtain such
insurance.
SECTION 3.10 WHOLE LOAN SALES.
(a) Each of the Servicer, the Originator and the Issuer covenants to
take such action to effect Whole Loan Sales as it would with respect to
Securitizations, as applicable.
(b) The Majority Noteholders may only effect Whole Loan Sales:
(i) if FFCA ceases to qualify as a REIT, as defined in Section
856 of the Code; and
(ii) subject to the same conditions that apply to
Securitizations, including, without limitation, the Issuer's right of approval
set forth in SECTION 3.06(C)(II) unless a Disposition Trigger Event has
occurred.
(c) In connection with Whole Loan Sales, MSSFI shall, in good faith,
use commercially reasonable efforts to obtain two bona fide market bids for the
Loans subject to any Whole Loan Sale from two bidders with the legal and
financial capacity to make such bids that are not Affiliates of MSSFI or FFCA.
FFCA may participate as a concurrent bidder for the Loans subject to such Whole
Loan Sale, provided that MSSFI obtains at least two such bids from bidders
unaffiliated with FFCA and that FFCA does not pay a price higher than the fair
market value of such Loans (as reasonably determined by the Market Value Agent).
In addition, MSSFI may, in its sole discretion, obtain such additional bids from
bidders with the legal and financial capacity to make such bids which may
include Affiliates of MSSFI. MSSFI shall take the highest bid among all bids
made pursuant to this SECTION 3.10(C).
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ARTICLE IV
ADMINISTRATION AND SERVICING OF THE LOANS
SECTION 4.01 DUTIES OF THE SERVICER.
(a) SERVICING STANDARD. The Servicer, as an independent contractor,
shall remain an Eligible Servicer and shall service and administer the Loans in
the best interests of and for the benefit of the Noteholders, in accordance with
applicable state and Federal Laws, the terms of this Agreement and the Servicing
Standard. To the extent consistent with such terms and in accordance with such
terms, the Servicer shall have full power and authority, acting alone, to
service and administer the Loans with a view toward the maximization of timely
recovery of principal and interest thereon. Notwithstanding anything to the
contrary contained herein, the Servicer, in servicing and administering the
Loans, shall employ or cause to be employed procedures (including collection,
foreclosure, liquidation and Foreclosure Property management and liquidation
procedures) and exercise the same care that it customarily employs and exercises
in servicing and administering loans of the same type as the Loans for its own
account, all in accordance with the Servicing Standard of prudent lending
institutions and servicers of commercial loans of the same type as the Loans and
giving due consideration to the Noteholders' reliance on the Servicer. In the
event of a conflict between this Agreement and the Servicing Standard, this
Agreement shall control. The Servicer has and shall maintain the facilities,
procedures and experienced personnel necessary to comply with the servicing
standard set forth in this subsection (a) and the duties of the Servicer set
forth in this Agreement relating to the servicing and administration of the
Loans. In performing its obligations hereunder the Servicer shall at all times
act in good faith in a commercially reasonable manner in accordance with
applicable law and the Promissory Notes and Mortgages or Security Agreements, as
the case may be.
(b) The Servicer shall notify the Initial Noteholder in writing in
advance of any action taken by the Servicer to (i) release, or agree to the
substitution or exchange of any collateral for, any portion of any Loan
Collateral or related collateral, (ii) release from liability any Person liable
for any obligation under a Mortgage or Security Agreement, as the case may be,
(iii) consent (to the extent the Servicer is entitled under the Mortgage or
other agreement to withhold such consent) to the transfer (direct or indirect)
or encumbrance of any Loan Collateral, (iv) with respect to any lease, consent
(to the extent the Servicer is entitled under the Mortgage or other agreement to
withhold such consent) to the execution, assignment, termination or modification
of such lease if, in the case of the termination of such lease or the execution
of new lease, such would result in a reduction of the monthly rent most recently
payable in respect of the related portion of the Mortgaged Property, or, in the
case of an assignment or modification of such lease, such assignment would
reduce the term thereof or the rental payable thereunder, (v) grant
non-disturbance to any tenant under any lease, (vi) apply Insurance Proceeds or
proceeds of a partial condemnation in excess of $50,000 received with respect to
a Loan to the restoration or repair of the related Loan Collateral unless
otherwise required pursuant to the related Loan Documents or applicable law,
(vii) waive any prepayment premium or otherwise waive, amend or modify any term
of any Loan, (viii) accelerate the maturity of any Loan, (ix) take possession of
or acquire title to any Loan Collateral, or (x) sell any Loan Collateral or
Foreclosure Property.
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(c) SERVICING ADVANCES. In accordance with the preceding general
servicing standard, the Servicer, or any Subservicer on behalf of the Servicer,
shall make all Servicing Advances in connection with the servicing of each Loan
hereunder. Notwithstanding any provision to the contrary herein, neither the
Servicer nor any Subservicer on behalf of the Servicer shall have any obligation
to satisfy or keep current the indebtedness secured by any on the related Loan
Collateral. No costs incurred by the Servicer or any Subservicer in respect of
Servicing Advances shall, for the purposes of distributions to Securityholders,
be added to the amount owing under the related Loan. Notwithstanding any
obligation by the Servicer to make a Servicing Advance hereunder with respect to
a Loan, before making any Servicing Advance, the Servicer shall assess the
reasonable likelihood of (i) recovering such Servicing Advance and any prior
Servicing Advances for such Loan and (ii) recovering any amounts attributable to
outstanding interest and principal owing on such Loan for the benefit of the
Securityholders in excess of the costs, expenses and other deductions to obtain
such recovery, including without limitation any Servicing Advances therefor and,
if applicable, the outstanding indebtedness of all. The Servicer shall only make
a Servicing Advance with respect to a Loan to the extent that the Servicer
determines in its reasonable, good faith judgment that such Servicing Advance
would likely be recovered as aforesaid; provided, however, that the Servicer
will be entitled to be reimbursed for any Nonrecoverable Servicing Advances in
accordance with the terms of this Agreement.
(d) WAIVERS, MODIFICATIONS AND EXTENSIONS; SUBORDINATION. The Servicer
shall make reasonably diligent efforts to collect all payments called for under
the terms and provisions of the Loans and shall, to the extent such procedures
shall be consistent with this Agreement, follow the Servicing Standard. The
Servicer may in its discretion waive or permit to be waived any penalty interest
or any other fee or charge which the Servicer would be entitled to retain
hereunder as servicing compensation and extend the Due Date on a Promissory Note
for a period (with respect to each payment as to which the Due Date is extended)
not greater than 90 days after the initially scheduled due date for such
payment. Notwithstanding anything in this Agreement to the contrary, the
Servicer shall not permit any additional extension or modification with respect
to any Loan other than that permitted by the immediately preceding sentence
unless the Loan is a Defaulted Loan. The Servicer may in its discretion enter in
subordination agreements with respect to any Loan, provided that the Servicer
determines, consistent with this Agreement and the Servicing Standard that the
entering into of such subordination agreement is in the best interests of the
Trust; provided further, that the Servicer shall not enter into such a
subordination agreement with respect to any Mortgage Loan if, after giving
effect to such agreement, such Mortgage Loan would fail to constitute a real
estate asset, as described in Section 856 of the Code. The Servicer shall
provide written notice to the Initial Noteholder prior to entering into any
agreement to modify the terms of any Loan after the Transfer Date with respect
thereto, including, without limitation, any cross-default or
cross-collateralization provisions with respect thereto.
(e) INSTRUMENTS OF SATISFACTION OR RELEASE. Without limiting the
generality of subsection (d) of this Section 4.01, the Servicer, in its own name
or in the name of a Subservicer, is hereby authorized and empowered, when the
Servicer believes it appropriate in its best judgment, to execute and deliver,
on behalf of the Securityholders and the Trust or any of them, and upon notice
to the Indenture Trustee, any and all instruments of satisfaction or
cancellation or of partial or full release or discharge, and all other
comparable instruments with respect to the Loans and the Loan Collateral and to
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institute foreclosure proceedings or obtain a deed in lieu of foreclosure so as
to convert the ownership of such properties, and to hold or cause to be held
title to such properties, on behalf of the Trust and Securityholders. The
Servicer shall service and administer the Loans in accordance with applicable
state and federal law and shall provide to the Borrowers any reports required to
be provided to them thereby. The Indenture Trustee shall execute, at the written
direction of the Servicer, any limited or special powers of attorney and other
documents reasonably acceptable to the Indenture Trustee to enable the Servicer
or any Subservicer to carry out their servicing and administrative duties
hereunder, including, without limitation, limited or special powers of attorney
with respect to any Foreclosure Property as well as pursuant to Section 4.10(c)
hereof, and the Indenture Trustee shall not be accountable for the actions of
the Servicer or any Subservicers under such powers of attorney and shall be
indemnified by such parties with respect to such actions.
(f) TERMINATION OF SERVICING. (i) In the event of a Securitization or
other removal of a Loan from the Trust Estate, the Servicer shall be terminated
with respect to such Loan.
(ii) The Servicer agrees that in the event that any Notes are
Outstanding on the Maturity Date, the Servicer will resign and the Majority
Noteholders shall appoint a successor in accordance with provisions of SECTION
10.02. The Majority Noteholders may, by written notice to the Servicer and the
Indenture Trustee, elect to have the Servicer continue its duties hereunder.
SECTION 4.02 VACANCIES AND INSPECTIONS.
(a) The Servicer shall promptly notify the Issuer, the Indenture
Trustee and the Initial Noteholder of any actual knowledge on the part of the
Servicer of any material vacancy in any Mortgaged Property, of any abandonment
of any Loan Collateral, of any material adverse change in the condition or value
of any Loan Collateral, of any waste committed thereon, of any failure on the
part of a Borrower to keep the related Loan Collateral in good condition and
repair, of any permanent or substantial injury to the Loan Collateral through
unreasonable use, abuse or neglect or of any other matter which would materially
and adversely affect the value of or the Noteholders' interest in any Loan
Collateral. The Servicer shall also promptly notify the Issuer, the Indenture
Trustee and the Majority Noteholders upon learning thereof of any state or
federal insolvency or bankruptcy proceedings in which any Borrower is seeking
relief or is a defendant debtor provided, however, that Servicer shall not be
deemed to be in default under this Agreement for failure to give such notice if
Servicer has no knowledge of any such proceeding and could not reasonably be
expected to have such knowledge in the ordinary course of Servicer's business.
(b) The Servicer shall inspect or cause to be inspected the Loan
Collateral with respect to each Loan at such times and in such manner as are
consistent with the Servicing Standard; provided that if any Monthly Payment
becomes more than 45 days Delinquent, or if the Unit-Level Fixed Charge Coverage
Ratio with respect to any Loan Collateral is less than 105%, the related Loan
Collateral shall be inspected as soon as practicable thereafter.
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(c) The Servicer shall make a written report of each inspection
required pursuant to paragraph (b) above, on a form reasonably acceptable to the
Initial Noteholder and shall submit a copy of each such report to the Initial
Noteholder.
SECTION 4.03 FIDELITY BOND; ERRORS AND OMISSIONS INSURANCE.
The Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy or
policies, which policy or policies shall be in such form and amount as would
permit it to be a qualified Federal National Mortgage Association
seller-servicer of multi-family mortgage loans, with broad coverage on all
officers, employees or other persons acting in any capacity requiring such
persons to handle funds, money, documents or papers relating to the Loans
("Servicer Employees"). Any such fidelity bond and errors and omissions
insurance shall protect and insure the Servicer against losses, including losses
resulting from forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts (including acts relating to the origination and servicing of
loans of the same type as the Loans) of such Servicer Employees. Such fidelity
bond shall also protect and insure the Servicer against losses in connection
with the release or satisfaction of a Loan without having obtained payment in
full of the indebtedness secured thereby. In the event of any loss of principal
or interest on a Loan for which reimbursement is received from the Servicer's
fidelity bond or errors and omissions insurance, the process from any such
insurance will be deposited in the Collection Account. No provision of this
SECTION 4.03 requiring such fidelity bond and errors and omission insurance
shall diminish or relieve the Servicer from its duties and obligations as set
forth in this Agreement. Upon the request of the Issuer or the Indenture
Trustee, the Servicer shall cause to be delivered to the requesting party a
certified true copy of such fidelity bond and insurance policy.
SECTION 4.04 FILING OF CONTINUATION STATEMENTS.
On or before the fifth anniversary of the filing of any financing
statements by the Loan Originator and the Depositor, respectively, with respect
to the assets conveyed to the Trust, the Loan Originator and the Depositor shall
prepare, have executed by the necessary parties and file in the proper
jurisdictions all financing and continuation statements necessary to maintain
the liens, security interests and priorities of such liens and security
interests that have been granted by the Loan Originator and the Depositor,
respectively, and the Loan Originator and the Depositor shall continue to file
on or before each fifth anniversary of the filing of any financing and
continuation statements such additional financing and continuation statements
until the Trust has terminated pursuant to Section 9.1 of the Trust Agreement.
The Indenture Trustee agrees to reasonably cooperate with the Loan Originator
and the Depositor in preparing, executing and filing such statements, at the
expense of the Loan Originator or the Depositor, as applicable; provided,
however, that the Indenture Trustee shall have no responsibility to prepare or
file such statements. The Servicer agrees to notify the Loan Originator and the
Depositor on the third Payment Date prior to each such fifth anniversary of the
requirement that they file such financing and continuation statements. The
filing of any such statement with respect to the Loan Originator and the
Depositor shall not be construed as any indication of an intent of any party
contrary to the expressed intent set forth in SECTION 2.03 hereof. If the Loan
Originator or the Depositor has ceased to do business whenever any such
financing and continuation statements must be filed or the Loan Originator or
the Depositor fails to file any such financing statements or continuation
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statements at least one month prior to the expiration thereof, each of the Loan
Originator and the Depositor does hereby make, constitute and appoint the
Indenture Trustee its attorney-in-fact, with full power and authority, to
execute and file in the Depositor's name and on the Depositor's behalf and at
the Depositor's expense any such financing statements or continuation statements
required under this SECTION 4.04.
SECTION 4.05 ESTABLISHMENT AND ADMINISTRATION OF ESCROW ACCOUNT.
(a) The Servicer shall maintain accurate records with respect to all
Loan Collateral reflecting the status of taxes, basic carrying costs and other
similar items that are or may become a lien thereon and the status of insurance
premiums and ground rent, if applicable, payable in respect thereof.
(b) After the occurrence of a Default or Event of Default under this
Agreement or the Indenture, the Majority Noteholders may, in their sole
discretion, direct the Servicer to, upon the occurrence and continuation of a
default under a Mortgage Loan, direct the Borrower thereunder to remit amounts
in respect of Escrow Payments to the Escrow Account, for application by the
Servicer in accordance with the Servicing Standard. In such event, the Servicer
shall establish the Escrow Account under an arrangement consented to in writing
by the Majority Noteholders in their reasonable discretion.
(c) The Servicer may direct any depository institution or trust
company in which the Escrow Accounts (to the extent permitted by law and subject
to the related Loan Documents) are maintained to invest the funds held therein
in one or more Permitted Investments; provided, however, that such funds must be
either (i) immediately available or (ii) available in accordance with a schedule
which will permit the Servicer to meet its payment obligations hereunder. The
Servicer shall be entitled to all income and gain realized from the investment
of funds deposited in the Escrow Accounts (to the extent permitted by law and
subject to the related Loan Documents). The Servicer shall deposit amounts from
its own funds in such Escrow Accounts to make whole any loss incurred in respect
of any such investment of funds therein immediately upon the realization of such
loss.
(d) Notwithstanding anything to the contrary in this Section 4.05,
upon the occurrence of a Lockbox Trigger Event, the Servicer shall cause each
Borrower required to make Escrow Payments to directly remit to the Lockbox
Account, such Escrow Payments for deposit into the Escrow Account.
SECTION 4.06 SUBSERVICING.
(a) The Servicer may, with the prior written consent of the Majority
Noteholders, which consent shall not be unreasonably withheld, enter into
Subservicing Agreements for any servicing and administration of Loans with any
institution that is an Eligible Servicer and in compliance with the laws of each
state necessary to enable it to perform its obligations under such Subservicing
Agreement. The Servicer shall give prior written notice to the Issuer and the
Indenture Trustee of the appointment of any Subservicer. The Servicer shall be
entitled to terminate any Subservicing Agreement in accordance with the terms
and conditions of such Subservicing Agreement and to either service the related
Loans directly or enter into a Subservicing Agreement with a successor
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subservicer which qualifies hereunder. In the event that the Majority
Noteholders fail to respond to a request by the Servicer for consent to enter
into a Subservicing Agreement within three Business Days after receipt of such
request, the requested consent shall be deemed to have been granted.
In the event of termination of any Subservicer, and unless a successor
Subservicer has otherwise been appointed, all servicing obligations of such
Subservicer shall be assumed simultaneously by the Servicer without any
additional act or deed on the part of such Subservicer or the Servicer, and the
Servicer shall service directly the related Loans.
Each Subservicing Agreement shall include the provision that such
agreement may be immediately terminated by the Indenture Trustee in the event
that the Servicer shall, for any reason, no longer be the Servicer. In no event
shall any Subservicing Agreement require the Indenture Trustee, as successor
Servicer, for any reason whatsoever to pay compensation to a Subservicer in
order to terminate such Subservicer.
(b) Notwithstanding any Subservicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Subservicer or reference to actions taken through a Subservicer or
otherwise, the Servicer shall remain obligated and primarily liable to the
Issuer, the Indenture Trustee and the Securityholders for the servicing and
administration of the Loans in accordance with the provisions of this Agreement
without diminution of such obligation or liability by virtue of such
Subservicing Agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the Loans. For purposes of
this Agreement, the Servicer shall be deemed to have received payments on Loans
when the Subservicer has actually received such payments and, unless the context
otherwise requires, references in this Agreement to actions taken or to be taken
by the Servicer in servicing the Loans include actions taken or to be taken by a
Subservicer on behalf of the Servicer. The Servicer shall be entitled to enter
into any agreement with a Subservicer for indemnification of the Servicer by
such Subservicer, and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.
(c) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default with respect to the
Servicer), the successor Servicer, on behalf of the Issuer, the Indenture
Trustee and the Securityholders pursuant to Section 4.07 hereof, shall thereupon
assume all of the rights and obligations of the Servicer under each Subservicing
Agreement that the Servicer may have entered into, unless the successor Servicer
elects to terminate any Subservicing Agreement in accordance with its terms. The
successor Servicer shall be deemed to have assumed all of the Servicer's
interest therein and to have replaced the Servicer as a party to each
Subservicing Agreement to the same extent as if the Subservicing Agreements had
been assigned to the assuming party, except that the Servicer shall not thereby
be relieved of any liability or obligations under the Subservicing Agreements
which accrued prior to the transfer of servicing to the successor Servicer. The
Servicer, at its expense and without right of reimbursement therefor, shall,
upon request of the successor Servicer, deliver to the assuming party all
documents and records relating to each Subservicing Agreement and the Loans then
being serviced and an accounting of amounts collected and held by it and
otherwise use its best efforts to effect the orderly and efficient transfer of
the Subservicing Agreements to the assuming party.
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(d) As part of its servicing activities hereunder, the Servicer, for
the benefit of the Issuer, the Indenture Trustee and the Securityholders, shall
enforce the obligations of each Subservicer under the related Subservicing
Agreement. Such enforcement, including, without limitation, the legal
prosecution of claims and the pursuit of other appropriate remedies, shall be in
such form and carried out to such an extent and at such time as the Servicer, in
its good faith business judgment, would require were it the owner of the related
Loans. The Servicer shall pay the costs of such enforcement at its own expense
and shall be reimbursed therefor only (i) from a general recovery resulting from
such enforcement to the extent, if any, that such recovery exceeds all amounts
due in respect of the related Loan or (ii) from a specific recovery of costs,
expenses or attorneys' fees against the party against which such enforcement is
directed.
(e) Any Subservicing Agreement that may be entered into and any other
transactions or services relating to the Loans involving a Subservicer shall be
deemed to be between the Subservicer and the Servicer alone and none of the
Issuer, the Indenture Trustee or the Securityholders shall be deemed parties
thereto or shall have any claims, rights, obligations, duties or liabilities
with respect to the Subservicer in its capacity as such except as set forth in
subsection (c) of this SECTION 4.06.
(f) In those cases where a Subservicer is servicing a Loan pursuant to
a Subservicing Agreement, the Subservicer will be required to establish and
maintain one or more accounts (collectively, the "Subservicing Account"). The
Subservicing Account shall be an Eligible Account. The Subservicer will be
required to deposit into the Subservicing Account, no later than the first
Business Day after receipt, all proceeds of Loans received by the Subservicer
and remit such proceeds to the Servicer for deposit in the Collection Account
not later than the Business Day following receipt thereof by the Subservicer.
Notwithstanding anything in this subsection (f) to the contrary, the Subservicer
shall only be able to withdraw funds from the Subservicing Account for the
purpose of remitting such funds to the Servicer for deposit into the Collection
Account. The Servicer shall require the Subservicer to cause any collection
agent of the Subservicer to send a copy to the Servicer of each statement of
monthly payments collected by or on behalf of the Subservicer within five
Business Days after the end of every month, and the Servicer shall compare the
information provided in such reports with the deposits made by the Subservicer
into the Collection Account for the same period. The Servicer shall be deemed to
have received payments on the Loans on the date on which the Subservicer has
received such payments.
SECTION 4.07 SUCCESSOR SERVICERS.
In the event that the Servicer is terminated pursuant to SECTION 10.01
hereof, or resigns pursuant to SECTION 9.04 hereof or otherwise becomes unable
to perform its obligations under this Agreement, the Majority Noteholders will
appoint a successor servicer in accordance with the provisions of SECTION 10.02
hereof.
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SECTION 4.08 MAINTENANCE OF INSURANCE.
(a) The Servicer shall cause to be maintained for each Foreclosure
Property acquired by the Trust such types and amounts of insurance coverage as
the Servicer shall deem reasonable.
(b) Any amounts collected by the Servicer under any Insurance Policies
shall be paid over or applied by the Servicer as follows:
(i) In the case of amounts received in respect of any Loan:
(A) for the restoration or repair of the affected Loan
Collateral, in which event such amounts shall be released to
the Borrower in accordance with the terms of the related
Promissory Note or
(B) to the extent not so used, in reduction of the Principal
Balance of the related Loan, in which event such amounts
shall be deposited into the Collection Account,
unless the related instruments require a different application, in which case
such amounts shall be applied in the manner provided therein; and
(ii) Subject to SECTION 4.10 hereof, in the case of amounts received
in respect of any Foreclosure Property, for the restoration or repair of such
Foreclosure Property, unless the Servicer determines, consistent with the
servicing standard set forth in SECTION 4.01 hereof, that such restoration or
repair is not in the best economic interest of the Trust, in which event such
amounts shall be deposited into the Collection Account as a payment received
from the operation of such Foreclosure Property.
(c) The Servicer will cause to be performed any and all acts required
to be performed by the Servicer to preserve the rights and remedies of the Trust
and the Indenture Trustee in any Insurance Policies applicable to the Loans
including, without limitation, in each case, any necessary notifications of
insurers, assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the Trust and the
Indenture Trustee.
SECTION 4.09 PERIODIC ADVANCES.
(a) If, on any Payment Date, the Servicer determines that any Monthly
Payments due on the Due Date immediately preceding such Payment Date have not
been received as of the close of business on the Business Day preceding such
Payment Date, the Servicer shall determine the amount of any Periodic Advance
required to be made with respect to the related Payment Date. The Servicer
shall, on or prior to such Payment Date, furnish a statement to the Indenture
Trustee (the information in such statement to be made available to the Initial
Noteholder upon request) setting forth the amount of such Monthly Payments which
were not received as of the close of business on the Business Day preceding the
related Payment Date, and shall include in the amount to be deposited in the
Collection Account on such Payment Date an amount equal to the Periodic Advance,
if any, from its own funds.
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(b) The Servicer shall designate on its records the specific Loans and
related installments (or portions thereof) as to which such Periodic Advance
shall be deemed to have been made for purposes of withdrawals from the
Collection Account pursuant to SECTION 5.01(C)(1).
SECTION 4.10 FORECLOSURE; REPOSSESSION AND ALTERNATIVES.
(a) If any monthly payment due under any Loan is not paid when the
same is due and payable, or if the Borrower fails to perform any other covenant
or obligation under such Loan and such failure continues beyond any applicable
grace period, the Servicer shall take such action as it shall deem to be in the
best interest of the Trust, including but not limited to proceeding against the
Loan Collateral securing such Loan, pursuing collection litigation or
alternative court proceedings to foreclosure or repossession actions. In the
event that the Servicer determines not to proceed against the Loan Collateral or
Borrower, as applicable, on or before the Determination Date following such
determination, the Servicer shall determine in good faith in accordance with the
Servicing Standard that all amounts which it expects to receive with respect to
such Loan have been received. If the Servicer makes such a determination, it
shall give notice to such effect to the Issuer and the Indenture Trustee.
(b) In accordance with the criteria for proceeding against the Loan
Collateral set forth in subsection (a) of this SECTION 4.10, unless otherwise
prohibited by applicable law or court or administrative order, the Servicer, on
behalf of the Trust and the Indenture Trustee, may, at any time, institute
repossession or foreclosure proceedings to the extent permitted by law, exercise
any power of sale to the extent permitted by law, obtain a deed in lieu of
foreclosure, or otherwise acquire possession of or title to the related Loan
Collateral, by operation of law or otherwise.
In accordance with the criteria for proceeding against the Loan
Collateral set forth in subsection (a) of this SECTION 4.10, the Servicer shall
institute foreclosure proceedings, repossess, exercise any power of sale to the
extent permitted by law, obtain a deed in lieu of foreclosure or otherwise
acquire possession of or title to any Loan Collateral, by operation of law or
otherwise, only in the event that in the Servicer's reasonable judgment such
action is likely to result in a positive economic benefit to the Trust by
creating net liquidation proceeds (after reimbursement of all amounts owed with
respect to such Loan to the Servicer).
With respect to any Mortgage Loan not covered under the Environmental
Policy, prior to acquiring any Foreclosure Property, however, the Servicer shall
cause a review to be performed, in accordance with the Servicing Standard, on
the related Mortgaged Property by a company such as Equifax, Inc. or Toxicheck,
and the scope of such review shall be limited to the review of public records
and documents for indications that such Mortgaged Property has on it, has under
it, or is near hazardous or toxic material or waste. If such review reveals that
the Mortgaged Property has on it, under it or is near hazardous or toxic
material or waste or reveals any other environmental problem, the Servicer shall
provide a copy to the Indenture Trustee of the related report with an attached
certification of a Responsible Officer that based on an analysis of all
available information (including potential clean up costs and liability claims)
at the time it is the best judgment of such Responsible Officer that such
foreclosure shall increase Net Liquidation Proceeds to the Indenture Trustee and
the Trust shall take title to such Mortgaged Property. The Indenture Trustee
shall promptly forward such report and certification to the Noteholders.
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(c) The Indenture Trustee shall furnish the Servicer, within 5 days
after request of the Servicer therefor, any powers of attorney and other
documents necessary and appropriate to carry out its duties hereunder, including
any documents or powers of attorney necessary to foreclose any Mortgage or
Security Agreement, as the case may be. The forms of any such powers or
documents shall be appended to such requests.
SECTION 4.11 TITLE, MANAGEMENT AND DISPOSITION OF FORECLOSURE
PROPERTY.
In the event that any Loan Collateral becomes a Foreclosure Property,
the deed or certificate of sale shall be taken in the name of the Indenture
Trustee for the benefit of the Securityholders. The Servicer shall manage,
conserve, protect and operate each Foreclosure Property for the Indenture
Trustee and the Securityholders solely for the purpose of the prudent and prompt
disposition and sale of such Foreclosure Property. The Servicer shall, either
itself or through an agent selected by the Servicer, manage, conserve, protect
and operate the Foreclosure Property in the same manner that it manages,
conserves, protects and operates other foreclosure property for its own account.
Subject to SECTION 4.10 hereof, the Servicer shall, consistent with
the Servicing Standard, foreclose upon or otherwise comparably convert the
ownership of Properties securing such of the Loans as come into and continue in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments. In connection with realization upon defaulted Loans, the
Servicer shall follow such practices and procedures as it shall deem necessary
or advisable, as shall be normal and usual in accordance with the Servicing
Standard and as shall meet the requirements of insurers under any insurance
policy required to be maintained hereunder with respect to the related Loan. The
Servicer shall be responsible for all costs and expenses incurred by it in any
such proceedings; provided, however, that such costs and expenses will be
recoverable as Servicing Advances by the Servicer as contemplated herein.
The Servicer shall not be required to make any Servicing Advance, to
foreclose upon or repossess any Loan Collateral, or otherwise expend its own
funds toward the restoration of any Loan Collateral that shall have suffered
damage from any cause of damage to Loan Collateral such that the complete
restoration of such property is not fully reimbursable by the hazard insurance
policies required to be maintained pursuant to this Agreement unless it shall
determine in its reasonable judgment, as evidenced by a certificate of a
Servicing Officer, that such foreclosure or restoration, as the case may be,
will increase the proceeds of liquidation of the related Loan after
reimbursement to itself of Servicing Advances. Any Servicing Advances made with
respect to a Loan shall be recoverable by the Servicer only from recoveries on
such Loan except to the extent such Servicing Advance is deemed a Nonrecoverable
Servicing Advance.
The Servicer may offer to sell to any Person any Foreclosure Property,
if and when the Servicer determines, in a manner consistent with the Servicing
Standard, that such a sale would be in the best interests of the Trust. The
Servicer shall, consistent with the Servicing Standard, use its best efforts to
dispose of any Foreclosure Property acquired under SECTION 4.10 hereof within
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three years of the date of its acquisition on behalf of the Trust. The Servicer
shall give the Indenture Trustee not less than five days' prior notice of its
intention to sell any Foreclosure Property and shall accept the highest bid
received from any Person for any Foreclosure Property in an amount at least
equal to the sum of:
(1) the Principal Balance of the related foreclosed Loan; and
(2) all unpaid interest accrued thereon at the related Loan Interest
Rate through the date of sale.
In the absence of any such bid, the Servicer shall accept the highest
bid received from any Person that is determined to be a fair price for such
Foreclosure Property by the Servicer, if the highest bidder is a Person other
than an Interested Person, or by an Independent appraiser retained by the
Servicer, if the highest bidder is an Interested Person. In the absence of any
bid determined to be fair as aforesaid, the Servicer shall offer the affected
Foreclosure Property for sale to any Person, other than an Interested Person, in
a commercially reasonable manner for a period of not less than 10 or more than
30 days, and shall accept the highest cash bid received therefor in excess of
the highest bid previously submitted. If no such bid is received, any Interested
Person may resubmit its original bid and the Servicer shall accept the highest
outstanding cash bid, regardless of from whom received. No Interested Person
shall be obligated to submit a bid to purchase any Foreclosure Property and,
notwithstanding anything to the contrary herein, neither the Indenture Trustee,
in its individual capacity, nor any of its Affiliates may bid for or purchase
any Foreclosure Property pursuant hereto.
In determining whether any bid constitutes a fair price for any
Foreclosure Property, the Servicer shall take into account, and any appraiser or
other expert in real estate matters shall be instructed to take into account, as
applicable, among other factors, the financial standing of any tenant of the
Foreclosure Property, the physical condition of the Foreclosure Property and the
state of the local and national economies.
Subject to the provisions of SECTION 4.10 hereof, the Servicer shall
act on behalf of the Indenture Trustee in negotiating and taking any other
action necessary or appropriate in connection with the sale of any Foreclosure
Property, including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosure Property shall be without recourse to the
Indenture Trustee, the Servicer or the Trust and, if consummated in accordance
with the terms of this Agreement, neither the Servicer nor the Indenture Trustee
shall have any liability to any Securityholder with respect to the purchase
price therefor accepted by the Servicer or the Indenture Trustee.
The Servicer may contract with any independent contractor for the
operation and management of any Foreclosure Property; provided, however, that:
(i) the terms and conditions of any such contract shall not be
inconsistent with this Agreement;
(ii) any such contract shall require, or shall be administered to
require, that the independent contractor pay all costs and expenses
incurred in connection with the operation and management of such
Foreclosure Property, remit all related revenues (net of such costs and
expenses) to the Servicer as soon as practicable, but in no event later
than 30 days following the receipt thereof by such independent contractor;
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(iii) none of the provisions of this SECTION 4.11 relating to any such
contract or to actions taken through any such independent contractor shall
be deemed to relieve the Servicer of any of its duties and obligations
hereunder with respect to the operation and management of any such
Foreclosure Property; and
(iv) the Servicer shall be obligated with respect thereto to the same
extent as if it alone were performing all duties and obligations in
connection with the operation and management of such Foreclosure Property.
The Servicer shall be entitled to enter into any agreement with any
independent contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Servicer by such
independent contractor, and nothing in this Agreement shall be deemed to
limit or modify such indemnification. The Servicer shall not be liable for
any fees owed by it to any such independent contractor and any amounts so
expended shall be deemed Servicing Advances. Each liquidation of a
Foreclosure Property shall be carried by the Servicer at such price and
upon such terms and conditions as the Servicer shall deem necessary or
advisable and as shall be normal and usual in its several servicing
activities, and the resulting Net Liquidation Proceeds shall be deposited
into the Collection Account pursuant to SECTION 5.01(B)(1) hereof.
SECTION 4.12 COMPLIANCE WITH REQUEST FOR INFORMATION.
The Servicer shall provide to the Indenture Trustee, upon its request,
information regarding the Notes and the Loans and such other information as the
Indenture Trustee shall be required to deliver to any Noteholder and any
prospective transferee designated by a Noteholder to satisfy a condition of
eligibility set forth under Rule 144A(d)(4) under the Securities Act of 1933, as
amended.
SECTION 4.13 LOCKBOX TRIGGER EVENT; LOCKBOX ACCOUNT.
In the event of the occurrence of a Lockbox Trigger Event:
(a) The Servicer, Depositor and Issuer shall each promptly execute and
deliver the Lockbox Agreement.
(b) The Servicer shall promptly cause Borrowers to make all payments
on the Loans (including, without limitation, Escrow Payments), irrespective of
method of payment, directly to the Lockbox Bank pursuant to the Lockbox
Agreement. Amounts received by a Lockbox Bank in respect of the Loans may
initially be deposited into a demand deposit account maintained by the Lockbox
Bank for the benefit of the Indenture Trustee, as secured party on behalf of the
Noteholders. The Lockbox Agreement shall require the Lockbox Bank to deposit all
payments on the Loans in the Lockbox Account no later than the Business Day
after receipt, and to cause all amounts credited to the Lockbox Account on
account of such payments to be transferred to the Collection Account or Escrow
Account, as the case may be, in accordance with the written instructions of the
Servicer, no later than the second Business Day after receipt of such payments.
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The Servicer shall pay all fees and costs incurred connection with the entering
into of the Lockbox Agreement, the establishment of the Lockbox Account and the
administration of the provisions of the Lockbox Agreement.
SECTION 4.14 VALUATION OF LOANS, HEDGE VALUE AND RETAINED SECURITIES
VALUE; MARKET VALUE AGENT.
(a) The Loan Originator hereby irrevocably appoints the Market Value
Agent to determine the Market Value of each Loan, the Hedge Value of each
Hedging Instrument and the Retained Securities Value of all Retained Securities.
(b) The Market Value Agent shall determine the Market Value of each
Loan in its reasonable judgment. In determining the Market Value of each Loan,
the Market Value Agent may consider any information that it may deem relevant
and may base such determination solely on its estimate of the projected proceeds
from such Loan's inclusion in a Securitization and the projected Retained
Securities Value of any Retained Securities to be issued in connection with such
Securitization, net of such Loan's ratable share of all costs and fees
associated with such Securitization, including, without limitation the costs of
issuance, underwriting and funding reserve accounts. The Market Value Agent's
determination, in its reasonable judgment, of Market Value shall be conclusive
and binding upon the parties hereto.
(c) On each Business Day the Market Value Agent shall determine in its
reasonable judgment the Hedge Value of each Hedging Instrument as of such
Business Day. In making such determination the Market Value Agent may rely
exclusively on quotations provided by the Hedging Counterparty, by leading
dealers in instruments similar to such Hedging Instrument, which leading dealers
may include the Market Value Agent and its Affiliates and such other sources of
information as the Market Value Agent may deem appropriate.
(d) On each Business Day, the Market Value Agent shall determine in
its reasonable judgment the Retained Securities Value of the Retained
Securities, if any, expected to be issued pursuant to such Securitization as of
the closing date of such Securitization. In making such determination the Market
Value Agent may rely exclusively on quotations provided by leading dealers in
instruments similar to such Retained Securities, which leading dealers may
include the Market Value Agent and its Affiliates and such other sources of
information as the Market Value Agent may deem appropriate.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
SECTION 5.01 COLLECTION ACCOUNT AND DISTRIBUTION ACCOUNT .
(a) (1) ESTABLISHMENT OF COLLECTION ACCOUNT. The Servicer, for the benefit
of the Securityholders, shall cause to be established and maintained one or
more Collection Accounts (collectively, the "COLLECTION ACCOUNT"), which
shall be separate Eligible Accounts entitled "Collection Account, LaSalle
National Bank, as Indenture Trustee, in trust for the FFCA Franchise Loan
Backed Notes, Series 1998-1". The Collection Account may be maintained with
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the Indenture Trustee or any other depository institution which satisfies
the requirements set forth in the definition of Eligible Account. The
creation of any Collection Account other than one maintained with the
Indenture Trustee shall be evidenced by a letter agreement between the
Servicer and the depository institution acceptable to the Majority
Noteholders. A copy of such letter agreement shall be furnished to the
Majority Noteholders and the Indenture Trustee and, upon request of any
Securityholder, to such Securityholder. Funds in the Collection Account
shall be invested in accordance with SECTION 5.03 hereof.
The Collection Account shall be established, as of the date hereof, as
an Eligible Account pursuant to the definition thereof. The Collection
Account may, upon written notice to the Issuer and the Indenture Trustee,
be transferred by the Servicer to a different depository institution so
long as such transfer is to an Eligible Account acceptable to the Majority
Noteholders.
(2) ESTABLISHMENT OF DISTRIBUTION ACCOUNT. No later than the date
hereof, the Servicer, for the benefit of the Noteholders, shall cause to be
established and maintained with LaSalle National Bank one or more
Distribution Accounts (collectively, the "Distribution Account"), which
shall be separate Eligible Accounts and may be interest bearing, entitled
"Distribution Account, LaSalle National Bank, as Indenture Trustee, in
trust for the FFCA Franchise Loan Backed Notes, Series 1998-1." Funds in
the Distribution Account shall not be invested.
(b) (1) DEPOSITS TO COLLECTION ACCOUNT. The Servicer shall deposit or cause
to be deposited (without duplication), within two (2) Business Days after
receipt thereof, into the Collection Account and retain therein in trust
for the benefit of the Securityholders:
(i) all payments on or in respect of each Loan conveyed pursuant to
SECTION 2.01(A)(III) hereof;
(ii) all Net Liquidation Proceeds pursuant to SECTION 4.11 hereof;
(iii) all Insurance Proceeds not required to be applied to
restoration or repair of Loan Collateral pursuant to SECTION
4.05;
(iv) all Released Loan Collateral Proceeds;
(v) any amounts payable in connection with the repurchase of any
Loan and the amount of any Substitution Adjustment pursuant to
SECTIONS 2.05 and 3.05 hereof;
(vi) any Purchase Price payable in connection with a Servicer Call
pursuant to SECTION 3.07 hereof;
(vii) the deposit of the Termination Price under SECTION 11.01
hereof;
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(viii) any Periodic Advances pursuant to SECTION 4.09;
(ix) any cash Securitization Proceeds pursuant to SECTION 3.06; and
(x) any payments received under Hedging Instruments or the return
of amounts by the Hedging Counterparty pledged pursuant to
prior Hedge Funding Requirements;
(xi) all proceeds paid under the Environmental Policy and not
retained by the Servicer in connection with remediation of
Mortgaged Properties pursuant to SECTION 3.09 hereof; and
(xii) any Purchase Price payable in connection with a Loan Originator
Put remitted by the Loan Originator pursuant to SECTION 3.07
hereof.
(c) WITHDRAWALS FROM COLLECTION ACCOUNT; DEPOSITS TO DISTRIBUTION ACCOUNT.
(1) WITHDRAWALS FROM COLLECTION ACCOUNT -- REIMBURSEMENT ITEMS.
Periodically, the Indenture Trustee (except as may be otherwise provided in
writing by the Collection Account Letter Agreement), at the direction of
the Servicer, shall make the following withdrawals from the Collection
Account prior to any other withdrawals, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error;
(ii) to withdraw the Servicing Advance Reimbursement Amount;
(iii) to clear and terminate the Collection Account in connection
with the termination of this Agreement;
(iv) to reimburse the Servicer for any Nonrecoverable Periodic
Advances;
(v) to make the payments set forth in SECTION 9.01(E) hereof;
(vi) to make any payments in respect of Servicer indemnities
pursuant to SECTION 9.01(F) hereof;
(vii) to pay to the Loan Originator any Retained Interest actually
received with respect to the related Loan; and
(viii) to reimburse the Servicer for unreimbursed Periodic Advances,
the Servicer's right to reimburse itself, pursuant to this
clause (viii) with respect to any Periodic Advance (other than
Nonrecoverable Advances, which are reimbursable pursuant to
clause (iv) above) being limited to amounts that represent
collections of interest (net of any related Retained Interest)
and principal received in respect of the particular Loan as to
which such Periodic Advance was made;
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(2) INDENTURE TRUSTEE DEPOSITS TO DISTRIBUTION ACCOUNT - PAYMENT
DATES. (a) On the Business Day prior to each Payment Date, the Indenture
Trustee shall deposit into the Distribution Account such amounts as are
required from the Transfer Obligation Account pursuant to SECTION 5.05(E),
5.05(F) and 5.05(G).
(b) After making all withdrawals specified in SECTION 5.01(C)(1)
above, on the Business Day prior to each Payment Date, the Indenture
Trustee, except as may be otherwise provided in the Collection Account
Letter Agreement, (based on information provided by the Servicer for such
Payment Date) shall withdraw from the Collection Account not later than
2:00 p.m. Phoenix, Arizona time and deposit into the Distribution Account
all remaining funds on deposit therein, provided that on or after any date
on which the long term senior unsecured debt of the Servicer is unrated or
rated at or below "BB" by Standard & Poor's Ratings Group, the Indenture
Trustee, except as may be otherwise provided in the Collection Account
Letter Agreement, shall make such withdrawal of remaining amounts from the
Collection Account on every other Business Day and deposit such funds in
the Distribution Account.
(3) WITHDRAWALS FROM DISTRIBUTION ACCOUNT -- PAYMENT DATES. On each
Payment Date, to the extent funds are available in the Distribution
Account, the Indenture Trustee (based on the information provided by the
Servicer contained in the Servicer's Remittance Report for such Payment
Date) shall make withdrawals therefrom by 3:00 p.m. (New York City time),
for application in the following order of priority:
(i) to distribute on such Payment Date the following amounts
pursuant to the Indenture in the following order: (a) to the
Indenture Trustee, an amount equal to the Indenture Trustee Fee
and all unpaid Indenture Trustee Fees from prior Payment Dates,
(b) to the Custodian, an amount equal to the Custodian Fee, if
any, and all unpaid Custodian Fees from prior Payment Dates,
(c) to the Servicer, (x) only if Servicer is not FFCA or any
Affiliate thereof, an amount equal to the Servicing
Compensation and all unpaid Servicing Compensation from prior
Payment Dates and (y) all Nonrecoverable Servicing Advances not
previously reimbursed, (d) to the Servicer, in trust for the
Owner Trustee, an amount equal to the Owner Trustee Fee and all
unpaid Owner Trustee Fees from prior Payment Dates, and;
(ii) to distribute on such Payment Date, the Hedge Funding
Requirement to the appropriate Hedging Counterparties;
provided, that only cash on or in respect of fixed rate Loans
(including cash Securitization Proceeds received therefrom)
shall be distributed for such purpose and; provided, further,
that amounts distributed pursuant to clause (i) above to the
extent not attributable to a specific Loan shall be deemed paid
from Loans bearing a fixed Loan Interest Rate, pro rata based
on their aggregate Principal Balances relative to the Pool
Principal Balance on such Payment Date;
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(iii) to the holders of the Notes pro rata, the sum of the Interest
Payment Amount for such Payment Date and the Interest
Carry-Forward Amount for the preceding Payment Date;
(iv) to the holders of the Notes pro rata, the sum of the Optimal
Principal Payment Amount for such Payment Date and the
Principal Carry-Forward Amount for the preceding Payment Date;
provided, however, that if (a) a Rapid Amortization Trigger
shall have occurred and not been Deemed Cured or (b) an Event
of Default or Default under this Agreement or the Indenture
shall have occurred, the holders of the Notes shall receive, in
respect of principal, all remaining amounts on deposit in the
Collection Account.
(v) to the Servicer if the Servicer is the Loan Originator or an
Affiliate thereof, an amount equal to the Servicing
Compensation for the related Payment Date and all unpaid
Servicing Compensation from prior Payment Dates;
(vi) to the Transfer Obligation Account, all remaining amounts until
the balance therein equals the Transfer Obligation Target
Amount;
(vii) to each Indemnified Party (as defined in the Trust Agreement)
until all amounts due and owing under Issuer/Depositor
Indemnities (as defined in the Trust Agreement) are paid in
full; and
(viii) to the holders of the Trust Certificates of record on the next
preceding Record Date, pro rata, all amounts remaining therein.
The Majority Noteholders and the Issuer may agree, upon written notice
to the Indenture Trustee, to additional Payment Dates. In addition, there shall
be an additional Payment Date on (i) any day which Securitization Proceeds,
Purchase Prices or proceeds in respect of Put/Call Loans are deposited into the
Collection Account on or before 2 p.m. Phoenix, Arizona time, and (ii) the
Business Day after any day on which Securitization Proceeds, Purchase Prices or
proceeds in respect of Put/Call Loans are deposited into the Collection Account
after 2 p.m. Phoenix, Arizona time. The Issuer and the Majority Noteholders
shall give the Indenture Trustee at least one (1) Business Day's written notice
prior to such additional Payment Date and such notice shall specify each amount
in SECTION 5.01(C) to be withdrawn from the Collection Account and Distribution
Account on such day or shall otherwise specify the Persons and respective
amounts to whom such payments shall be made, with instructions for wiring funds
or mailing checks to such Persons.
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee and the Servicer shall continue to maintain the Distribution Account
hereunder until this Agreement has been terminated.
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SECTION 5.02 PAYMENTS TO SECURITYHOLDERS.
(a) All distributions made on the Notes on each Payment Date will be
made on a pro rata basis among the Noteholders of record of the Notes on the
next preceding Record Date based on the Percentage Interest represented by their
respective Notes, without preference or priority of any kind, and, except as
otherwise provided in the next succeeding sentence, shall be made by wire
transfer of immediately available funds to the account of such Noteholder, if
such Noteholder shall own of record Notes in original Denominations aggregating
at least $250,000 and shall have so notified the Indenture Trustee, and
otherwise by check mailed to the address of such Noteholder appearing in the
Notes Register. The final distribution on each Note will be made in like manner,
but only upon presentment and surrender of such Note at the location specified
in the notice to Noteholders of such final distribution.
(b) All distributions made on the Trust Certificates on each Payment
Date will be made pro rata among the holders of the Trust Certificates of record
on the next preceding Record Date based on their Percentage Interests (as
defined in the Trust Agreement), without preference or priority of any kind,
and, except as otherwise provided in the next succeeding sentence, shall be made
by wire transfer of immediately available funds to the account of each such
holder, if such holder shall own of record a Trust Certificate in an original
denomination aggregating at least 50% of the Percentage Interests (as defined in
the Trust Agreement) and shall have so notified the Indenture Trustee, and
otherwise by check mailed to the address of such Certificateholder appearing in
the Certificate Register. The final distribution on each Trust Certificate will
be made in like manner, but only upon presentment and surrender of such Trust
Certificate at the location specified in the notice to holders of the Trust
Certificates of such final distribution. Any amount distributed to the holders
of the Trust Certificates on any Payment Date shall not be subject to any claim
or interest of the Noteholders. In the event that at any time there shall be
more than one Certificateholder, the Indenture Trustee shall be entitled to
reasonable additional compensation from the Servicer for its obligations
hereunder, including, without limitation, its obligations to distribute funds
and produce and deliver statements.
(c) For purposes of this SECTION 5.02, the sole holder of the Trust
Certificates shall be deemed to be the Depositor until such time as the
Depositor provides written notice to the contrary to the Indenture Trustee and
the Initial Noteholder.
SECTION 5.03 TRUST ACCOUNTS; TRUST ACCOUNT PROPERTY.
(a) CONTROL OF TRUST ACCOUNTS. Each of the Trust Accounts established
hereunder has been pledged by the Issuer to the Indenture Trustee under the
Indenture and shall be subject to the lien of the Indenture. In addition to the
provisions hereunder, each of the Trust Accounts shall also be established and
maintained pursuant to the Indenture. Amounts distributed from each Trust
Account in accordance with the Indenture and this Agreement shall be released
from the lien of the Indenture upon such distribution thereunder or hereunder.
The Indenture Trustee shall possess all right, title and interest in and to all
funds on deposit from time to time in the Trust Accounts and in all proceeds
thereof (including all income thereon) and all such funds, investments, proceeds
and income shall be part of the Trust Account Property and the Trust Estate. If,
at any time, any Trust Account ceases to be an Eligible Account, the Indenture
Trustee (or the Servicer on its behalf) shall, within ten Business Days (or such
longer period, not to exceed 30 calendar days, with the prior written consent of
the Majority Noteholders) (i) establish a new Trust Account as an Eligible
Account, (ii) terminate the ineligible Trust Account, and (iii) transfer any
cash and investments from such ineligible Trust Account to such new Trust
Account.
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Except as may be otherwise provided in the Collection Account Letter
Agreement, with respect to the Trust Accounts, the Indenture Trustee agrees, by
its acceptance hereof, that each such Trust Account shall be subject to the sole
and exclusive custody and control of the Indenture Trustee for the benefit of
the Noteholders, and, except as may be otherwise provided in the Collection
Account Letter Agreement or as may be consented to in writing by the Majority
Noteholders, the Indenture Trustee shall have sole signature and withdrawal
authority with respect thereto.
The Servicer shall have the power, revocable by the Majority
Noteholder or by the Owner Trustee with the consent of the Indenture Trustee, to
instruct the Indenture Trustee or Owner Trustee to make withdrawals and payments
from the Trust Accounts for the purpose of permitting the Servicer to carry out
its duties hereunder or permitting the Indenture Trustee or Owner Trustee to
carry out their respective duties herein or under the Indenture or the Trust
Agreement, as applicable.
(b) (1) INVESTMENT OF FUNDS. Funds held in the Collection Account and
the Transfer Obligation Account may be invested (to the extent practicable and
consistent with any requirements of the Code) in Permitted Investments, as
directed by the Servicer prior to the occurrence and continuation of an Event of
Default, and by the Majority Noteholders thereafter, in writing or by telephone
or facsimile transmission confirmed in writing by the Loan Originator or
Majority Noteholders, as applicable. In any case, funds in the Collection
Account and the Transfer Obligation Account must be available for withdrawal
without penalty, and any Permitted Investments must mature or otherwise be
available for withdrawal, not later than the Business Day following the date of
such investment and, in any event one Business Day prior to the next Payment
Date and shall not be sold or disposed of prior to its maturity subject to
subsection (b)(2) of this Section. All interest and any other investment
earnings on amounts or investments held in the Collection Account and the
Transfer Obligation Account shall be deposited into the Collection Account or
the Transfer Obligation Account, as the case may be, immediately upon receipt by
the Indenture Trustee. All Permitted Investments in which funds in the
Collection Account or the Transfer Obligation Account are invested must be held
by or registered in the name of "LaSalle National Bank, as Indenture Trustee, in
trust for the FFCA Franchise Loan Backed Notes, Series 1998-1".
(2) INSUFFICIENCY AND LOSSES IN TRUST ACCOUNTS. If any amounts are
needed for disbursement from the Collection Account or the Transfer Obligation
Account held by or on behalf of the Indenture Trustee and sufficient uninvested
funds are not available to make such disbursement, the Indenture Trustee (or the
Servicer, as applicable) shall cause to be sold or otherwise converted to cash a
sufficient amount of the investments in the Collection Account or the Transfer
Obligation Account, as the case may be. The Indenture Trustee shall not be
liable for any investment loss or other charge resulting therefrom, unless such
loss or charge is caused by the failure of the Indenture Trustee to perform in
accordance with written directions provided pursuant to this SECTION 5.03.
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If any losses are realized in connection with any investment in the
Collection Account or the Transfer Obligation Account pursuant to this Agreement
and the Indenture, then the Loan Originator shall deposit the amount of such
losses (to the extent not offset by income from other investments in the
Collection Account or the Transfer Obligation Account, as the case may be) into
the Collection Account or the Transfer Obligation Trust Account, as the case may
be, immediately upon the realization of such loss. All interest and any other
investment earnings on amounts held in the Collection Account and the Transfer
Obligation Account shall be taxed to the Issuer and for federal and state income
tax purposes the Issuer shall be deemed to be the owner of the Collection
Account and/or the Transfer Obligation Account, as the case may be.
(c) Subject to Section 6.01 of the Indenture, the Indenture Trustee
shall not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein (except to the extent that the Indenture
Trustee is an obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit accounts shall
be held solely in the Eligible Accounts, subject to the last sentence of
subsection (a) of this SECTION 5.03; and, except as may be otherwise provided in
the Collection Account Letter Agreement, each such Eligible Account shall be
subject to the sole and exclusive dominion, custody and control of the Indenture
Trustee; and, without limitation on the foregoing, except as may be otherwise
provided in the Collection Account Letter Agreement, the Indenture Trustee shall
have sole signature authority with respect thereto;
(2) any Trust Account Property that constitutes Physical Property
shall be delivered to the Indenture Trustee in accordance with paragraph (a) of
the definition of "Delivery" in SECTION 1.01 hereof and shall be held, pending
maturity or disposition, solely by the Indenture Trustee or a securities
intermediary (as such term is defined in Section 8-102(a)(14) of the UCC) acting
solely for the Indenture Trustee;
(3) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry regulations
shall be delivered in accordance with paragraph (b) of the definition of
"Delivery" in SECTION 1.01 hereof and shall be maintained by the Indenture
Trustee, pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such paragraph; and
(4) any Trust Account Property that is an "uncertificated security"
under Article 8 of the UCC and that is not governed by clause (3) above shall be
delivered to the Indenture Trustee in accordance with paragraph (c) of the
definition of "Delivery" in SECTION 1.01 hereof and shall be maintained by the
Indenture Trustee, pending maturity or disposition, through continued
registration of the Indenture Trustee's (or its nominee's) ownership of such
security.
(e) The Servicer shall have the power, revocable by the Majority
Noteholders or by the Issuer with the consent of the Majority Noteholders, to
instruct the Indenture Trustee to make withdrawals and payments from the Trust
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Accounts for the purpose of permitting the Servicer or the Issuer to carry out
their respective duties hereunder or permitting the Indenture Trustee to carry
out its duties under the Indenture.
SECTION 5.04 ADVANCE ACCOUNT.
(a) The Servicer shall cause to be established and maintained in its
name, an Advance Account (the "ADVANCE ACCOUNT"), which need not be a segregated
account. The Advance Account shall be maintained with any financial institution
the Servicer elects.
(b) DEPOSITS AND WITHDRAWALS. Amounts in respect of the purchase of
Additional Note Principal Balances and Loans shall be deposited in and withdrawn
from the Advance Account as provided in SECTIONS 2.01(C) and 2.06 hereof,
Section 3.01 of the Note Purchase Agreement and Section 2.1 of the Loan Purchase
Agreement.
SECTION 5.05 TRANSFER OBLIGATION; TRANSFER OBLIGATION ACCOUNT.
(a) The Servicer, for the benefit of the Noteholders, shall cause to
be established and maintained in the name of the Indenture Trustee a Transfer
Obligation Account (the "TRANSFER OBLIGATION Account"), which shall be a
separate Eligible Account and may be interest-bearing, entitled "Transfer
Obligation Account, LaSalle National Bank, as Indenture Trustee, in trust for
the FFCA Franchise Loan Backed Notes, Series 1998-1." The Transfer Obligation
Account may be maintained with the Indenture Trustee or any other depository
institution which satisfies the requirements set forth in the definition of
Eligible Account. The establishment of a Transfer Obligation Account with a
depositary institution other than the Indenture Trustee shall be evidenced by a
letter agreement between the Servicer and such depository institution acceptable
to the Indenture Trustee. A copy of such letter agreement shall be furnished to
the Indenture Trustee and, upon request of any Securityholder, to such
Securityholder. Amounts in the Transfer Obligation Account shall be invested in
accordance with SECTION 5.03.
(b) In accordance with Section 2.3(b) of the Loan Purchase Agreement,
the Loan Originator shall deposit into the Transfer Obligation Account such
amounts as may be required thereby.
(c) On each Payment Date, the Indenture Trustee will deposit in the
Transfer Obligation Account any amounts required to be deposited therein
pursuant to SECTION 5.01(C)(3)(VI).
(d) On the date of each Securitization, the Indenture Trustee shall
withdraw from the Transfer Obligation Account such amount on deposit therein as
may be requested by the Majority Noteholders in writing to effect such
Securitization.
(e) On each Payment Date, the Indenture Trustee, upon the written
direction of the Servicer shall withdraw from the Transfer Obligation Account
and deposit into the Distribution Account on such Payment Date the lesser of (x)
the amount then on deposit in the Transfer Obligation Account and (y) the
Interest Carry-Forward Amount as of such date.
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(f) If with respect to any Payment Date the Overcollateralization
Shortfall exceeds the greater of (x) 1% of the aggregate Principal Balance of
all Loans as of the prior Business Day and (y) $250,000, the Indenture Trustee,
upon the written direction of the Servicer shall withdraw from the Transfer
Obligation Account and deposit into the Distribution Account on the Business Day
prior to such Payment Date the lesser of the amount then on deposit in the
Transfer Obligation Account and the amount of such Overcollateralization
Shortfall as of such date.
(g) If with respect to any Payment Date there shall exist a Hedge
Funding Requirement, the Indenture Trustee, upon the written direction of the
Servicer shall withdraw from the Transfer Obligation Account and deposit into
the Distribution Account on the Business Day prior to such Payment Date the
lesser of (x) the amount then on deposit in the Transfer Obligation Account
(after making all other required withdrawals therefrom with respect to such
Payment Date) and (y) the amount of such Hedge Funding Requirement as of such
date.
(h) In the event of the occurrence of an Event of Default under the
Indenture, the Indenture Trustee shall withdraw all remaining funds from the
Transfer Obligation Account and apply such funds in satisfaction of the Notes as
provided in Section 5.04(b) of the Indenture.
(i) Upon the date of the termination of this Agreement pursuant to
Article XI, the Indenture Trustee, at the written direction of the Loan
Originator, shall withdraw any remaining amounts from the Transfer Obligation
Account and remit all such amounts to the Loan Originator.
(j) The Indenture Trustee shall (i) at the direction of the Majority
Noteholders, return to the Loan Originator in the manner specified to the
Indenture Trustee by the Majority Noteholders in such direction all amounts
deposited in the Transfer Obligation Account by the Loan Originator in
connection therewith pursuant to Section 2.3(b)(v) of the Loan Purchase
Agreement, in the event that an Event of Default is waived by the Noteholders
and (ii) return to the Loan Originator at the written direction of the Servicer,
all amounts on deposit in the Transfer Obligation Account until the Majority
Noteholders provide written notice to the Indenture Trustee (with a copy to the
Loan Originator) of the occurrence of a default or event of default (however
defined) under any Basic Document with respect to the Issuer, FFCA or the
Depositor.
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
SECTION 6.01 STATEMENTS.
(a) On each Determination Date, the Servicer shall deliver to the
Indenture Trustee and the Initial Noteholder by facsimile, the receipt and
legibility of which shall be confirmed by telephone, and with hard copy thereof
to be delivered no later than one (1) Business Day after such Determination
Date, the Servicer's Remittance Report, setting forth the date of such Report
(day, month and year), the name of the Issuer (i.e., "FFCA Franchise Loan Owner
Trust 1998-1"), the Series designation of the Notes (i.e., "Series 1998-1") and
the date of this Agreement, all in substantially the form set out in Exhibit B
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hereto. Furthermore, on each Determination Date, the Servicer shall deliver to
the Indenture Trustee and the Initial Noteholder a magnetic tape or computer
disk providing, with respect to each Loan in the Loan Pool as of such
Determination Date: (i) the Loan Originator's internal loan identifying number;
(ii) if such Loan is an Adjustable Rate Loan, the current Loan Interest Rate;
(iii) the current Principal Balance with respect to such Loan; (iv) the date of
the last Monthly Payment paid in full; (v) the Corporate Fixed Charge Coverage
Ratio; (vi) with respect to the Unit-Level Fixed Charge Coverage Ratio, a flag
indicating whether such figure is a calculation of the Unit-Level Fixed Charge
Coverage Ratio with respect to the single unit or in the aggregate (if updated
from information provided in the Loan Schedule); (vii) the Corporate FCCR
Percentage; and (viii) such other information as may be reasonably requested by
the Majority Noteholders.
(b) (i) On any Business Day, upon the request of the Initial
Noteholder, the Servicer shall prepare and provide a statement setting forth the
following information as of the close of business on the prior Business Day:
(a) for each Loan with respect to which a Servicing Advance or
Periodic Advance is outstanding, (i) the aggregate amount of
Servicing Advances outstanding, (ii) the aggregate amount of
Periodic Advances outstanding and (iii) the outstanding Principal
Balance of such Loan; and
(b) the Pool Principal Balance.
(ii) On each Determination Date, the Servicer shall prepare and
provide to the Indenture Trustee for distribution to the Issuer, the Initial
Noteholder and each Certificateholder, a statement (the "PAYMENT STATEMENT"),
stating each date of a purchase of Additional Note Principal Balance (day, month
and year), the name of the Issuer (i.e., "FFCA Franchise Loan Owner Trust
1998-1"), the Series designation of the Notes (i.e., "Series 1998-1"), the date
of this Agreement and the following information:
(a) the aggregate amount of collections in respect of principal of
the Loans received by the Servicer during the preceding Due
Period;
(b) the aggregate amount of collections in respect of interest on the
Loans received by the Servicer during the preceding Due Period;
(c) all Insurance Proceeds received by the Servicer and not required
to be applied to restoration or repair of the related Loan
Collateral during the preceding Due Period;
(d) all Net Liquidation Proceeds deposited by the Servicer into the
Collection Account during the preceding Due Period;
(e) all Released Loan Collateral Proceeds deposited by the Servicer
into the Collection Account during the preceding Due Period;
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(f) the aggregate amount of all Periodic Advances and all Servicing
Advances, set forth separately, made by the Servicer during the
preceding Due Period;
(g) the aggregate of all amounts deposited into the Collection
Account in respect of the repurchase of Defective Loans and the
repurchase of Loans pursuant to SECTION 2.05 hereof during the
preceding Due Period;
(h) the aggregate Principal Balance of all Loans for which a Servicer
Call was exercised during the preceding Due Period;
(i) the aggregate Principal Balance of all Loans for which a Loan
Originator Put was exercised during the preceding Due Period;
(j) the aggregate amount of all payments received under Hedging
Instruments during the preceding Due Period;
(k) the aggregate amount of proceeds received in respect of the
Environmental Policy during the preceding Due Period;
(l) when applicable, the aggregate amount of cash Securitization
Proceeds received during the preceding Due Period;
(m) withdrawals from the Collection Account in respect of the
Servicing Advance Reimbursement Amount during the preceding Due
Period;
(n) withdrawals from the Collection Account in respect of
Nonrecoverable Periodic Advances during the preceding Due Period;
(o) the number and aggregate Principal Balance of all Loans that are
(i) 30-59 days Delinquent, (ii) 60-89 days Delinquent, (iii) 90
or more days Delinquent as of the related Payment Date;
(p) the aggregate amount of Liquidated Loan Losses incurred (i)
during the preceding Due Period, (ii) during the preceding three
Due Periods and (iii) since the Reset Date;
(q) the aggregate of the Principal Balances of all Loans in the Loan
Pool as of the related Payment Date; and
(r) the aggregate amount of all withdrawals from the Collection
Account pursuant to SECTION 5.01(C)(1)(I) hereof during the
preceding Due Period.
(iii) On the Business Day following each Business Day on which money
is deposited into the Collection Account, the Servicer shall cause to be
delivered to the Initial Noteholder by facsimile, the receipt and legibility of
which shall be confirmed by telephone, a statement setting forth the total
deposits into the Collection Account on the prior Business Day and the balance
in the Collection Account as of the close of business on the prior Business Day.
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(c) On each Determination Date, the Indenture Trustee shall deliver to
the Initial Noteholder a magnetic tape or computer disk in a form mutually
agreed the Initial Noteholder and the Indenture Trustee, setting forth the
following information:
(a) the aggregate amount of all deposits into the Distribution
Account from the Transfer Obligation Account pursuant to SECTION
5.05(e), 5.05(f) and 5.05(g) on the preceding payment Date;
(c) if the Servicer is not FFCA or an Affiliate thereof, the
aggregate amount of distributions in respect of Servicing
Compensation to the Servicer, and unpaid Servicing Compensation
from prior Payment Dates for the related Payment Date;
(d) the aggregate amount of distributions in respect of Indenture
Trustee Fees and unpaid Indenture Trustee Fees from prior Payment
Dates for the related payment Date;
(e) the aggregate amount of distributions in respect of Owner Trustee
Fees and unpaid Owner Trustee Fees from prior Payments Dates for
the related Payment Date;
(f) the aggregate amount of distributions in respect of the Custodian
Fee and unpaid Custodian Fees from prior Payment Dates for the
related Payment Date;
(g) if a Rapid Amortization Trigger shall have occurred and not been
Deemed Cured or a Default or Event of Default shall have occurred
hereunder or under the Indenture, the aggregate amount of
distributions on the Notes in respect of principal in excess of
the Optimal Principal Payment Amount and the Principal
Carry-Forward Amount for the related Payment Date;
(h) the aggregate amount of distributions in respect of Servicing
Compensation and unpaid Servicing Compensation from prior Payment
Dates, to the Servicer, if FFCA or an Affiliate thereof is the
Servicer, for the related Payment Date;
(i) the aggregate amount of distributions to the Transfer Obligation
Account for the related Payment Date;
(j) the aggregate amount of distributions in respect of
Issuer/Depositor Indemnities (as defined in the Trust Agreement)
for the related Payment Date;
(k) the aggregate amount of distributions to the holders of the Trust
Certificates for the related Payment Date; and
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(l) the Note Principal Balance of the Notes before and after giving
effect to distributions made to the holders of the Notes for the
related Payment Date.
All reports prepared by the Indenture Trustee of the withdrawals from
and deposits into the Collection Account will be based in whole or in part upon
the information provided to the Indenture Trustee by the Servicer, and the
Indenture Trustee may fully rely upon and shall have no liability with respect
to such information provided by the Servicer.
(d) On each Payment Date, the Indenture Trustee shall forward to the
holders of the Trust Certificates a copy of the Payment Statement in respect of
such Payment Date and a statement setting forth the amounts actually distributed
to such holders of the Trust Certificates on such Payment Date, together with
such other information as the Indenture Trustee deems necessary or appropriate.
SECTION 6.02 SPECIFICATION OF CERTAIN TAX MATTERS.
The Indenture Trustee shall comply with all requirements of the Code
and applicable state and local law with respect to the withholding from any
distributions made to any Noteholder of any applicable withholding taxes imposed
thereon and with respect to any applicable reporting requirements in connection
therewith, giving due effect to any applicable exemptions from such withholding
and effective certifications or forms provided by the recipient. Any amounts
withheld pursuant to this SECTION 6.02 shall be deemed to have been distributed
to the Noteholders, as the case may be, for all purposes of this Agreement or
the Indenture.
ARTICLE VII
GENERAL SERVICING PROCEDURE
SECTION 7.01 DUE-ON-SALE; DUE-ON-ENCUMBRANCE.
(a) When any Borrower proposes to convey all or any portion of its
interests in Loan Collateral, or if such a conveyance has actually occurred, the
Servicer shall immediately give notice to the Initial Noteholder of such
conveyance and shall enforce any due-on-sale clause or due-on-encumbrance clause
contained in any Promissory Note or Mortgage or Security Agreement, to the
extent permitted under the terms of the Loan and applicable law and governmental
regulations. In the event that the Servicer determines, in accordance with the
Servicing Standard, that waiver of such clauses would be in accordance with the
Servicing Standard, the Servicer shall promptly give written notice to the
Majority Noteholders of its approval of any such subordinate lien. If a Borrower
applies for approval to place a subordinate monetary lien on Loan Collateral in
accordance with the terms of the Loan Documents, the Servicer shall promptly
give written notice to the Majority Noteholders of the requested encumbrance and
obtain and deliver to the Majority Noteholders such appraisals and other
supporting documentation as are required by the terms of the Loan Documents
together with such additional information as the Majority Noteholders shall
request to facilitate review and approval of the requested encumbrance. In the
event that the Servicer determines, in accordance with the Servicing Standard,
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that permitting such subordinate lien would be in accordance with the Servicing
Standard, the Servicer may consent to such lien and shall promptly give written
notice to the Majority Noteholders thereof. Any processing fees paid by a
Borrower in connection with an application for a subordinate monetary lien (net
of any fees and expenses of the Majority Noteholders including the Majority
Noteholders' counsel's fees and expenses) shall be retained by the Servicer as
Servicing Compensation. The Servicer shall not approve any request to
subordinate the lien of any Mortgage Loan to any other lien.
(b) If any Loan Collateral is to be conveyed to a Person by a
Borrower, and such Person is to enter into an assumption agreement or supplement
to the Promissory Note or Mortgage or Security Agreement which requires the
signature of the Indenture Trustee, or if an instrument of release signed by the
Indenture Trustee is required releasing the Borrower from liability on the Loan,
the Servicer shall deliver or cause to be delivered to the Majority Noteholders
for review, and upon the written approval thereof, to the Indenture Trustee for
signature the assumption agreement with the Person to whom the Loan Collateral
is to be conveyed and such modification agreement or supplement to the
Promissory Note or Mortgage or Security Agreement or other instruments as are
reasonable or necessary to carry out the terms of the Promissory Note or
Mortgage or Security Agreement or otherwise to comply with any applicable laws
regarding assumptions or the transfer of the Loan Collateral to such Person. The
Servicer shall also deliver or cause to be delivered to the Majority Noteholders
with the foregoing documents a letter explaining the nature of such documents
and the reason or reasons why the Indenture Trustee's signature is required.
With such letter the Servicer shall deliver to the Majority Noteholders and the
Indenture Trustee a certificate of a servicing officer certifying that: (i) a
Servicing Officer has examined and approved such documents as to form and
substance, (ii) the Indenture Trustee's execution and delivery thereof will not
conflict with or violate any terms of this Agreement (iii) any required consents
of insurers under any insurance policies required by this Agreement have been
obtained, (iv) there are no changes or modifications other than the identity of
the Borrower other than those previously approved in writing by the Majority
Noteholders and (v) if the seller/transferor of the Loan Collateral is to be
released from liability on the Loan, such release will not (based on the
Servicer's good faith determination) adversely affect the collectability of the
Loan. Upon the closing of the transactions contemplated by such documents, the
Servicer shall cause the originals of the assumption agreement, the release (if
any) or the modification or supplement to the Promissory Note or Mortgage or
Security Agreement to be delivered to the Indenture Trustee and deposited with
the Indenture Trustee's Loan File for such Loan.
SECTION 7.02 RELEASE OF LOAN FILES.
If with respect to any Loan:
(i) the outstanding Principal Balance of such Loan plus all
interest accrued thereon shall have been paid;
(ii) the Servicer shall have received, in escrow, payment in full of
such Loan in a manner customary for such purposes;
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(iii) such Loan has become a Defective Loan and has been repurchased
or a Qualified Substitute Loan has been conveyed to the Trust
pursuant to SECTION 3.05 hereof;
(iv) such Loan or the related Foreclosure Property has been sold in
connection with the termination of the Trust pursuant to
SECTION 11.01 hereof;
(v) such Loan has been purchased by the Loan Originator in
accordance with the terms of SECTION 3.07;
(vi) the related Foreclosure Property has been sold pursuant to
SECTION 4.11 hereof; or
(vii) such Loan has been included in a Securitization and
concurrently with such release the Securitization Proceeds
associated therewith will be deposited into the Collection
Account.
In each such case, the Servicer shall deliver a certificate to the
effect that the Servicer has complied with all of its obligations under this
Agreement with respect to such Loan and requesting that the Indenture Trustee
release to the Servicer the related Indenture Trustee's Loan File, and the
Indenture Trustee shall, within five Business Days or such shorter period as may
be required by applicable law, release, or cause the Custodian to release
(unless such Indenture Trustee's Loan File has previously been released), the
related Indenture Trustee's Loan File to the Servicer and execute and deliver
such instruments of transfer or assignment prepared and delivered to it by the
Servicer, in each case without recourse, representation or warranty as shall be
necessary to vest ownership of such Loan in the Servicer or such other Person as
may be specified in such certificate, the forms of any such instrument to be
appended to such certificate.
SECTION 7.03 SERVICING COMPENSATION.
As compensation for its services hereunder, the Servicer shall be
entitled to receive from the Collection Account the Servicing Fee, out of which
the Servicer shall pay any servicing fees owed or payable to any Subservicer.
Additional servicing compensation in the form of assumption fees, modification
fees, and other administrative fees (exclusive of any prepayment premiums),
insufficient funds charges, amounts remitted pursuant to SECTION 7.01 hereof and
late payment charges shall be part of the Servicing Compensation payable to the
Servicer hereunder and shall be paid either by the Servicer's retaining such
additional servicing compensation prior to deposit into the Collection Account
pursuant to SECTION 5.01(B)(1) hereof or, if deposited into the Collection
Account, as part of the Servicing Compensation withdrawn therefrom pursuant to
SECTION 5.01(C)(1) hereof.
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein. The Loan
Originator also agrees to pay all reasonable costs and expenses incurred by any
successor Servicer or the Indenture Trustee in replacing the Servicer in the
event of a default by the Servicer in the performance of its duties under the
terms and conditions of this Agreement.
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SECTION 7.04 STATEMENT AS TO COMPLIANCE AND FINANCIAL STATEMENTS.
The Servicer will deliver to the Initial Noteholder:
(a) not later than 90 days following the end of each fiscal year of
the Servicer (beginning on March 31, 1999), an Officer's Certificate stating
that (i) a review of the activities of the Servicer during the preceding year
and of performance under this Agreement has been made under such officer's
supervision and (ii) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all of its obligations under this Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof and what action the Servicer proposes to take with
respect thereto.
(b) As soon as available and in no event later than 45 days after the
end of each of the first three quarterly fiscal periods of FFCA, a Quarterly
Report on "Form 10-Q" filed by FFCA with the Securities and Exchange Commission.
(c) As soon as available and in no event later than 90 days after the
end of each fiscal year of FFCA, an Annual Report on "Form 10-K" filed by FFCA
with the Securities and Exchange Commission.
(d) As soon as available and in any event within 90 days after the end
of each fiscal year of FFCA, the annual report that is delivered to its
shareholders.
(e) Within 10 days after service of process on any of the following,
notice of all legal or arbitrable proceedings affecting the Servicer or any of
its subsidiaries that questions or challenges the validity or enforceability of
any of the Basic Documents or as to which there is a reasonable likelihood of
adverse determination which would result in a material adverse effect with
respect to the value of the Loans or the interests of any of the Securityholders
therein. The Servicer shall also furnish and certify to the requesting party
such other information as to (i) its organization, activities and personnel
relating to the performance of the obligations of the Servicer hereunder, (ii)
its financial condition, (iii) the Loans and (iv) the performance of the
obligations of any Subservicer under the related Subservicing Agreement, in each
case as the Indenture Trustee or the Depositor may reasonably request from time
to time.
SECTION 7.05 INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.
Not later than 90 days following the end of each fiscal year of the
Servicer (beginning on March 31, 1999), the Servicer at its expense shall cause
a nationally recognized firm of Independent Certified Public Accountants (which
may also render other services to the Servicer) to furnish a statement to the
Indenture Trustee, the Depositor and the Initial Noteholder to the effect that
such firm has examined certain documents and records relating to the servicing
of the Loans under this Agreement or of loans under pooling and servicing
agreements (including the Loans and this Agreement) substantially similar to one
another (such statement to have attached thereto a schedule setting forth the
pooling and servicing agreements covered thereby) and that, on the basis of such
examination conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC, such firm confirms that such servicing has been conducted in
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compliance with such pooling and servicing agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Attestation
Program for Mortgages serviced for FHLMC requires it to report, each of which
errors and omissions shall be specified in such statement. In rendering such
statement, such firm may rely, as to matters relating to direct servicing of
loans by Subservicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of Independent certified public accountants
with respect to the related Subservicer.
SECTION 7.06 RIGHT TO EXAMINE SERVICER RECORDS.
Each Securityholder, the Indenture Trustee, the Issuer and each of
their respective agents shall have the right upon reasonable prior notice,
during normal business hours and as often as reasonably required, to examine,
audit and copy, at the expense of the Person making such examination (but, in
the case of the Indenture Trustee, at the expense of the Servicer), any and all
of the books, records or other information of the Servicer (including without
limitation any Subservicer to the extent provided in the related Subservicing
Agreement), whether held by the Servicer or by another on behalf of the
Servicer, which may be relevant to the performance or observance by the Servicer
of the terms, covenants or conditions of this Agreement. In the case of the
supervisory agents and examiners of the Issuer, Indenture Trustee and the
Securityholders, access to the documentation regarding the Loans required by
applicable state and federal regulations shall be afforded without charge but
only upon reasonable request and during normal business hours at the offices of
the Servicer designated by it.
The Servicer also agrees to make available on a reasonable basis to
the Securityholders or any prospective Securityholder a knowledgeable financial
or accounting officer for the purpose of answering reasonable questions
respecting recent developments affecting the Servicer or the financial
statements of the Servicer and to permit the Securityholders and any prospective
Securityholder to inspect the Servicer's servicing facilities during normal
business hours for the purpose of satisfying the Securityholders and such
prospective Securityholder that the Servicer has the ability to service the
Loans in accordance with this Agreement.
SECTION 7.07 REPORTS TO THE INDENTURE TRUSTEE; COLLECTION ACCOUNT
STATEMENTS.
If the Collection Account is not maintained with the Indenture
Trustee, then not later than 25 days after each Record Date, the Servicer shall
forward to the Indenture Trustee a statement, certified by a Servicing Officer,
setting forth the status of the Collection Account as of the close of business
on the preceding Record Date and showing, for the period covered by such
statement, the aggregate of deposits into the Collection Account for each
category of deposit specified in SECTION 5.01(B)(1) hereof, the aggregate of
withdrawals from the Collection Account for each category of withdrawal
specified in SECTION 5.01(C)(1) hereof, in each case, for the related Due
Period.
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SECTION 7.08 ACCESS TO INFORMATION.
(a) The Servicer understands that, in connection with the transfer of
the Notes, Noteholders may request that the Servicer make available to the
Noteholders and to prospective Noteholders annual audited financial statements
of the Servicer for any or all of the most recently completed five fiscal years
for which such statements are available, which request shall not be unreasonably
denied.
(b) So long as any Notes remain outstanding, each of the Issuer and
any Noteholder shall, at any time and from time to time during regular business
hours, or at such other times upon reasonable notice to the Servicer and the
Servicer shall permit the Issuer and any Noteholder, or its agents or
representatives to:
(i) examine all books, records and documents (including computer tapes
and disks) in the possession or under the control of the Servicer relating to
the Loans, the servicing of the Loans and the compliance of the terms of the
Basic Documents, as may be reasonably requested;
(ii) visit the offices and property of the Servicer for the purpose of
examining such materials described in clause (b)(i) above;
(iii) consult with such professionals as may reasonably be aware of
the operations or condition of the Servicer, including, without limitation,
accountants and auditors, and the Servicer shall cause such professionals to
cooperate with any examination conducted in accordance with the terms of this
SECTION 7.08 and to provide access to those materials listed in subclause (b)(i)
above in the possession or under the control of such professionals.
ARTICLE VIII
HEDGING
SECTION 8.01 HEDGING INSTRUMENTS.
(a) The Issuer, promptly upon the request of the Market Value Agent,
on behalf of the Majority Noteholders, shall enter into such Hedging Instruments
as the Market Value Agent, on behalf of the Majority Noteholders, may deem
appropriate to hedge the interest rate risk associated with the Notes
attributable to Loans bearing a fixed Loan Interest Rate and relative to the
expected Securitization Proceeds therefrom; provided that payments thereunder to
the Collection Account pursuant to SECTION 5.01(B)(1)(X) constitute qualifying
income under Section 856(c)(5)(G) of the Code. The Market Value Agent shall
determine, in its sole discretion, whether any Hedging Instrument conforms to
the requirements of SECTION 8.01(B) AND (C).
(b) Each Hedging Instrument shall expressly provide that in the event
of a Securitization, such portion of the Hedging Instrument shall terminate as
the Majority Noteholders deem appropriate to facilitate the hedging of the risks
specified in SECTION 8.01(A).
(c) Any Hedging Instrument that provides for any payment obligation on
the part of the Issuer must (i) be without recourse to the assets of the Issuer,
(ii) contain a non-petition covenant provision in the form of SECTION 12.13,
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(iii) limit payment dates thereunder to Payment Dates and (iv) contain a
provision limiting any cash payments due on any day under such Hedging
Instrument solely to funds available therefor in the Collection Account on such
day pursuant to SECTION 5.01(C)(3)(II) hereof and funds available therefor in
the Transfer Obligation Account.
(d) Each Hedging Instrument must (i) provide for the direct payment of
any amounts thereunder to the Collection Account pursuant to SECTION
5.01(B)(1)(X), (ii) contain an assignment of all of the Issuer's rights (but
none of its obligations) under such Hedging Instrument to the Indenture Trustee
and shall include an express consent of the Hedging Counterparty to such
assignment, (iii) provide that in the event of the occurrence of an Event of
Default, such Hedging Instrument shall terminate upon the direction of the
Majority Noteholders, (iv) prohibit the Hedging Counterparty from "setting-off"
or "netting" other obligations of the Issuer or its Affiliates against such
Hedging Counterparty's payment obligations thereunder and (v) provide that the
appropriate portion of the Hedging Instrument will terminate upon the removal of
the related Loans from the Trust Estate.
(e) The Issuer shall not pledge or otherwise transfer or encumber any
of its assets in order to secure its obligations in respect of any Hedge Funding
Requirements.
ARTICLE IX
THE SERVICER
SECTION 9.01 INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) The Servicer shall indemnify the Loan Originator, the Owner
Trustee, the Trust, the Depositor, the Indenture Trustee and the Noteholders,
their respective officers, directors, employees, agents and "control persons,"
as such term is used under the Act and under the Securities Exchange Act of 1934
as amended (each an "INDEMNIFIED PARTY") and hold harmless each of them against
any and all claims, losses, damages, penalties, fines, forfeitures, reasonable
legal fees and related costs, judgments, and other costs and expenses resulting
from any claim, demand, defense or assertion based on or grounded upon, or
resulting from, a breach of any of the Servicer's representations and warranties
and covenants contained in this Agreement or in any way relating to the failure
of the Servicer to perform its duties and service the Loans in compliance with
the terms of this Agreement; provided, however, that if the Servicer is not
liable pursuant to the provisions of SECTION 9.01(D) hereof for its failure to
perform its duties and service the Loans in compliance with the terms of this
Agreement, then the provisions of this SECTION 9.01 shall have no force and
effect with respect to such failure.
(b) The Loan Originator, the Depositor, the Indenture Trustee or the
Noteholders, as the case may be, shall promptly notify the Servicer if a claim
is made by a third party with respect to a breach of any of the Servicer's
representations and warranties and covenants contained in this Agreement or in
any way relating to the failure of the Servicer to perform its duties and
service the Loans in compliance with the terms of this Agreement. The Servicer
shall promptly notify the Indenture Trustee and the Depositor of any claim of
which it has been notified pursuant to this SECTION 9.01 by a Person other than
the Depositor, and, in any event, shall promptly notify the Depositor of its
intended course of action with respect to any claim.
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(c) The Servicer shall be entitled to participate in and, upon notice
to the Indemnified Party, assume the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, the
Indemnified Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to the counsel of the Servicer, but the
fees and expenses of such counsel will be at the expense of such Indemnified
Party, unless (i) the employment of counsel by the Indemnified Party at its
expense has been authorized in writing by the Servicer, (ii) the Servicer has
not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, or
(iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Servicer and one or more Indemnified
Parties, and the Indemnified Parties shall have been advised by counsel that
there may be one or more legal defenses available to them which are different
from or additional to those available to the Servicer. The Servicer shall not be
liable for any settlement of any such claim or action unless the Servicer shall
have consented thereto or be in default on its obligations hereunder. Any
failure by an Indemnified Party to comply with the provisions of this SECTION
9.01 shall relieve the Servicer of liability only if such failure is materially
prejudicial to the defense of the Servicer of such claim or action and then only
to the extent of such prejudice.
(d) None of the Loan Originator, the Depositor or the Servicer or any
of their respective Affiliates, directors, officers, employees or agents shall
be under any liability to the Owner Trustee, the Issuer, the Indenture Trustee
or the Securityholders for any action taken, or for refraining from the taking
of any action, in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Loan
Originator, the Depositor, the Servicer or any of their respective Affiliates,
directors, officers, employees, agents against the remedies provided herein for
the breach of any warranties, representations or covenants made herein, or
against any expense or liability specifically required to be borne by such party
without right of reimbursement pursuant to the terms hereof, or against any
expense or liability which would otherwise be imposed by reason of misfeasance,
bad faith or negligence in the performance of the respective duties of the
Servicer, the Depositor or the Loan Originator, as the case may be. The Loan
Originator, the Depositor, the Servicer and any of their respective Affiliates,
directors, officers, employees, agents may rely in good faith on any document of
any kind which, prima facie, is properly executed and submitted by any Person
respecting any matters arising hereunder.
(e) The Servicer, the Loan Originator, the Depositor, the Indenture
Trustee and any of their respective directors, officers, employees, agents,
Affiliates and "control persons," as such term is used under the Act and the
Securities Exchange Act of 1934, as amended, shall be indemnified by the Trust
and held harmless against any loss, liability or expense incurred in connection
with any audit, controversy or judicial proceeding relating to a governmental
taxing authority or any legal action relating to this Agreement or the
Securities, other than any loss, liability or expense related to any specific
Loan or Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Except as otherwise provided herein, none of
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the Loan Originator, the Depositor, the Servicer or the Indenture Trustee shall
be under any obligation to appear in, prosecute or defend any legal action that
is not related to its respective duties under this Agreement and which may
involved it in any expenses or liability; provided, however, that, except as
otherwise provided herein, any of the Loan Originator, the Depositor, the
Servicer or the Indenture Trustee may, with the prior consent of the Majority
Noteholders, in its discretion undertake any such action which it may deem
necessary or desirable with respect to this Agreement and the rights and duties
of the parties hereto and the interests of the Issuer hereunder. In such event,
the legal expenses and costs of such action and any liability resulting
therefrom shall be reimbursed therefor out of the Collection Account, to the
extent that funds are available therein, as provided in SECTION 5.01(C)(1).
(f) The Servicer and any Affiliate thereof shall be indemnified and
held harmless by the Owner Trust against any liability or expense incurred in
connection with any third party claims brought against the Servicer and any
Affiliate thereto, which are related to the servicing of the Loans in accordance
with this Agreement, including actions taken by the Servicer in accordance with
written instructions given to the Servicer by the Noteholders, other than any
liability or expense: (i) specifically required to be borne thereby pursuant to
the terms hereof or otherwise incidental to the performance of obligations and
duties hereunder, including the prosecution of enforcement actions in respect of
any specific Loan or Loans (except as any such liability or expense shall be
otherwise reimbursable pursuant to this Agreement); (ii) incurred in connection
with any breach of a representation, warranty or covenant made therein; (iii)
incurred by reason of misfeasance, bad faith or negligence by the Servicer or
its Affiliates in the performance of its or their obligations or duties
hereunder; (iv) incurred in connection with any violation by the Servicer or its
Affiliates of any state or federal securities law; (v) claims for which the
Servicer is required to indemnify any Person pursuant to this SECTION 9.01; or
(vi) which result from the failure of the Servicer to service and administer the
Loans in strict compliance with the terms of this Agreement.
(g) SERVICER TO INDEMNIFY INDENTURE TRUSTEE. The Servicer agrees to
perform all of its obligations set forth in Section 6.07 of the Indenture.
SECTION 9.02 MERGER OR CONSOLIDATION OF THE SERVICER.
The Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation and maintain such other licenses and
permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Loans and to perform its duties under each Basic Document to which it is a
party; provided, however, that the Servicer may merge or consolidate with any
other corporation upon the satisfaction of the conditions set forth in the
following paragraph.
Any Person into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee and the Issuer.
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SECTION 9.03 LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.
The Servicer and any director, officer, employee or agent of the
Servicer may rely on any document of any kind which it in good faith reasonably
believes to be genuine and to have been adopted or signed by the proper
authorities respecting any matters arising hereunder. Subject to the terms of
SECTION 9.01 hereof, the Servicer shall have no obligation to appear with
respect to, prosecute or defend any legal action which is not incidental to the
Servicer's duty to service the Loans in accordance with this Agreement.
SECTION 9.04 SERVICER NOT TO RESIGN; ASSIGNMENT.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Indenture Trustee or (b) upon
determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (b) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Indenture Trustee. No resignation of the Servicer shall become
effective until a successor servicer, appointed pursuant to the provisions of
SECTION 10.02 hereof and satisfying the requirements of SECTION 4.07 hereof with
respect to the qualifications of a successor Servicer, shall have assumed the
Servicer's responsibilities, duties, liabilities (other than those liabilities
arising prior to the appointment of such successor) and obligations under this
Agreement.
Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder and any agreement, instrument or act purporting to effect
any such assignment, transfer, delegation or appointment shall be void.
The Servicer agrees to cooperate with any successor Servicer in
effecting the transfer of the Servicer's servicing responsibilities and rights
hereunder pursuant to the first paragraph of this SECTION 9.04, including,
without limitation, the transfer to such successor of all relevant records and
documents (including any Loan Files in the possession of the Servicer) and all
amounts received with respect to the Loans and not otherwise permitted to be
retained by the Servicer pursuant to this Agreement. In addition, the Servicer,
at its sole cost and expense, shall prepare, execute and deliver any and all
documents and instruments to the successor Servicer including all Loan Files in
its possession and do or accomplish all other acts necessary or appropriate to
effect such termination and transfer of servicing responsibilities.
SECTION 9.05 RELATIONSHIP OF SERVICER TO ISSUER AND THE INDENTURE
TRUSTEE.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Issuer and the Indenture Trustee under
this Agreement is intended by the parties hereto to be that of an independent
contractor and not of a joint venturer, agent or partner of the Issuer or the
Indenture Trustee.
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SECTION 9.06 SERVICER MAY OWN SECURITIES.
Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein. Securities so owned by
or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Securities; provided,
however, that any Securities owned by the Servicer or any Affiliate thereof,
during the time such Securities are owned by them, shall be without voting
rights for any purpose set forth in this Agreement. The Servicer shall notify
the Indenture Trustee promptly after it or any of its Affiliates becomes the
owner or pledgee of a Security.
ARTICLE X
DEFAULT
SECTION 10.01 EVENTS OF DEFAULT.
(a) In case one or more of the following Events of Default by the
Servicer shall occur and be continuing, that is to say:
(i) any failure by Servicer to deposit (A) into the Collection Account
in accordance with SECTION 5.01(B) any amount required to be deposited by
it under any Basic Document to which it is a party, which failure continues
unremedied for two days following the date on which such deposit was first
requested to be made or (B) the full amount of any Periodic Advance
required to be made on the day such Periodic Advances are required to be
made, which failure continues unremedied until 12:00 p.m. New York City
time on the Business Day following such day; or
(ii) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the material covenants or
agreements on the part of the Servicer, contained in any Basic Document to
which it is a party, which continues unremedied for a period of 30 days
(or, in the case of payment of insurance premiums, for a period of 15 days)
after the date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Servicer by any other party
hereto or to the Servicer (with copy to each other party hereto), by
Holders of 25% of the Percentage Interests (as defined in the Indenture) of
the Notes or the Certificates; or
(iii) any breach on the part of the Servicer of any representation or
warranty contained in any Basic Document to which it is a party that
materially and adversely affects the interests of any of the parties hereto
or any Securityholder and which continues unremedied for a period of 30
days after the date on which notice of such breach, requiring the same to
be remedied, shall have been given to the Servicer by any other party
hereto or to the Servicer (with copy to each other party hereto), by the
Initial Noteholder or Holders of 25% of the Percentage Interests of the
Notes or the Certificates; or
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(iv) there shall have been commenced before a court or agency or
supervisory authority having jurisdiction in the premises an involuntary
proceeding against the Servicer under any present or future federal or
state bankruptcy, insolvency or similar law for the appointment of a
conservator, receiver, liquidator, trustee or similar official in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of
its affairs, which action shall not have been dismissed for a period of 60
days; or
(v) the Servicer shall consent to the appointment of a conservator,
receiver, liquidator, trustee or similar official in any bankruptcy,
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings of or relating to it or of or relating to all or
substantially all of its property; or
(vi) the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of
any applicable bankruptcy, insolvency or reorganization statute, make an
assignment for the benefit of its creditors, voluntarily suspend payment of
its obligations, or take any corporate action in furtherance of the
foregoing; or
(vii) FFCA or any Subsidiary of FFCA shall incur any Debt such that
the ratio of Consolidated Income Available for Debt Service to Quarterly
Service Charge for the most recent fiscal quarter for which consolidated
financial statements of FFCA are available is less than 1.75 to 1.0 on a
pro forma basis after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom; or
(viii) the rating of the long-term, senior, unsecured debt obligations
of the Servicer is withdrawn by Moody's or S&P or is downgraded below Ba2,
by Moody's, or BB, by S&P.
(b) Then, and in each and every such case, so long as an Event of
Default shall not have been remedied, the Indenture Trustee or the Majority
Noteholders, by notice in writing to the Servicer may, in addition to whatever
rights such Person may have at law or in equity to damages, including injunctive
relief and specific performance, may terminate all the rights and obligations of
the Servicer under this Agreement and in and to the Loans and the proceeds
thereof, as servicer under this Agreement. Upon receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Loans or otherwise, shall, subject to SECTION 10.02
hereof, pass to and be vested in a successor servicer, and the successor
servicer is hereby authorized and empowered to execute and deliver, on behalf of
the Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, including, but
not limited to, the transfer and endorsement or assignment of the Loans and
related documents. The Servicer agrees to cooperate with the successor servicer
in effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the successor servicer
for administration by it of all amounts which shall at the time be credited by
the Servicer to each Collection Account or thereafter received with respect to
the Loans.
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(c) Immediately upon the occurrence hereunder or under the Indenture
of an Event of Default or a Default, the Loan Originator, shall, upon the
request of the Majority Noteholders provide to the Indenture Trustee and the
Initial Noteholder for each (i) Mortgage, (ii) power of attorney pursuant to
which a Mortgage was executed, (iii) assumption, modification, consolidation or
extension agreement relating to a Mortgage, (iv) Assignment of Mortgage, (v)
assignment of leases or rents, (vi) UCC-1 Financing Statement and UCC
continuation statement, (vii) Security Agreement and (viii) assumption,
modification, consolidation or extension agreement relating to a Security
Agreement with respect to which the Indenture Trustee's Loan File does not
contain the original, a certificate or certificates of (x) in the case of items
(i) and (ii) a Responsible Officer of the Loan Originator, the closing attorney
or an officer of the title insurer or agent of the title insurer that issued the
related Title Policy and (y) in the case of the remaining items, a Responsible
Officer of the Loan Originator, certifying that such copy is a true, correct and
complete copy of the related original, which original has not been returned from
the applicable public recording office.
SECTION 10.02 APPOINTMENT OF SUCCESSOR.
On and after the date the Servicer receives a notice of termination
pursuant to SECTION 10.01 hereof, or the Indenture Trustee receives the
resignation of the Servicer evidenced by an Opinion of Counsel or accompanied by
the consents required by SECTION 9.04 hereof, or the Servicer is removed as
servicer pursuant to this Article X or SECTION 4.01(F)(II), then, subject to
SECTION 4.07 hereof, the Majority Noteholders shall appoint a successor servicer
to be the successor in all respects to the Servicer in its capacity as Servicer
under this Agreement and the transactions set forth or provided for herein and
shall be subject to all the responsibilities, duties and liabilities relating
thereto placed on the Servicer by the terms and provisions hereof; provided,
however, that the successor servicer shall not be liable for any actions of any
servicer prior to it.
The successor servicer shall be obligated to make Servicing Advances
hereunder. As compensation therefor, the successor servicer appointed pursuant
to the following paragraph, shall be entitled to all funds relating to the Loans
which the Servicer would have been entitled to receive from the Collection
Account pursuant to SECTION 5.01(C) hereof as if the Servicer had continued to
act as servicer hereunder, together with other Servicing Compensation in the
form of assumption fees, late payment charges or otherwise as provided in
SECTION 7.03 hereof. The Servicer shall not be entitled to any termination fee
if it is terminated pursuant to SECTION 10.01 hereof but shall be entitled to
any accrued and unpaid Servicing Fee to the date of termination.
Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
successor servicer. The compensation of any successor servicer appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. The Indenture Trustee, the Issuer, any Custodian, the Servicer and any
such successor servicer shall take such action, consistent with this Agreement,
as shall be reasonably necessary to effect any such succession. Any costs or
expenses incurred by the Indenture Trustee in connection with the termination of
the Servicer and the succession of a successor servicer shall be an expense of
the outgoing Servicer and, to the extent not paid thereby, an expense of such
successor servicer. The Servicer agrees to cooperate with the Indenture Trustee
and any successor servicer in effecting the termination of the Servicer's
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servicing responsibilities and rights hereunder and shall promptly provide the
successor servicer all documents and records reasonably requested by it to
enable it to assume the Servicer's functions hereunder and shall promptly also
transfer to the successor servicer all amounts which then have been or should
have been deposited in any Trust Account maintained by the Servicer or which are
thereafter received with respect to the Loans. No successor servicer shall be
held liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until written notice of such proposed appointment
shall have been provided by the Indenture Trustee to the Initial Noteholder, the
Issuer and the Depositor and the Depositor, the Majority Noteholders and the
Issuer shall have consented in writing thereto.
In connection with such appointment and assumption, the Majority
Noteholder may make such arrangements for the compensation of such successor
servicer out of payments on the Loans as they and such successor servicer shall
agree.
SECTION 10.03 WAIVER OF DEFAULTS.
The Majority Noteholders may waive any events permitting removal of
the Servicer as servicer pursuant to this Article X; provided, however, that the
Majority Noteholders may not waive a default in making a required distribution
on a Note or Trust Certificate without the consent of the related Noteholder or
Certificateholder. Upon any waiver of a past default, such default shall cease
to exist and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived.
SECTION 10.04 ACCOUNTING UPON TERMINATION OF SERVICER.
Upon termination of the Servicer under this Article X, the Servicer
shall, at its own expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee the funds in any Trust Account maintained by
the Servicer;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee all Loan Files and related documents and
statements held by it hereunder and a Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee and to the Issuer and the Securityholders a
full accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for payments or
charges with respect to the Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Loans to its successor and to more fully and definitively vest
in such successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.
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ARTICLE XI
TERMINATION
SECTION 11.01 TERMINATION.
This Agreement shall terminate upon either: (a) the later of (i) the
satisfaction and discharge of the Indenture and the provisions thereof or (ii)
the disposition of all funds with respect to the last Loan and the remittance of
all funds due hereunder and the payment of all amounts due and payable
(including, without limitation, indemnification payments payable pursuant to any
Basic Document) to the Indenture Trustee, the Owner Trustee, the Issuer and the
Custodian, written notice of the occurrence of either of which shall be provided
to the Indenture Trustee by the Servicer; or (b) the mutual consent of the
Servicer, the Depositor, the Loan Originator and all Securityholders in writing
and delivered to the Indenture Trustee by the Servicer.
SECTION 11.02 OPTIONAL TERMINATION.
The Majority Certificateholders may, at their option, effect an early
termination of the Trust on any Payment Date on or after the Clean-up Call Date.
The Majority Certificateholders shall effect such early termination by providing
notice thereof to the Indenture Trustee and Owner Trustee and by purchasing all
of the Loans at a purchase price, payable in cash, equal to or greater than the
Termination Price. The expense of any Independent appraiser required under this
SECTION 11.02 shall be a nonreimbursable expense of the Majority
Certificateholders.
Any such early termination by the Majority Certificateholders shall be
accomplished by depositing into the Collection Account on the third Business Day
prior to the Payment Date on which the purchase is to occur the amount of the
Termination Price to be paid. The Termination Price and any amounts then on
deposit in the Collection Account (other than any amounts withdrawable pursuant
to SECTION 5.01(C)(1) hereof) shall be distributed by the Indenture Trustee
(except as may be otherwise provided in the Collection Account Letter Agreement)
pursuant to SECTION 5.01(C)(3) and Section 9.1 of the Trust Agreement on the
next succeeding Payment Date; and any amounts received with respect to the Loans
and Foreclosure Properties subsequent to the final Payment Date shall belong to
the purchaser thereof.
SECTION 11.03 NOTICE OF TERMINATION.
Notice of termination of this Agreement or of early redemption and
termination of the Trust shall be sent (i) by the Indenture Trustee to the
Noteholders in accordance with Section 10.02 of the Indenture and (ii) by the
Owner Trustee to the Certificateholders in accordance with Section 9.1(d) of the
Trust Agreement.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.01 ACTS OF NOTEHOLDERS.
Except as otherwise specifically provided herein, whenever action,
consent or approval of the Securityholders is required under this Agreement,
such action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Securityholders if the Majority
Securityholders agree to take such action or give such consent or approval.
SECTION 12.02 AMENDMENT.
(a) This Agreement may be amended from time to time by the Depositor,
the Servicer, the Loan Originator, the Indenture Trustee and the Issuer by
written agreement with notice thereof to the Securityholders, without the
consent of any of the Securityholders, to cure any error or ambiguity, to
correct or supplement any provisions hereof which may be defective or
inconsistent with any other provisions hereof or to add any other provisions
with respect to matters or questions arising under this Agreement; provided,
however, that such action will not adversely affect in any material respect the
interests of the Securityholders. An amendment described above shall be deemed
not to adversely affect in any material respect the interests of the
Securityholders if an Opinion of Counsel is obtained to such effect.
(b) This Agreement may also be amended from time to time by the
Depositor, the Servicer, the Loan Originator, the Indenture Trustee and the
Issuer by written agreement, with the prior written consent of the Majority
Noteholders, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement, or of modifying
in any manner the rights of the Securityholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Loans or distributions which are required to be made
on any Security, without the consent of the holders of 100% of the Notes, (ii)
adversely affect in any material respect the interests of any of the holders of
the Notes in any manner other than as described in clause (i), without the
consent of the holders of 100% of the Notes, or (iii) reduce the percentage of
the Notes, the consent of which is required for any such amendment, without the
consent of the holders of 100% of the Notes.
(c) It shall not be necessary for the consent of Securityholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer
and the Indenture Trustee shall be entitled to receive and rely upon an Opinion
of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement. The Issuer and the Indenture Trustee may, but shall
not be obligated to, enter into any such amendment which affects the Issuer's
own rights, duties or immunities of the Issuer or the Indenture Trustee, as the
case may be, under this Agreement.
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<PAGE>
SECTION 12.03 RECORDATION OF AGREEMENT.
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Loan
Collateral is situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer at the Noteholders'
expense on direction of the Majority Noteholders but only when accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Noteholders or is necessary for the
administration or servicing of the Loans.
SECTION 12.04 DURATION OF AGREEMENT.
This Agreement shall continue in existence and effect until terminated
as herein provided.
SECTION 12.05 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 12.06 NOTICES.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if (i) delivered personally, mailed
by overnight mail, certified mail or registered mail, postage prepaid, or (ii)
transmitted by telecopy, upon telephone confirmation of receipt thereof (with a
copy delivered by overnight courier), as follows: (I) in the case of the
Depositor, to FFCA Loan Warehouse Corporation, The Perimeter Center, 17207 North
Perimeter Drive, Scottsdale, Arizona 85255, Attention: Dennis L. Ruben, telecopy
number: (480) 585-2230, telephone number: (480) 585-4500 or such other addresses
or telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Depositor; (II)
in the case of the Issuer, to FFCA Franchise Loan Owner Trust 1998-1, c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, Attention: Corporate Trust Administration, telecopy
number: (302) 651-8882, telephone number: (302) 651-1000 or such other address
or telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Depositor; (III)
in the case of the Loan Originator, to FFCA Acquisition Corporation, The
Perimeter Center, 17207 North Perimeter Drive, Scottsdale, Arizona 85255, Dennis
L. Ruben, telecopy number: (480) 585-2230, telephone number: (480) 585-4500 or
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<PAGE>
such other addresses or telecopy or telephone numbers as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Loan Originator, (IV) in the case of the Servicer, to Franchise Finance
Corporation of America, The Perimeter Center, 17207 North Perimeter Drive,
Scottsdale, Arizona 85255, Attention: Dennis L. Ruben, telecopy number: (480)
585-2230, telephone number: (480) 585-4500 or such other addresses or telecopy
or telephone numbers as may hereafter be furnished to the Securityholders and
the other parties hereto in writing by the Servicer; (V) in the case of the
Indenture Trustee, to LaSalle Bank National Association, 135 South LaSalle
Street, Suite 1625, Chicago, Illinois 60603, Attention: Asset-Backed Securities
Trust Services Group, FFCA Franchise Loan Owner Trust 1998-1 telecopy number:
(312) 904-2084, telephone number: (312) 904-7830 or such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Indenture
Trustee; (VI) in the case of the Initial Noteholder, to Morgan Stanley
Securitization Funding Inc., 1585 Broadway, New York, New York 10036, Attention:
Peter Woroniecki, telecopy number: (212) 761-0710, telephone number: (212)
761-2063; and (VII) in the case of the Securityholders, as set forth in the Note
Register. Any such notices shall be deemed to be effective with respect to any
party hereto upon the receipt of such notice or telephone confirmation thereof
by such party, except; provided, that notices to the Securityholders shall be
effective upon mailing or personal delivery.
SECTION 12.07 SEVERABILITY OF PROVISIONS.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
SECTION 12.08 NO PARTNERSHIP.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.
SECTION 12.09 COUNTERPARTS.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
SECTION 12.10 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Loan Originator, the Depositor, the Indenture Trustee, the Issuer
and the Noteholders and their respective successors and permitted assigns.
SECTION 12.11 HEADINGS.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
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<PAGE>
SECTION 12.12 ACTIONS OF SECURITYHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Servicer or the Issuer. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Servicer and the Issuer if made in the manner provided in this
SECTION 12.12.
(b) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.
(d) The Depositor, the Servicer or the Issuer may require additional
proof of any matter referred to in this SECTION 12.12 as it shall deem
necessary.
SECTION 12.13 NON-PETITION AGREEMENT.
Notwithstanding any prior termination of any Basic Document, the Loan
Originator, the Servicer, the Depositor and the Indenture Trustee each severally
and not jointly covenants that it shall not, prior to the date which is one year
and one day after the payment in full of the all of the Notes, acquiesce,
petition or otherwise, directly or indirectly, invoke or cause the Trust or the
Depositor to invoke the process of any governmental authority for the purpose of
commencing or sustaining a case against the Trust or Depositor under any Federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Trust or Depositor or any substantial part of their respective property
or ordering the winding up or liquidation of the affairs of the Trust or the
Depositor.
SECTION 12.14 HOLDERS OF THE TRUST CERTIFICATES.
(a) Any sums to be distributed or otherwise paid hereunder or under
the Trust Agreement to the holders of the Trust Certificates shall be paid to
such holders pro rata based on their Percentage Interests (as defined in the
Trust Agreement);
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Trust Certificates, such consent or
approval shall be capable of being given by the holder or holders evidencing in
the aggregate not less than 51% of the Percentage Interests (as defined in the
Trust Agreement).
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<PAGE>
SECTION 12.15 FFCA TO GUARANTEE CERTAIN LOAN ORIGINATOR OBLIGATIONS.
(a) FFCA hereby unconditionally guarantees to the Indenture Trustee
and the Noteholders the due and punctual payment of all amounts payable by the
Loan Originator under Sections 2.3 and 3.1 of the Loan Purchase Agreement and
SECTIONS 2.05, 3.05 AND 3.07(A) hereof (collectively, the "GUARANTEED
OBLIGATIONS") when and as such obligations thereunder shall become due and
payable. In case of the inability of the Loan Originator to pay punctually any
such amounts, FFCA hereby agrees, upon written demand by the Indenture Trustee
or the Majority Noteholders, to pay or cause to be paid any such amounts
punctually when and as the same shall become due and payable (exclusive of any
grace period).
(b) FFCA hereby agrees that its obligations under this SECTION 12.15
constitute a guaranty of payment when due and not of collection.
(c) FFCA hereby agrees that its obligations under this SECTION 12.15
shall be unconditional, irrespective of the validity, regularity or
enforceability of any Basic Document to which the Loan Originator is a party
against the Loan Originator, the absence of any action to enforce the Loan
Originator's obligations under any Basic Document to which it is a party, any
waiver or consent by the Indenture Trustee or the Majority Noteholders with
respect to any of the Guaranteed Obligations or any other circumstance which
might otherwise constitute a legal or equitable discharge or defense of a FFCA
(other than the defenses of statute of limitations or payment (as such defenses
may apply to FFCA), which are not waived); PROVIDED, HOWEVER, that FFCA shall be
entitled to exercise any right that the Loan Originator could have exercised
under each Basic Document to which the Loan Originator is a party to cure any
default in respect of the Guaranteed Obligations.
(d) FFCA hereby waives (i) promptness, diligence, presentment, demand
of payment, protest, order and, except as set forth in paragraph (a) hereof,
notice of any kind in connection with each Basic Document to which the Loan
Originator is a party, or (ii) any requirement that the Indenture Trustee or the
Noteholders exhaust any right to take any action against the Loan Originator or
any other person prior to or contemporaneously with proceeding to exercise any
right against FFCA under this SECTION 12.15.
SECTION 12.16 REPORTS IN ELECTRONIC FORM.
Notwithstanding anything to the contrary in this Agreement, any report
required to be furnished by a party to this Agreement to the Initial Noteholder
may be furnished by magnetic tape or computer disk in a form mutually agreed to
by the Initial Noteholder and the party providing such information, provided
that such report is delivered timely in accordance with the terms herein.
SECTION 12.17 LIMITATION OF OWNER TRUSTEE LIABILITY.
It is expressly understood and agreed by the parties hereto that (a)
this Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally but solely as Trustee of FFCA Franchise Loan Owner
Trust 1998-1, in the exercise of the powers and authority conferred and vested
in it, (b) each of the representations, undertakings and agreements herein made
on the part of the Trust is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust Company but is made and intended
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<PAGE>
for the purpose for binding only the Trust, (c) nothing herein contained shall
be construed as creating any liability on Wilmington Trust Company, individually
or personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Trust or be liable for the breach
or failure of any obligation, representation, warranty or covenant made or
undertaken by the Trust under this Agreement or any other related documents.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Issuer, the Depositor, the Servicer, the Loan
Originator and the Indenture Trustee have caused their names to be signed by
their respective officers thereunto duly authorized, as of the day and year
first above written, to this Sale and Servicing Agreement.
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer
By: Wilmington Trust Company, not in
its individual capacity but solely
as Owner Trustee
By: /s/ Rosemary Pantano
-----------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
By: /s/ Dennis L. Ruben
-----------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
FFCA ACQUISITION CORPORATION
as Loan Originator
By: /s/ Dennis L. Ruben
-----------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
FRANCHISE FINANCE CORPORATION OF
AMERICA,
as Servicer
By: /s/ Dennis L. Ruben
-----------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
LASALLE BANK NATIONAL ASSOCIATION f/k/a
LASALLE NATIONAL BANK
as Indenture Trustee
By: /s/ Michael Evans
-----------------------------------
Name: Michael Evans
Title: First Vice President
<PAGE>
THE STATE OF ____________ )
)
COUNTY OF _______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this _____
day of ____________, _____ personally appeared _______________, known to me to
be a person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said WILMINGTON TRUST
COMPANY, a Delaware banking corporation, not in its individual capacity but in
its capacity as Owner Trustee of FFCA FRANCHISE LOAN OWNER TRUST 1998-1, a
Delaware business trust, as Issuer, and that such person executed the same as
the act of said business trust for the purpose and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF , this the ____ day of _______,
_____.
_______________________________________
Notary Public, State of _______________
My commission expires:
_________________________
<PAGE>
THE STATE OF ____________ )
)
COUNTY OF _______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this _____
day of ____________, _____ personally appeared Dennis L. Ruben, known to me to
be a person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said FFCA LOAN WAREHOUSE
CORPORATION, as the Depositor, and that he executed the same as the act of such
corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF , this the ____ day of _______,
_____.
_______________________________________
Notary Public, State of _______________
My commission expires:
_________________________
<PAGE>
THE STATE OF ____________ )
)
COUNTY OF _______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day of
____________, _____ personally appeared Dennis L. Ruben, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said FFCA ACQUISITION
CORPORATION, as the Loan Originator, and that he executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF FFCA ACQUISITION CORPORTATION, this
the ____ day of _______, _____.
_______________________________________
Notary Public, State of _______________
My commission expires:
_________________________
<PAGE>
THE STATE OF ____________ )
)
COUNTY OF _______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day of
____________, _____ personally appeared Dennis L. Ruben, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said FRANCHISE FINANCE
CORPORATION OF AMERICA, as the Servicer, and that he executed the same as the
act of such corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF FRANCHISE FINANCE CORPORATION OF
AMERICA, this the ____ day of _______, _____.
_______________________________________
Notary Public, State of _______________
My commission expires:
_________________________
<PAGE>
THE STATE OF ____________ )
)
COUNTY OF _______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day of
____________, _____ personally appeared Michael Evans, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said LASALLE BANK NATIONAL
ASSOCIATION f/k/a LASALLE NATIONAL BANK, as the Indenture Trustee, and that she
executed the same as the act of such entity for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF LASALLE BANK NATIONAL ASSOCIATION,
this the ____ day of _______, _____.
_______________________________________
Notary Public, State of _______________
My commission expires:
_________________________
<PAGE>
EXHIBIT A
FORM OF NOTICE OF ADDITIONAL NOTE PRINCIPAL BALANCE
[Letterhead of FFCA Loan Warehouse Corporation]
[Date]
FFCA Franchise Loan Owner Trust 1998-1
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
LaSalle Bank National Association
135 South LaSalle Street
Suite 1625
Chicago, Illinois 60603
Attention: Asset-Backed Securities Trust
Services Group, FFCA Franchise Loan
Owner Trust 1998-1
Re: FFCA FRANCHISE LOAN BACKED NOTES SERIES 1998-1
Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Sale and
Servicing Agreement, dated as of January 1, 2000 (the "SALE AND SERVICING
AGREEMENT"), among FFCA Franchise Loan Owner Trust 1998-1, FFCA Loan Warehouse
Corporation, as Depositor, FFCA Acquisition Corporation, as Loan Originator,
Franchise Finance Corporation of America, as Servicer and LaSalle Bank National
Association, as Indenture Trustee, hereinafter as such agreement may have been,
or may from time to time be, amended, supplemented or otherwise modified.
Capitalized terms not defined herein shall have the meanings assigned to such
terms in the Sale and Servicing Agreement.
The undersigned ________________, a duly appointed [Senior]
[Executive] [Vice President] [President] of FFCA Loan Warehouse Corporation,
acting in such capacity, hereby requests and advance of Additional Note
Principal Balance in an amount of $_____________, such amount to be advanced on
__________________, a Business Day at least two Business Days from the date
hereof for a [Loan] [Table-Funded Loan].
<PAGE>
Very truly yours,
FFCA LOAN WAREHOUSE CORPORATION
By:
------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT B
SERVICER'S REMITTANCE REPORT
1. FFCA Loan Number
2. Beginning Scheduled Principal Balance
3. Scheduled Principal Amount
4. Prepayment Penalty
5. Partial Prepayment Amount
6. Full Prepayment Amount
7. Prepayment Date
8. Prepayment Interest Shortfall Amount
9. Ending Scheduled Principal Balance
10. Current Index Rate
11. Current Gross Rate
12. Scheduled Interest Amount
13. Scheduled P&I Amount
14. Next Index Rate
15. Next Note Rate
16. Paid Thru Date
17. Recovered Delinquency Amount
18. Current P&I Advance Amount
19. Outstanding P&I Advance Amount
20. Property Protection Advance Amount
21. Amount
22. Foreclosure Date
23. Real Estate Owned Date
24. Real Estate Owned Book Value
25. Bankruptcy Date
26. Modification Date
27. Liquidation Proceeds
28. liquidation Expenses
29. Liquidation Date
30. Special Servicing Transfer Date
31. Net Operating Income
32. Net Operating Income Date
33. Unit-Level Fixed Charge Coverage
34. Unit-Level Fixed Charge Coverage Date
<PAGE>
EXHIBIT C
FORM OF S&SA ASSIGNMENT
ASSIGNMENT NO.____ OF LOANS ("S&SA ASSIGNMENT"), dated
____________________ (the "TRANSFER Date"), by FFCA LOAN WAREHOUSE CORPORATION
(the "DEPOSITOR") to FFCA FRANCHISE LOAN OWNER TRUST 1998-1 (the "Issuer")
pursuant to the Sale and Servicing Agreement referred to below.
WITNESSETH:
WHEREAS, the Depositor and the Issuer are parties to the Second
Amended and Restated Sale and Servicing Agreement, dated as of January 1, 2000
(the "SALE AND SERVICING AGREEMENT"), among the Issuer, the Depositor, FFCA
Acquisition Corporation, as Loan Originator, Franchise Finance Corporation of
America, as Servicer and LaSalle Bank National Association, as Indenture
Trustee, hereinafter as such agreement may have been, or may from time to time
be, amended, supplemented or otherwise modified;
WHEREAS, pursuant to the Sale and Servicing Agreement, the Depositor
wishes to sell, convey, transfer and assign Loans to the Issuer in exchange for
consideration consisting of cash, the Trust Certificates and other good and
valid consideration the receipt and sufficiency of which is hereby acknowledged;
and
WHEREAS, the Issuer is willing to acquire such Loans subject to the
terms and conditions hereof and of the Sale and Servicing Agreement;
NOW THEREFORE, the Depositor and the Issuer hereby agree as follows:
1. DEFINED TERMS. All capitalized terms defined in the Sale and
Servicing Agreement and used herein shall have such defined meanings when used
herein, unless otherwise defined herein.
2. DESIGNATION OF LOANS. The Depositor does hereby deliver herewith a
Loan Schedule containing a true and complete list of each Loan to be conveyed on
the Transfer Date. Such list is marked as Schedule A to this S&SA Assignment and
is hereby incorporated into and made a part of this S&SA Assignment.
3. CONVEYANCE OF LOANS. (a) The Depositor hereby transfers, assigns
and conveys to the Issuer, without recourse, all of the right, title and
interest of the Depositor in and to the Loans and all proceeds thereof listed on
the Loan Schedule attached hereto, including all interest and principal (i) for
each Loan having a Transfer Date from and including the first day of a calendar
month to and including the Business Day preceding a Payment Date, received on or
after the opening of business of the Transfer Cutoff Date and (ii) for each Loan
having a Transfer Date from and including a Payment Date to and including the
last day of a calendar month, due on the Loan after the close of business on the
Transfer Cutoff Date), in each case whether received by the Loan Originator, the
Depositor or the Servicer, together with all right, title and interest in and to
the proceeds of any related Insurance Policies and all of the Depositor's right,
title and interest in and to (but none of its obligations under) the Loan
Purchase Agreement and all proceeds of the foregoing.
<PAGE>
4. ISSUER ACKNOWLEDGES ASSIGNMENT. As of the Transfer Date, pursuant
to this S&SA Assignment and Section 2.01(a) of the Sale and Servicing Agreement,
the Issuer acknowledges its receipt of the Loans listed on the attached Loan
Schedule and all other related property.
5. ACCEPTANCE OF RIGHTS BUT NOT OBLIGATIONS. The foregoing sale,
transfer, assignment, set over and conveyance does not, and is not intended to,
result in a creation or an assumption by the Issuer of any obligation of the
Depositor, the Loan Originator or any other Person in connection with this S&SA
Assignment or under any agreement or instrument relating thereto except as
specifically set forth herein.
6. DEPOSITOR ACKNOWLEDGES RECEIPT OF CONSIDERATION. The Depositor
hereby acknowledges receipt of payment for the Loans and related property hereby
conveyed from funds deposited into the Advance Account.
[TO BE INSERTED WHEN APPLICABLE] [7. ASSIGNMENT OF CERTAIN SWAP
AGREEMENTS. The Depositor hereby sells, transfers and assigns all of its right
title and interest in to and under, its rights and obligations and the Issuer
does hereby accept and assume all of the Depositor's rights and obligations
under the following confirmation(s) issued under that certain master agreement
between the Depositor and Morgan Stanley Capital Services, Inc. [___] (the "SWAP
AGREEMENT").]
[7./8.] CONDITIONS PRECEDENT. The conditions precedent in Section
2.06(a) of the Sale and Servicing Agreement have been satisfied.
[8./9.] AMENDMENT OF THE SALE AND SERVICING AGREEMENT. The Sale and
Servicing Agreement is hereby amended by providing that all references to the
"Sale and Servicing Agreement", "this Agreement" and "herein" shall be deemed
from and after the Transfer Date to be a dual reference to the Sale and
Servicing Agreement as supplemented by this S&SA Assignment. Except as expressly
amended hereby, all of the representations, warranties, terms, covenants and
conditions of the Sale and Servicing Agreement shall remain unamended and the
Sale and Servicing Agreement shall continue to be, and shall remain, in full
force and effect in accordance with its terms and except as expressly provided
herein, this S&SA Assignment shall not constitute or be deemed to constitute a
waiver of compliance with or consent to noncompliance with any term or provision
of the Sale and Servicing Agreement.
[9./10.] COUNTERPARTS. This S&SA Assignment may be executed in any
number of counterparts all of which taken together shall constitute one and the
same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this S&SA Assignment
to be duly executed and delivered by their respective duly authorized officers
on the day and year first above written.
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
By:
------------------------------------
Name:
Title:
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer
By: Wilmington Trust Company, not in its
individual capacity but solely as
Owner Trustee
By:
------------------------------------
Name
Title:
<PAGE>
SCHEDULE A
[LOAN SCHEDULE]
<PAGE>
EXHIBIT D
LIST OF REFERENCED DOCUMENTS
1. Financial Statements of FFCA.
2. Loan delinquency history reports.
3. Default/Loss history reports.
4. Underwriting Guidelines.
5. Index of Form Documents:
(a) Loan Agreement;
(b) Promissory Note;
(c) Deed of Trust;
(d) Mortgage;
(e) Guaranty - Multi Guarantors;
(f) Guaranty - Single Guarantors;
(g) Environmental Indemnity Agreement;
(h) Underlying Borrower's Legal Opinion; and
(i) Form of Estoppel.
6. Environmental Policy entitled "Secured Creditor - Secured Creditor Impaired
Property Policy."
7. Servicing Procedures & Policy Manual.
8. Hedging Procedures & Policy Manual.
9. Geographic Information Systems Procedures & Policy Booklet.
10. Asset Management Presentation dated January 27, 1998.
11. List of FFCA Approved Concepts/Brands.
12. FFCA written research reports on Approved Concepts/Brands.
13. Example of FFCA regression model entitled; "Burger King Regression Model."
All of such Referenced Documents are attached hereto.
<PAGE>
EXHIBIT E
BAILEE AGREEMENT
[ DATE ]
[NAME OF BAILEE]
[ADDRESS OF BAILEE]
Attention: ______________________
Re: Bailee Agreement (the "BAILEE AGREEMENT") in connection with
the sale of certain Loans by FFCA Acquisition Corporation (the "LOAN
ORIGINATOR") to FFCA Loan Warehouse Corporation (the "DEPOSITOR") and
by the Depositor to FFCA Franchise Loan Owner Trust 1998-1 (the
"ISSUER") and the pledge by Issuer of such Loans to LaSalle Bank
National Association, as indenture trustee (the "INDENTURE TRUSTEE").
Gentlemen and Mesdames:
In consideration of the mutual promises set forth herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Loan Originator, Morgan Stanley Securitization Funding Inc.
(the "INITIAL NOTEHOLDER") and ________________________ (the "BAILEE") hereby
agree as follows:
1. The Loan Originator shall deliver to the Bailee and Settlement
Agent in connection with any loans delivered to the Bailee hereunder (each, a
"LOAN") an Identification Certificate in the form of ATTACHMENT A attached
hereto to which shall be attached a Loan Schedule and Exception Report
identifying which Loans are being delivered to the Bailee hereunder. Such Loan
Schedule shall contain the following fields of information: (i) the Loan
Originator's internal loan identifying number; (ii) the Borrower's name as it
appears on the related Promissory Note; (iii) the name of the Borrower group (to
be input consistently for purposes of computing the Individual Borrower
Concentration); (iv) in the case of a Mortgage Loan, the street address, city,
state and zip code of the Mortgaged Property; (v) the original Principal
Balance; (vi) the Transfer Cutoff Date Principal Balance; (vii) the Loan
Interest Rate at origination; (viii) the date of origination; (ix) the industry
segment (e.g., CD Facility, C&G Store, QSR Store); (x) the type of Loan (e.g.,
Mortgage, Equipment); (xi) the Monthly Payment as of such Transfer Cutoff Date;
(xii) the scheduled maturity date under the Promissory Note; (xiii) the
Corporate Fixed Charge Coverage Ratio; (xiv) with respect to the Unit-Level
Fixed Charge Coverage Ratio, a flag indicating whether such figure is a
calculation of the Unit-Level Fixed Charge Coverage Ratio with respect to the
single unit or in the aggregate; (xv) the Brand; (xvi) a Prepayment Code; (xvii)
a Product Code with respect to such Loan; (xviii) if such Loan is an Adjustable
Rate Loan, the interest rate spread over LIBOR; (xix) in the case of a Mortgage
Loan, the loan to replacement cost ratio for the related Mortgaged Property (if
obtained); (xx) the Maximum Advance Factor, to the extent changed by written
agreement between the Servicer and the Majority Noteholders in their sole
discretion; (xxi) a code indicating whether the Loan is a Table-Funded Loan; and
(xxii) such other information as may be reasonably requested by the Majority
Noteholders.
<PAGE>
2. On or prior to the "TRANSFER DATE" indicated on the Identification
Certificate delivered by the Loan Originator, the Loan Originator shall have
caused to be delivered to the Bailee, as bailee for hire, the following original
documents (collectively, the "INDENTURE TRUSTEE'S LOAN FILE") for each Loan
listed in EXHIBIT 1 to such Identification Certificate:
(i) With respect to each Mortgage Loan:
(a) The original Promissory Note, endorsed by the Loan Originator in
blank in the following form: "Pay to the order of ______________________,
without recourse", with all prior and intervening endorsements showing a
complete chain of endorsement from origination of the Mortgage Loan to the
Loan Originator;
(b) The original Mortgage with evidence of recording thereon (or, if
the original Mortgage has not been returned from the applicable public
recording office or is not otherwise available, a copy of the original
Mortgage submitted for recording) and, if the Mortgage was executed
pursuant to a power of attorney, the original power of attorney with
evidence of recording thereon (or, if the original power of attorney has
not been returned from the applicable public recording office or is not
otherwise available, a copy of the original power of attorney submitted for
recording);
(c) The original executed Assignment of Mortgage, in recordable form.
The Assignment of Mortgage may be a blanket assignment, to the extent such
assignment is effective under applicable law, for Mortgages covering
Mortgaged Properties situated within the same county. If the Assignment of
Mortgage is in blanket form, an Assignment of Mortgage need not be included
in the individual Indenture Trustee's Loan File;
(d) All original intervening assignments of mortgage, with evidence of
recording thereon, showing a complete chain of assignment from origination
of the Mortgage Loan to the Loan Originator (or, if any such assignment of
mortgage has not been returned from the applicable public recording office
or is not otherwise available, a copy of such assignment of mortgage
submitted for recording);
(e) The original of the guaranty (if any) executed in connection with
the Promissory Note or related lease;
(f) The originals of all assumption, modification, consolidation or
extension agreements relating to the Mortgage with evidence of recording
thereon, (or, if the originals have not been returned from the applicable
public recording office or are not otherwise available, a copy of such
originals submitted for recording);
(g) The original attorney's opinion of title and abstract of title or
the original mortgagee title insurance policy, or if the original mortgagee
title insurance policy has not been issued, the irrevocable commitment to
issue the same;
-2-
<PAGE>
(h) The original of any security agreement, chattel mortgage or
equivalent document executed in connection with the Mortgage Loan;
(i) The original assignment of leases and rents, if separate from the
related Mortgage, with evidence of recording thereon, or a copy of the
original that has been or will, on or prior to the related Transfer Date be
submitted for recordation in the appropriate governmental recording office
of the jurisdiction where the Mortgaged Property is located;
(j) The original assignment of assignment of leases and rents, if the
assignment of leases and rents is separate from the related Mortgage, from
the Loan Originator in blank, in form and substance acceptable for
recording;
(k) A copy of the UCC-1 Financing Statements and all necessary UCC
continuation statements with evidence of filing and/or recording thereon or
copies thereof that have been sent for filing and/or recording on or
promptly after closing, and UCC Assignments executed by the Loan Originator
in blank, which UCC Assignments shall be in form and substance acceptable
for filing and/or recording;
(l) An environmental indemnity agreement (if any);
(m) An Assignment of Loan Documents; and
(n) the original Loan Agreement.
(ii) With respect to each Equipment Loan:
(a) The original Promissory Note, endorsed by the Loan Originator in
blank in the following form: "Pay to the order of ______________________,
without recourse", with all prior and intervening endorsements showing a
complete chain of endorsement from origination of the Loan to the Loan
Originator;
(b) The original Security Agreement and, if the Security Agreement was
executed pursuant to a power of attorney, the original power of attorney;
(c) The original Loan Agreement, to the extent not encompassed in the
Loan Agreement with respect to the related Mortgage Loan;
(d) The original of the guaranty (if any) executed in connection with
the Promissory Note or related lease;
(e) The originals of all assumption, modification, consolidation or
extension agreements relating to the Security Agreement, or true and
correct copies thereof;
(f) A true and correct copy of the UCC-1 Financing Statements and all
necessary UCC continuation statements with evidence of filing and/or
recording thereon or true copies thereof that have been sent for filing
and/or recording on or promptly after closing, and UCC Assignments executed
by the Loan Originator in blank, which UCC Assignments shall be in form and
substance acceptable for filing and/or recording; and
-3-
<PAGE>
(g) An Assignment of Loan Documents.
3. The Bailee shall issue and deliver to the Indenture Trustee and the
Custodian, prior to 2:00 p.m. New York City time on the Transfer Date by
facsimile, (i) a Bailee Trust Receipt in the form of ATTACHMENT B attached
hereto (the "TRUST RECEIPT") which Trust Receipt shall state that the Bailee has
received the documents comprising each Indenture Trustee's Loan File for each
Loan listed on the related Loan Schedule, except for such documents listed on
the Loan Schedule and Exception Report attached thereto (with a copy to the
Initial Noteholder via facsimile) and (ii) a copy of the executed documents
listed in Paragraph 2(i)(a) or Paragraph 2(ii)(a).
For purposes of this Bailee Agreement:
(a) the "LOAN SCHEDULE AND EXCEPTION REPORT" shall mean a list,
reflecting the Loans held by the Bailee for the benefit of the Indenture
Trustee, which includes codes indicating any Exceptions with respect to
each Loan listed thereon, to be delivered by the Bailee to the Initial
Noteholder and the Indenture Trustee on the Transfer Date. Each Loan
Schedule and Exception Report shall set forth (a) the Loans being pledged
to the Indenture Trustee on the related Transfer Date as well as the Loans
previously pledged to the Indenture Trustee (if any) and held by the Bailee
under this Bailee Agreement, and (b) all Exceptions with respect thereto,
with any updates thereto from the time such Loan Schedule and Exception
Report was last delivered; and
(b) an "EXCEPTION" shall mean, with respect to any Loan, any of the
following: (i) the variances from the requirements of Section 2 hereof with
respect to the Indenture Trustee's Loan Files (giving effect to the Loan
Originator's right to deliver certified copies in lieu of original
documents in certain circumstances), and (ii) any Loan with respect to
which the Bailee receives written notice or has actual knowledge of a lien
or security interest in favor of a person other than the Indenture Trustee
with respect to such Loan.
4. On the applicable Transfer Date, in the event that the Initial
Noteholder fails to purchase Notes secured by the Loans identified in the
related Identification Certificate, the Loan Originator shall deliver by 5:30
p.m., New York time, by facsimile to the Bailee, at ( ) ____-______ to the
attention of ______________, an authorization (the "FACSIMILE AUTHORIZATION")
acknowledged by the Initial Noteholder to release the Indenture Trustee's Loan
Files with respect to the Loans identified therein to the Loan Originator. Upon
receipt of such Facsimile Authorization, the Bailee shall release the Indenture
Trustee's Loan Files to the Loan Originator in accordance with the Loan
Originator's instructions.
5. On or after the Transfer Date, the Bailee shall forward the
Indenture Trustee's Loan Files to (i) LaSalle Bank National Association, 135
South LaSalle Street, Chicago, Illinois 60603, Attention: Asset-Backed
Securities Trust Services Group, FFCA Franchise Loan Owner Trust 1998-1 (the
"CUSTODIAN") by overnight courier for receipt by the Custodian or (ii) the Loan
-4-
<PAGE>
Originator with respect to Loans for which the Bailee received a Facsimile
Authorization, in each case for receipt no later than three (3) Business Days
following the applicable Transfer Date (the "DELIVERY DATE").
6. From and after the applicable Transfer Date until the time of
receipt of the Facsimile Authorization by the Bailee or receipt of the Indenture
Trustee's Loan File by the Custodian, the Bailee (a) shall maintain continuous
custody and control of the related Indenture Trustee's Loan Files as bailee for
the Indenture Trustee and (b) is holding the related Loans as sole and exclusive
bailee for the Indenture Trustee unless and until otherwise instructed in
writing by the Indenture Trustee.
7. The Loan Originator agrees to indemnify and hold the Bailee and its
directors, officers, agents and employees harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including
reasonable attorney's fees, that may be imposed on, incurred by, or asserted
against it or them in any way relating to or arising out of this Bailee
Agreement or any action taken or not taken by it or them hereunder. The
foregoing indemnification shall survive any resignation or removal of the Bailee
or the termination or assignment of this Bailee Agreement.
8. (a) In the event that the Bailee fails to deliver a Promissory
Note, Assignment of Mortgage or any other document related to a Loan that was in
its possession (a "CUSTODIAL DELIVERY FAILURE"), and PROVIDED that the Bailee
previously delivered to the Indenture Trustee a Trust Receipt which did not list
such document as an Exception on the Transfer Date, the Bailee shall indemnify
the Indenture Trustee or Loan Originator in accordance with the succeeding
paragraph of this Section 8.
(b) The Bailee agrees to indemnify and hold the Loan Originator,
and its respective affiliates and designees, the Indenture Trustee, its
affiliates and the directors, officers, employees and agents of the Indenture
Trustee and its affiliates, harmless against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever, including reasonable
attorney's fees, that may be imposed on, incurred by, or asserted against it or
them in any way relating to or arising out of the Bailee's negligence, lack of
good faith or willful misconduct which results in a failure to perform its
obligations under this Agreement or Bailee's Custodial Delivery Failure. The
foregoing indemnification shall survive any termination or assignment of this
Bailee Agreement.
9. The Bailee hereby represents, warrants and covenants that the
Bailee is not an affiliate of or otherwise controlled by the Loan Originator or
its Affiliates.
10. The agreement set forth in this Bailee Agreement letter may not be
modified, amended or altered, except by written instrument, executed by all of
the parties hereto.
11. This Bailee Agreement may not be assigned by the Loan Originator
or the Bailee without the prior written consent of the Initial Noteholder.
-5-
<PAGE>
12. For the purpose of facilitating the execution of this Bailee
Agreement letter as herein provided and for other purposes, this Bailee
Agreement letter may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute and be one and the same instrument.
13. Capitalized words used and not otherwise defined herein have the
meanings assigned to them in the Sale and Servicing Agreement.
14. THIS BAILEE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAWS PROVISIONS
THEREOF, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL
BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Very truly yours,
FFCA ACQUISITION CORPORATION,
as Loan Originator
By:
------------------------------------
Name:
Title:
MORGAN STANLEY SECURITIZATION
FUNDING INC.,
as Initial Noteholder
By:
------------------------------------
Name:
Title:
[NAME OF BAILEE]
Bailee
By:
------------------------------------
Name:
Title:
-6-
<PAGE>
ATTACHMENT A
IDENTIFICATION CERTIFICATE
On this _____ day of ____ __, 20__ (the "TRANSFER DATE"), FFCA
Acquisition Corporation (the "LOAN ORIGINATOR"), under that certain Bailee
Agreement, dated as of ____ __, 20__ (the "BAILEE AGREEMENT"), among the Loan
Originator, ________________ (the "BAILEE") and Morgan Stanley Securitization
Funding Inc. (the "INITIAL NOTEHOLDER"), does hereby instruct the Bailee to
hold, in its capacity as Bailee, the Indenture Trustee's Loan Files with respect
to the Loans listed on EXHIBIT 1 hereto, which Loans shall be subject to the
terms of the Bailee Agreement as of the date hereof.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Bailee Agreement.
IN WITNESS WHEREOF, the Loan Originator has caused this Identification
Certificate to be executed and delivered by its duly authorized officer as of
the day and year first above written.
FFCA ACQUISITION CORPORATION,
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 1 TO ATTACHMENT A
LOAN SCHEDULE
<PAGE>
ATTACHMENT B
BAILEE TRUST RECEIPT AND CERTIFICATION
____ __, 20__
LaSalle Bank National Association, as Custodian
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Asset-Backed Securities Trust Services Group
FFCA Franchise Loan Owner Trust 1998-1
Re: Bailee Letter, dated as of _____, 20__ (the "BAILEE AGREEMENT") among
FFCA Acquisition Corporation, Morgan Stanley Securitization Funding
Inc. and _______________ (the "BAILEE")
Gentlemen and Mesdames:
In accordance with the provisions of Paragraph 3 of the
above-referenced Bailee Agreement, the undersigned, as the Bailee, hereby
certifies that as to each loan described in the "LOAN SCHEDULE" (Exhibit 1), a
copy of which is attached hereto, it has reviewed the Indenture Trustee's Loan
File and has determined that (subject to the exceptions listed in the Loan
Schedule and Exception Report attached hereto) (i) all documents are in its
possession and (ii) such documents have been reviewed by it and appear regular
on their face and relate to such loan, and based on such review, the foregoing
documents on their face satisfy the requirements set forth in Paragraph 2 of the
Bailee Agreement.
Subject to the Bailee Agreement, the Bailee hereby confirms that it is
holding each such Indenture Trustee's Loan File as agent and bailee for the
exclusive use and benefit of the Indenture Trustee pursuant to the terms of the
Bailee Agreement.
All initially capitalized terms used herein shall have the meanings
ascribed to them in the above-referenced Bailee Agreement.
----------------------------------------
BAILEE
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 1 TO ATTACHMENT B
LOAN SCHEDULE
<PAGE>
EXHIBIT F
FORM OF ESCROW INSTRUCTIONS
[SETTLEMENT AGENT]
- --------------------------
- --------------------------
Re: Escrow Instructions for funds held for origination of Table-Funded
Loans
Ladies and Gentlemen:
In connection with the administration of the funds held by you for the
origination of Table-Funded Loans [NAME OF SETTLEMENT AGENT], as Settlement
Agent, is hereby notified and instructed to act in accordance with the escrow
instructions provided below.
Capitalized terms not otherwise defined herein are defined in that
certain Second Amended and Restated Sale and Servicing Agreement, dated as of
January 1, 2000 by and among FFCA FRANCHISE LOAN OWNER TRUST 1998-1, FFCA LOAN
WAREHOUSE CORPORATION, as depositor (the "DEPOSITOR"), FFCA ACQUISITION
CORPORATION, as loan originator (the "LOAN ORIGINATOR"), FRANCHISE FINANCE
CORPORATION OF AMERICA, as servicer (the "SERVICER"), and LASALLE BANK NATIONAL
ASSOCIATION, as indenture trustee on behalf of the Noteholders (the "INDENTURE
TRUSTEE"), hereinafter as such agreement may have been, or may from time to time
be, amended, supplemented or otherwise modified.
ESCROW INSTRUCTIONS:
1. The funds to be used for closing this transaction, as described in
the Wire Instructions on Attachment A hereto, may be provided via wire transfer
from Morgan Stanley Securitization Funding Inc. (the "INITIAL NOTEHOLDER"). You
are to hold the closing funds provided by the Initial Noteholder in trust for
the benefit of the Initial Noteholder until such time as the funds are disbursed
in accordance with these escrow instructions, upon receiving (i) an
Identification Certificate from the Loan Originator (in the form of Attachment B
hereto) and (ii) a written authorization from the Initial Noteholder via
facsimile, in the form of Attachment A hereto, authorizing such disbursement.
2. If the mortgage loan is not funded by the close of business on the
originally scheduled Transfer Date on which you receive the closing funds, you
are to return the closing funds provided by the Initial Noteholder via federal
funds wire transfer to the Initial Noteholder as follows [INSERT WIRE TRANSFER
INSTRUCTIONS], no later than 5:30 p.m., New York City time, on the originally
scheduled Transfer Date.
3. The Settlement Agent shall not be liable hereunder except for its
own negligence or willful misconduct and the Loan Originator agrees to indemnify
the Settlement Agent for and hold it harmless as to any loss, liability, or
expense, including attorney fees, incurred without negligence or willful
misconduct on the part of the Settlement Agent and arising out of or in
connection with the Settlement Agent's duties under this Agreement.
<PAGE>
These instructions shall be irrevocable and can only be modified with
the approval in writing of the Initial Noteholder, as directed by the Initial
Noteholder.
NOTE: BY ACCEPTING THE FUNDS DELIVERED TO YOU, YOU CONSENT TO BE THE
SETTLEMENT AGENT AND BAILEE FOR THE INITIAL NOTEHOLDER ON THE TERMS DESCRIBED IN
THIS LETTER AND THAT THE INITIAL NOTEHOLDER IS AN INTENDED THIRD PARTY
BENEFICIARY HEREOF. THE INITIAL NOTEHOLDER REQUESTS THAT YOU ACKNOWLEDGE RECEIPT
OF THE FUNDS AND THIS LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF THIS
LETTER TO THE INITIAL NOTEHOLDER; HOWEVER, YOUR FAILURE TO DO SO DOES NOT
NULLIFY SUCH CONSENT.
Very truly yours,
FFCA ACQUISITION CORPORATION
as Loan Originator
By:
------------------------------------
Name:
Title:
Address for notices:
Address:____________________________
City, state, zip____________________
Attention:__________________________
Facsimile No. ______________________
Telephone No. ______________________
-2-
<PAGE>
ACKNOWLEDGED AND AGREED
[NAME OF SETTLEMENT AGENT]
By:_____________________________
Print Name:_____________________
Title:__________________________
Date:___________________________
Address for notices:
Address:________________________
City, state, zip________________
Attention:______________________
Facsimile No. __________________
Telephone No. __________________
<PAGE>
ATTACHMENT A TO THE ESCROW INSTRUCTIONS
WIRE INSTRUCTIONS
FUNDS TO BE RECEIVED BY SETTLEMENT AGENT
Funds provided by Initial Noteholder: ________________
Funds provided by Loan Originator: ________________
Funds provided by ____________: ________________
Total funds received by Settlement Agent ________________
FUNDS TO BE DISBURSED BY SETTLEMENT AGENT
Amount: ________________________
Receiving Bank: ________________________
Bank ABA Number: ________________________
Beneficiary: ________________________
Account Number: ________________________
Reference: ________________________
Escrow Officer: ________________________
Escrow Number: ________________________
ACKNOWLEDGED AND AGREED
INITIAL NOTEHOLDER
By:_____________________________
Print Name:_____________________
Title:__________________________
Date:___________________________
Facsimile No. __________________
Telephone No. __________________
<PAGE>
ATTACHMENT B TO THE ESCROW INSTRUCTIONS
IDENTIFICATION CERTIFICATE
On this _____ day of ____ __, 20__ (the "TRANSFER DATE"), FFCA
Acquisition Corporation (the "LOAN ORIGINATOR"), under that certain Bailee
Agreement, dated as of ____ __, 20__ (the "BAILEE AGREEMENT"), among the Loan
Originator, ________________ (the "BAILEE") and Morgan Stanley Securitization
Funding Inc. (the "INITIAL NOTEHOLDER"), does hereby instruct the Bailee to
hold, in its capacity as Bailee, the Indenture Trustee's Loan Files with respect
to the Loans listed on EXHIBIT 1 hereto, which Loans shall be subject to the
terms of the Bailee Agreement as of the date hereof.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Bailee Agreement.
IN WITNESS WHEREOF, the Loan Originator has caused this Identification
Certificate to be executed and delivered by its duly authorized officer as of
the day and year first above written.
FFCA ACQUISITION CORPORATION,
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 1 TO ATTACHMENT B
LOAN SCHEDULE
<PAGE>
EXHIBIT G
FORM OF LOAN ORIGINATOR PUT NOTICE
[Date]
FFCA Acquisition Corporation
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
Attention: Dennis L. Ruben
Re: FFCA FRANCHISE LOAN BACKED NOTES SERIES 1998-1
Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Sale and
Servicing Agreement, dated as of January 1, 2000 (the "SALE AND SERVICING
AGREEMENT"), by and among FFCA Franchise Loan Owner Trust 1998-1, FFCA Loan
Warehouse Corporation, as Depositor, FFCA Acquisition Corporation, as Loan
Originator, Franchise Finance Corporation of America, as Servicer and LaSalle
Bank National Association, as Indenture Trustee, hereinafter as such agreement
may have been, or may from time to time be, amended, supplemented or otherwise
modified. Capitalized terms not defined herein shall have the meanings assigned
to such terms in the Sale and Servicing Agreement.
Pursuant to Section 3.07(a) of the Sale and Servicing Agreement, we
demand that you repurchase the following Loan listed below on [specify date] for
the following reason:
______ The Loan has become 30 or more days Delinquent
______ The Loan is a Defaulted Loan
______ The Loan has been in default for a period of 30 days or more
______ The Loan has been determined to be ineligible for a Securitization
by mutual agreement of the Majority Noteholders and the Servicer.
______ The Loan is a Mortgage Loan with respect to which the Loan
Originator did not enforce a due-on-sale or due-on-encumbrance
clause pursuant to Section 7.01 of the Sale and Servicing Agreement.
_________________________________ $_________________________________
LOAN NAME PURCHASE PRICE
<PAGE>
Very truly yours,
By:
------------------------------------
Name:
Title:
On behalf of the Majority Noteholders
WITH A COPY TO:
LaSalle Bank National Association
135 South LaSalle Street
Suite 1625
Chicago, Illinois 60603
Attention: Asset-Backed Securities Trust Services Group
FFCA Franchise Loan Owner Trust 1998-1
-2-
<PAGE>
EXHIBIT H
FORM OF SERVICER CALL NOTICE
[Date]
LaSalle Bank National Association
135 South LaSalle Street
Suite 1625
Chicago, Illinois 60603
Attention: Asset-Backed Securities Trust Services Group
FFCA Franchise Loan Owner Trust 1998-1
Re: FFCA Franchise Loan Backed Notes Series 1998-1
Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Sale and
Servicing Agreement, dated as of January 1, 2000 (the "SALE AND SERVICING
AGREEMENT"), by and among FFCA Franchise Loan Owner Trust 1998-1, FFCA Loan
Warehouse Corporation, as Depositor, FFCA Acquisition Corporation, as Loan
Originator, Franchise Finance Corporation of America, as Servicer and LaSalle
Bank National Association, as Indenture Trustee, hereinafter as such agreement
may have been, or may from time to time be, amended, supplemented or otherwise
modified. Capitalized terms not defined herein shall have the meanings assigned
to such terms in the Sale and Servicing Agreement.
Pursuant to Section 3.07(b) of the Sale and Servicing Agreement, we
are notifying you that we will repurchase the following Loan listed below on
[specify date] for the following reason:
______ The Loan has become 30 or more days Delinquent
______ The Loan is a Defaulted Loan
______ The Loan has been in default for a period of 30 days or more
______ The Loan has been determined to be ineligible for a Securitization
by mutual agreement of the Majority Noteholders and the Servicer.
______ The Loan is a Mortgage Loan with respect to which the Loan
Originator did not enforce a due-on-sale or due-on-encumbrance
clause pursuant to Section 7.01 of the Sale and Servicing Agreement.
_________________________________ $_________________________________
LOAN NAME PURCHASE PRICE
<PAGE>
Very truly yours,
FRANCHISE FINANCE CORPORATION OF AMERICA
By:
------------------------------------
Name:
Title:
With a copy to the Majority Noteholders
to the Attention of:
MSSFI
1585 Broadway
New York, New York 10036
Attention: Peter Woroniecki
- --------------------------------------------------------------------------------
AMENDMENT NO. 1
dated as of March 18, 1999
to the
LOAN PURCHASE AGREEMENT,
between
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
FFCA ACQUISITION CORPORATION,
as Loan Originator,
Dated as of August 14, 1998
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 1
TO THE
LOAN PURCHASE AGREEMENT
dated as of March 18, 1999
AMENDMENT NO. 1 TO THE LOAN PURCHASE AGREEMENT, dated as of March 18, 1999
("AMENDMENT NO. 1") to that certain Loan Purchase Agreement, dated as of August
14, 1998 (the "LOAN PURCHASE AGREEMENT") among FFCA Loan Warehouse Corporation
(the "DEPOSITOR") and FFCA Acquisition Corporation (the "LOAN ORIGINATOR"),
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into that certain Loan Purchase
Agreement, whereby the Loan Originator agrees to sell all its right, title and
interest in and to the certain Loans and the related Loan Documents to
Depositor;
WHEREAS the parties wish to amend the Loan Purchase Agreement; and
WHEREAS, Section 7.1 provides the Loan Purchase Agreement may be amended in
writing by the parties hereto with the prior written consent of the Majority
Noteholders;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions. Unless otherwise defined herein, all capitalized terms
shall have the meaning set forth in the Loan Purchase Agreement thereto.
2. Amendment to Loan Purchase Agreement.
(a) Section 2.1 is hereby amended by deleting the current Subsection 2.1(c)
(without deleting clauses (i) through (xiii)) and replacing such subsection with
the following:
On each Transfer Date, the Loan Originator shall convey to the
Depositor the Loans and the other property and rights related thereto
described in the related LPA Assignment, the Depositor shall cause the
deposit of cash in the amount of the Sale Price in the Advance Account, and
the Servicer shall, promptly after such deposit, withdraw the Sale Price
deposited in respect of applicable Additional Note Principal Balance from
the Advance Account, and distribute such amount to or at the direction of
the Loan Originator, provided that in the case of Table-Funded Loans, the
Initial Noteholder (acting pursuant to the instructions of the Loan
2
<PAGE>
Originator which are hereby given) shall disburse the related amount in
respect of the Sale Price to the Settlement Agent for release in accordance
with the related Escrow Instructions, as applicable, only upon the
satisfaction of each of the following conditions on or prior to such
Transfer Date:
(b) Section 2.1 is hereby amended by deleting the word "and" before clause
(xiii) of Subsection 2.1(c) and adding the following at the end of such clause
(xiii):
; and (xiv) if any Loan sold on the Transfer Date is a Table-Funded
Loan, the Loan Originator shall have provided the Initial Noteholder,
Depositor, Issuer, Settlement Agent and Custodian with a copy of any
related Bailee Agreement, Bailee Trust Receipt and Escrow Instructions.
3. FULL FORCE AND EFFECT. Except as modified by this Amendment No. 1, the
Loan Purchase Agreement shall otherwise remain in full force and effect against
any and all of the parties thereunder.
4. GOVERNING LAW. This Amendment No. 1 shall be governed by, and construed
in accordance with, the laws of the State of New York, without reference to its
conflicts of laws provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance therewith.
5. COUNTERPARTS. This Amendment No. 1 may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.
3
<PAGE>
IN WITNESS WHEREOF the parties have executed this Amendment No. 1 as of the
date first above written.
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
By: /s/ Dennis L. Ruben
------------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
FFCA ACQUISITION CORPORATION,
as Loan Originator
By: /s/ Dennis L. Ruben
------------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
================================================================================
AMENDMENT NO. 2
dated as of January 1, 2000
to the
LOAN PURCHASE AGREEMENT,
between
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
and
FFCA ACQUISITION CORPORATION,
as Loan Originator,
Dated as of August 14, 1998
================================================================================
<PAGE>
AMENDMENT NO. 2
TO THE
LOAN PURCHASE AGREEMENT
AMENDMENT NO. 2 TO THE LOAN PURCHASE AGREEMENT, dated as of January 1, 2000
("AMENDMENT NO. 2") to that certain Loan Purchase Agreement, dated as of August
14, 1998 (the "LOAN PURCHASE AGREEMENT") between FFCA Loan Warehouse Corporation
(the "DEPOSITOR") and FFCA Acquisition Corporation (the "LOAN ORIGINATOR"), as
amended by Amendment No. 1 to the Loan Purchase Agreement, dated as of March 18,
1999 ("AMENDMENT NO. 1") between the Depositor and the Loan Originator.
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into that certain Loan Purchase
Agreement, whereby the Loan Originator agrees to sell all its right, title and
interest in and to the certain Loans and the related Loan Documents to
Depositor;
WHEREAS the parties wish to amend the Loan Purchase Agreement; and
WHEREAS, Section 7.1 provides that the Loan Purchase Agreement may be
amended in writing by the parties hereto with the prior written consent of the
Majority Noteholders;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
shall have the respective meanings ascribed to such terms in the Loan Purchase
Agreement.
2. AMENDMENT TO LOAN PURCHASE AGREEMENT.
(a) Section 2.3 is hereby amended by adding at the end thereof the
following:
(d) WHOLE LOAN SALES. In consideration of the consideration received from
the Depositor under this Purchase Agreement and the other Basic Documents, the
Loan Originator hereby agrees and covenants to take such action to effect Whole
Loan Sales as it would with respect to Securitizations, as applicable. The
Majority Noteholders may effect Whole Loan Sales: (i) if FFCA ceases to qualify
as a REIT, as defined in Section 856 of the Code and (ii) subject to the same
conditions that apply to Securitizations, including, without limitation, the
Issuer's right of approval set forth in SECTION 3.06(C)(II) unless a Disposition
Trigger Event has occurred.
<PAGE>
3. FULL FORCE AND EFFECT. Except as modified by this Amendment No. 2, the
Loan Purchase Agreement shall otherwise remain in full force and effect against
any and all of the parties thereunder.
4. GOVERNING LAW. This Amendment No. 2 shall be governed by, and construed
in accordance with, the laws of the State of New York, without reference to its
conflicts of laws provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance therewith.
5. COUNTERPARTS. This Amendment No. 2 may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF the parties have executed this Amendment No. 2 as of the
date first above written.
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
By: /s/ Dennis L. Ruben
------------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
FFCA ACQUISITION CORPORATION,
as Loan Originator
By: /s/ Dennis L. Ruben
------------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
================================================================================
FOURTH AMENDED AND RESTATED INDENTURE SUPPLEMENT
dated as of January 1, 2000
between
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer
and
LASALLE BANK NATIONAL ASSOCIATION f/k/a LASALLE NATIONAL BANK,
as Indenture Trustee
FFCA FRANCHISE LOAN OWNER TRUST 1998-1
FRANCHISE LOAN BACKED NOTES SERIES 1998-1
================================================================================
<PAGE>
This Fourth Amended and Restated Indenture Supplement ("INDENTURE
SUPPLEMENT NO. 4") is entered into effect as of January 1, 2000, between FFCA
Franchise Loan Owner Trust 1998-1, a Delaware business trust, as Issuer (the
"ISSUER"), and LaSalle Bank National Association f/k/a LaSalle National Bank, as
Indenture Trustee (the "INDENTURE TRUSTEE"), which amends and restates in its
entirety the Third Amended and Restated Indenture Supplement ("INDENTURE
SUPPLEMENT NO. 3"), as entered into effect on August 27, 1999, between the
Issuer and the Indenture Trustee, which amends and restates in its entirety the
Second Amended and Restated Indenture Supplement ("INDENTURE SUPPLEMENT NO. 2"),
as entered into effect on March 18, 1999, between the Issuer and the Indenture
Trustee, which amends and restates in its entirety the Amended and Restated
Indenture Supplement ("INDENTURE SUPPLEMENT NO. 1"), as entered into effect on
October 30, 1998, between the Issuer and the Indenture Trustee, which amends and
restates in its entirety the Series 1998-1 Indenture Supplement (the "ORIGINAL
INDENTURE SUPPLEMENT"), as entered into effect on August 14, 1998, between the
Issuer and the Indenture Trustee, which supplements and amends that certain
Indenture (the "INDENTURE") dated as of August 14, 1998, between the Issuer and
the Indenture Trustee.
PRELIMINARY STATEMENT
The Issuer was created by a trust agreement dated as of August 14, 1998
(the "TRUST Agreement"), among FFCA Loan Warehouse Corporation, as Depositor,
Franchise Finance Corporation of America, as the Company and as Paying Agent,
and Wilmington Trust Company, as Owner Trustee. The Issuer duly authorized the
execution and delivery of the Original Indenture Supplement, Indenture
Supplement No. 1, Indenture Supplement No. 2, Indenture Supplement No. 3 and
this Indenture Supplement No. 4 to provide for the issuance of its Franchise
Loan Backed Notes, Series 1998-1 (the "NOTES"). The Notes are issuable as
provided in this Indenture Supplement No. 4 and in the Indenture.
Section 2.01 of the Indenture provides, among other things, that the Issuer
may enter into an Indenture Supplement for the purposes of authorizing a Series
of Notes and to specify certain terms of such Series of Notes. This Indenture
Supplement No. 4 is an Indenture Supplement as described in the Indenture. All
terms used in this Indenture Supplement No. 4 which are defined in the
Indenture, either directly or by reference therein, have the meanings assigned
to them therein, except to the extent that such terms are defined in this
Indenture Supplement No. 4 or unless the context clearly requires.
The parties hereto wish to amend and restate Indenture Supplement No. 3 in
its entirety in accordance with the terms of this Indenture Supplement No. 4.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter set forth, the Issuer and the Indenture Trustee, intending to be
legally bound, hereby agree as follows:
<PAGE>
SECTION 1. CERTAIN DEFINED TERMS. Section 2.01 of the Indenture provides
that the meaning of certain defined terms used in the Indenture shall, when
applied to a particular Series, be as defined in the Indenture Supplement with
respect to such Series. Accordingly, the following definitions shall apply with
respect to the Notes:
(a) SERIES DESIGNATION. The Notes shall be designated as the Issuer's
Franchise Loan Backed Notes, Series 1998-1.
(b) CLOSING DATE. The Closing Date with respect to the Notes shall be
August 14, 1998.
(c) MATURITY DATE. The Maturity Date with respect to the Notes shall be
December 31, 2000.
(d) MAXIMUM NOTE PRINCIPAL BALANCE. The Maximum Note Principal Balance with
respect to the Notes shall be $600,000,000.
SECTION 2. TERMINATION OF THE REVOLVING PERIOD. The Revolving Period shall
terminate on the earlier of (i) such date as provided in Section 2.07 of the
Sale and Servicing Agreement and (ii) December 31, 2000.
SECTION 3. RATIFICATION OF THE INDENTURE. As supplemented and amended by
this Indenture Supplement No. 4, the Indenture is in all respects ratified and
confirmed and the Indenture as so supplemented and amended by this Indenture
Supplement No. 4 shall be read, taken and construed as one and the same
document.
SECTION 4. SUPPLEMENT TO GOVERN. Notwithstanding anything to the contrary
in this Indenture Supplement No. 4, to the extent that the terms of this
Indenture Supplement No. 3 conflict with the terms of the Indenture, the terms
of this Indenture Supplement No. 4 shall govern.
SECTION 5. ALL REQUISITE ACTION TAKEN. All things necessary to make this
Indenture Supplement No. 4 a valid agreement of the Issuer and the Indenture
Trustee in accordance with its terms have been done.
SECTION 6. GOVERNING LAW. THIS INDENTURE SUPPLEMENT NO. 4 SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 7. COUNTERPARTS. This Indenture Supplement No. 4 may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture Supplement No. 4 to be duly executed by their respective officers,
thereunto duly authorized and duly attested, all as of the day and year first
above written.
FFCA FRANCHISE LOAN OWNER TRUST 1998-1
By: Wilmington Trust Company
not in its individual capacity but
solely as Owner Trustee
By: /s/ Rosemary Pantano
------------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
LASALLE BANK NATIONAL ASSOCIATION f/k/a
LASALLE NATIONAL BANK,
as Indenture Trustee
By: /s/ Michael B. Evans
------------------------------------
Name: Michael B. Evans
Title: Senior Vice President
<PAGE>
STATE OF __________
COUNTY OF __________
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared ___________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said WILMINGTON TRUST COMPANY, a Delaware banking corporation, not in its
individual capacity, but solely as Owner Trustee on behalf of FFCA FRANCHISE
LOAN OWNER TRUST 1998-1, a Delaware business trust, and that such person
executed the same as the act of said business trust for the purpose and
consideration therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this __th day of ____, 1999.
----------------------------------------------
Notary Public in and for the State of New York
[SEAL]
My commission expires:
- --------------------------
<PAGE>
STATE OF __________
COUNTY OF __________
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared __________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of LASALLE
BANK NATIONAL ASSOCIATION f/k/a LASALLE NATIONAL BANK, a national banking
association, and that such person executed the same as the act of said
corporation for the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this __th day of ____, 1999.
----------------------------------------------
Notary Public in and for the State of New York
[SEAL]
My commission expires:
- --------------------------
- --------------------------------------------------------------------------------
AMENDMENT NO. 1
dated as of October 30, 1998
to the
NOTE PURCHASE AGREEMENT,
among
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer,
FFCA ACQUISITION CORPORATION,
and
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
and
MORGAN STANLEY SECURITIZATION FUNDING INC.
as Purchaser
Dated as of August 14, 1998
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 1
TO THE
NOTE PURCHASE AGREEMENT
dated as of October 30, 1998
AMENDMENT NO. 1 TO THE NOTE PURCHASE AGREEMENT, dated as of October 30,
1998 ("Amendment No. 1") to that certain Note Purchase Agreement, dated as of
August 14, 1997 (the "Note Purchase Agreement") among FFCA Loan Trust 1998-1
(the "Issuer"), FFCA Acquisition Corporation ("FFCA Acquisition Corp."), FFCA
Loan Warehouse Corporation (the "Depositor"), and Morgan Stanley Securitization
Funding Inc. ("MSSFI," and in its capacity as Purchaser hereunder, the
"Purchaser").
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into that certain Note Purchase
Agreement, whereby the Purchaser agree to Purchase certain Notes;
WHEREAS Purchaser wishes to amend the Note Purchase Agreement; and
WHEREAS, Section 10.01 provides the Note Purchase Agreement may be amended
in writing by the parties thereto;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
shall have the meaning set forth in the Note Purchase Agreement thereto.
2. AMENDMENT TO NOTE PURCHASE AGREEMENT.
(a) Section 1.01 is hereby amended by deleting the definition of
"Commitment Amount" and by replacing such definition with the following:
"COMMITMENT AMOUNT" means an amount equal to $600,000,000.
(b) Section 2.02 is hereby amended by adding at the end thereof the
following sentence:
2
<PAGE>
On or prior to the date of the execution of Amendment No. 1, FFCA
Acquisition Corp. shall pay or cause to be paid to the Purchaser an additional
commitment fee of $375,000, to be payable by wire transfer in immediately
available funds, to the account of the Purchaser in accordance with the
instructions set forth on Schedule I hereto.
(c) Section 2.04 is hereby amended by deleting the current Section 2.04 and
replacing such section with the following:
For the period ending October 29, 1999, the Purchaser covenants and agrees
to, at the request of the Issuer, purchase from the Issuer the Notes of each
Series hereafter issued on terms and conditions substantially similar to those
set forth herein with respect to the Purchased Notes.
(d) Section 8.02 is hereby amended by adding at the end thereof the
following sentence:
The Issuer, FFCA Acquisition Corp. and the Depositor jointly and severally
covenant to pay as and when billed by the Purchaser the reasonable fees,
disbursements and expenses of counsel to the Purchaser in connection with the
amendments to the Basic Documents effected on the date hereof.
3. FULL FORCE AND EFFECT. Except as modified by this Amendment No. 1, the
Note Purchase Agreement shall otherwise remain in full force and effect against
any and all of the parties thereunder.
4. GOVERNING LAW. This Amendment No. 1 shall be governed by, and construed
in accordance with, the laws of the State of New York, without reference to its
conflicts of laws provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance therewith.
5. COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
3
<PAGE>
IN WITNESS WHEREOF the parties have executed this Amendment No. 1 as of the
date first above written.
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer
By: Wilmington Trust Company,
------------------------------------
not in its individual capacity but
solely as Owner Trustee
By: /s/ Rosemary Pantano
------------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
FFCA ACQUISITION CORPORATION
By: /s/ Dennis L. Ruben
------------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
MORGAN STANLEY SECURITIZATION FUNDING
INC., as Purchaser
By: /s/ J. Douglas Van Ness
------------------------------------
Name: J. Douglas Van Ness
Title: Vice President
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
By: /s/ Dennis L. Ruben
------------------------------------
Name: Dennis L. Ruben
Title: Vice President
4
<PAGE>
ACCEPTED AND AGREED
LASALLE NATIONAL BANK, as Indenture Trustee
By: /s/ Michael B. Evans
------------------------------------
Name: Michael B. Evans
Title: First Vice President
5
- --------------------------------------------------------------------------------
AMENDMENT NO. 2
dated as of March 18, 1999
to the
NOTE PURCHASE AGREEMENT,
among
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer,
FFCA ACQUISITION CORPORATION,
and
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
and
MORGAN STANLEY SECURITIZATION FUNDING INC.
as Purchaser
Dated as of August 14, 1998
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 2
TO THE
NOTE PURCHASE AGREEMENT
dated as of March 18, 1999
AMENDMENT NO. 2 TO THE NOTE PURCHASE AGREEMENT, dated as of March 18, 1999
("AMENDMENT NO. 2") to that certain Note Purchase Agreement, dated as of August
14, 1998 (the "NOTE PURCHASE AGREEMENT") among FFCA Loan Trust 1998-1 (the
"ISSUER"), FFCA Acquisition Corporation, FFCA Loan Warehouse Corporation (the
"DEPOSITOR"), and Morgan Stanley Securitization Funding Inc. ("MSSFI," and in
its capacity as Purchaser hereunder, the "PURCHASER").
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into that certain Note Purchase
Agreement, whereby the Purchaser agrees to purchase certain Notes;
WHEREAS Purchaser wishes to amend the Note Purchase Agreement; and
WHEREAS, Section 10.01 provides the Note Purchase Agreement may be amended
in writing by the parties thereto;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
shall have the meanings set forth in the Note Purchase Agreement.
2. AMENDMENT TO NOTE PURCHASE AGREEMENT.
(a) Section 3.01(c)(i) is hereby amended by adding at the end thereof the
following sentence:
In the case of Table-Funded Loans, the Initial Noteholder (acting
pursuant to the instructions of the Issuer which are hereby given) shall
disburse the related amount in respect of Additional Note Principal
Balances to the Settlement Agent for release in accordance with the related
Escrow Instructions, as applicable.
3. FULL FORCE AND EFFECT. Except as modified by this Amendment No. 2, the
Note Purchase Agreement shall otherwise remain in full force and effect against
any and all of the parties thereunder.
2
<PAGE>
4. GOVERNING LAW. This Amendment No. 2 shall be governed by, and construed
in accordance with, the laws of the State of New York, without reference to its
conflicts of laws provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance therewith.
5. COUNTERPARTS. This Amendment No. 2 may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.
3
<PAGE>
IN WITNESS WHEREOF the parties have executed this Amendment No. 2 as of the
date first above written.
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer
By: WILMINGTON TRUST COMPANY,
------------------------------------
not in its individual capacity but
solely as Owner Trustee
By: /s/ Rosemary Pantano
------------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
FFCA ACQUISITION CORPORATION
By: /s/ Dennis L. Ruben
------------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
MORGAN STANLEY SECURITIZATION FUNDING
INC., as Purchaser
By: /s/ J. Douglas Van Ness
------------------------------------
Name: J. Douglas Van Ness
Title: Vice President
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
By: /s/ Dennis L. Ruben
------------------------------------
Name: Dennis L. Ruben
Title: Vice President
4
<PAGE>
ACCEPTED AND AGREED
LASALLE NATIONAL BANK, as Indenture Trustee
By: /s/ Michael B. Evans
------------------------------------
Name: Michael B. Evans
Title: First Vice President
5
================================================================================
AMENDMENT NO. 4
dated as of January 1, 2000
to the
NOTE PURCHASE AGREEMENT,
among
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer,
FFCA ACQUISITION CORPORATION,
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
and
MORGAN STANLEY SECURITIZATION FUNDING INC.,
as Purchaser
Dated as of August 14, 1998
================================================================================
<PAGE>
AMENDMENT NO. 4
TO THE
NOTE PURCHASE AGREEMENT
AMENDMENT NO. 4 TO THE NOTE PURCHASE AGREEMENT, dated as of January 1,
2000 ("AMENDMENT NO. 4") to that certain Note Purchase Agreement, dated as of
August 14, 1998 (the "NOTE PURCHASE AGREEMENT") among FFCA Loan Trust 1998-1
(the "ISSUER"), FFCA Acquisition Corporation, FFCA Loan Warehouse Corporation
(the "DEPOSITOR") and Morgan Stanley Securitization Funding Inc. ("MSSFI," and
in its capacity as Purchaser hereunder, the "PURCHASER"), as amended by
Amendment No. 1 to the Note Purchase Agreement, dated as of October 30, 1998
("AMENDMENT NO. 1"), Amendment No. 2 to the Note Purchase Agreement, dated as of
March 18, 1999 ("AMENDMENT NO. 2") and Amendment No. 3 to the Note Purchase
Agreement, dated as of August 27, 1999 ("AMENDMENT NO. 3"), each among the
Issuer, FFCA Acquisition Corporation, the Depositor and the Purchaser.
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into that certain Note
Purchase Agreement, whereby the Purchaser agrees to purchase certain Notes;
WHEREAS, the Purchaser wishes to amend the Note Purchase Agreement;
and
WHEREAS, Section 10.01 provides that the Note Purchase Agreement may
be amended in writing by the parties thereto;
NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
shall have the respective meanings ascribed to such terms in the Note Purchase
Agreement.
2. AMENDMENT TO NOTE PURCHASE AGREEMENT.
(a) Section 1.01 is hereby amended by deleting the definition of
"COMMITMENT AMOUNT" and by replacing such definition with the following:
"COMMITMENT AMOUNT" means an amount equal to $600,000,000.
(b) Section 2.02 is hereby amended by adding at the end thereof the
following sentence:
On or prior to the date of the execution of Amendment No. 4, the
Issuer shall pay or cause to be paid to the Purchaser an additional
commitment fee of $360,000 (the "ADDITIONAL COMMITMENT FEE"), to be payable
by wire transfer in immediately available funds, to the account of the
Purchaser in accordance with the instructions set forth on Schedule I
hereto.
(c) Article X is hereby amended by adding the following:
SECTION 10.12. LIMITATION OF OWNER TRUSTEE LIABILITY. It is expressly
understood and agreed by the parties hereto that (a) this Note Purchase
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally but solely as Trustee of FFCA Franchise Loan
Owner Trust 1998-1, in the exercise of the powers and authority conferred
and vested in it, (b) each of the representations, undertakings and
agreements herein made on the part of the Trust is made and intended not as
personal representations, undertakings and agreements by Wilmington Trust
Company but is made and intended for the purpose for binding only the
Trust, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company, individually or personally, to
perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any
Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Trust or be liable for the
breach or failure of any obligation, representation, warranty or covenant
made or undertaken by the Trust under this Note Purchase Agreement or any
other related documents.
3. COVENANT TO PAY. The Issuer, FFCA Acquisition Corp. and the
Depositor jointly and severally covenant to pay as and when billed by the
Purchaser the reasonable fees, disbursements and expenses of counsel to the
Purchaser in connection with the amendments to the Basic Documents effected on
the date hereof.
4. FULL FORCE AND EFFECT. Except as modified by this Amendment No. 4,
the Note Purchase Agreement shall otherwise remain in full force and effect
against any and all of the parties thereunder.
5. GOVERNING LAW. This Amendment No. 4 shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to its conflicts of laws provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance therewith.
6. COUNTERPARTS. This Amendment No. 4 may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
-2-
<PAGE>
IN WITNESS WHEREOF the parties have executed this Amendment No. 4 as
of the date first above written.
FFCA FRANCHISE LOAN OWNER TRUST 1998-1,
as Issuer
By: Wilmington Trust Company,
not in its individual capacity but
solely as Owner Trustee
By: /s/ Rosemary Pantano
---------------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
FFCA ACQUISITION CORPORATION
By: /s/ Dennis L. Ruben
---------------------------------------
Name: Dennis L. Ruben
Title: Executive Vice President
MORGAN STANLEY SECURITIZATION FUNDING INC.,
as Purchaser
By: /s/ Andrew B. Neuberger
---------------------------------------
Name: Andrew B. Neuberger
Title: Vice President
FFCA LOAN WAREHOUSE CORPORATION,
as Depositor
By: /s/ Dennis L. Ruben
---------------------------------------
Name: Dennis L. Ruben
Title: Vice President
[SIGNATURE PAGE FOLLOWS]
<PAGE>
ACCEPTED AND AGREED
LASALLE BANK NATIONAL ASSOCIATION f/k/a LASALLE NATIONAL BANK, as Indenture
Trustee
By: /s/ Michael B. Evans
-----------------------------------
Name: Michael B. Evans
Title: Senior Vice President
-2-
<PAGE>
SCHEDULE I
PURCHASER ACCOUNT INFORMATION
Bank: Citibank
ABA Routing number: 021000089 (For the Account of MSSFI)
Account number: 40739088
-3-
