-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V6lIbh5G5wWr6p/USwUd3vv/8bA18m8ElZW96lnb/yXBUCJNK9+zJPFo+tmB513A eknwoIEiLu3Jk4LApa7iCQ== /in/edgar/work/20000920/0000950147-00-001454/0000950147-00-001454.txt : 20000924 0000950147-00-001454.hdr.sgml : 20000924 ACCESSION NUMBER: 0000950147-00-001454 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000915 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000920 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANCHISE FINANCE CORP OF AMERICA CENTRAL INDEX KEY: 0000908527 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 860736091 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13116 FILM NUMBER: 725956 BUSINESS ADDRESS: STREET 1: 17207 N PERIMETER DR CITY: SCOTTSDALE STATE: AZ ZIP: 85255 BUSINESS PHONE: 4805854500 MAIL ADDRESS: STREET 1: 17207 N PERIMETER DR STREET 2: 17207 N PERIMETER DR CITY: SCOTTSDALE STATE: AZ ZIP: 84255 8-K 1 0001.txt CURRENT REPORT DATED 9/15/2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: September 15, 2000 FRANCHISE FINANCE CORPORATION OF AMERICA ------------------------------------------------------ (Exact name of Registrant as Specified in Its Charter) Delaware 1-13116 86-0736091 - ---------------------------- ---------------- ---------------------------- (State or other jurisdiction (Commission File (IRS Employer Identification of incorporation) Number) Number) 17207 North Perimeter Drive, Scottsdale, AZ 85255 --------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (480) 585-4500 None ------------------------------------------------------------ (Former Name or Former Address, if Change Since Last Report) ITEM 5. OTHER EVENTS. (a) On September 15, 2000, Franchise Finance Corporation of America (the "Registrant"), amended and restated its unsecured revolving credit facility ("Facility A") with certain lenders and Bank of America, N.A. (collectively, the "Lenders"). On September 15, 2000, the Registrant also entered into an additional unsecured revolving credit facility ("Facility B") with the Lenders. Facility A is in the amount of $235,000,000 and expires on September 15, 2003. Facility B is in the amount of $115,000,000 and expires September 15, 2001, with certain options for renewal. The Third Amended and Restated Credit Agreement relating to Facility A is attached hereto and referenced as Exhibit 99.01. The Credit Agreement relating to Facility B is attached hereto and referenced as Exhibit 99.02. (b) On September 18, 2000, the Registrant entered into a Purchase Agreement (the "Purchase Agreement") with Salomon Smith Barney Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Banc of America Securities LLC, with respect to the issue and sale by the Registrant of its 8.75% Senior Notes due 2010 (the "Notes"). The Notes are to be issued pursuant to an Indenture, dated as of November 21, 1995, as amended or modified from time to time, between the Registrant and Wells Fargo Bank Arizona, National Association, as successor in interest to Norwest Bank Arizona, National Association, as trustee. The Purchase Agreement is attached hereto and referenced as Exhibit 1.01. The Officers' Certificate establishing the form and terms of the Notes is attached hereto as Exhibit 4.01. (c) Kutak Rock LLP, as counsel to the Registrant, has issued its opinion as to the legality with respect to the Notes. The opinion is attached hereto and referenced as Exhibit 5.01. (d) On September 18, 2000, the Registrant changed the transfer agent for its common stock, par value $.01 per share, from Gemisys Transfer Agents to Wells Fargo Bank Minnesota, N.A. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. Exhibit 1.01 Purchase Agreement. Exhibit 4.01 Officers' Certificate. Exhibit 5.01 Legal Opinion of Kutak Rock LLP. Exhibit 99.01 Third Amended and Restated Credit Agreement. Exhibit 99.02 Credit Agreement. Exhibit 99.03 Final Prospectus Supplement. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FRANCHISE FINANCE CORPORATION OF AMERICA Date: September 20, 2000 By: /s/ John Barravecchia ------------------------------------ John Barravecchia, Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary 3 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- Exhibit 1.01 Purchase Agreement. Exhibit 4.01 Officers' Certificate. Exhibit 5.01 Legal Opinion of Kutak Rock LLP. Exhibit 99.01 Third Amended and Restated Credit Agreement. Exhibit 99.02 Credit Agreement. Exhibit 99.03 Final Prospectus Supplement. EX-1.01 2 0002.txt PURCHASE AGREEMENT FRANCHISE FINANCE CORPORATION OF AMERICA (a Delaware corporation) $150,000,000 8.75% Senior Notes due 2010 PURCHASE AGREEMENT September 18, 2000 Salomon Smith Barney Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Donaldson, Lufkin & Jenrette Securities Corporation Banc of America Securities LLC c/o Salomon Smith Barney Inc. 388 Greenwich Street 32nd Floor New York, NY 10013 Ladies and Gentlemen: Franchise Finance Corporation of America, a Delaware corporation (the "Company"), confirms its agreement with Salomon Smith Barney Inc. ("Salomon"), Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Banc of America Securities LLC (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective principal amounts set forth in Schedule I of $150,000,000 aggregate principal amount of the Company's 8.75% Senior Notes due 2010 (the "Securities"). The Securities will mature on October 15, 2010. The Securities are to be issued pursuant to an indenture dated as of November 21, 1995 (the "Indenture"), which term, as used herein, includes the Officer's Certificate (as defined in the Indenture) establishing the form and terms of the Securities pursuant to Sections 2.01 and 3.01 of the Indenture between the Company and Wells Fargo Bank Arizona, National Association, as successor in interest to Norwest Bank Arizona, National Association, as trustee (the "Trustee"). The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-26437) and pre-effective amendment no. 1 thereto relating to the offering from time to time of debt securities, common stock or preferred stock in accordance with Rule 415 under the Securities Act of 1933, as amended (the "1933 Act") and will file such additional amendments and supplements thereto as may herein be required. Such registration statement has been declared effective by the Commission and the Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"). Such registration statement (as amended), and the prospectus constituting a part thereof and each prospectus supplement relating to the offering of the Securities (including in each case all documents incorporated or deemed to be incorporated by reference therein, and the information, if any, deemed to be part thereof pursuant to Rule 434 of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations")), as from time to time amended or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or otherwise, are hereinafter referred to as the "Registration Statement" and the "Prospectus," respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. All references in this Agreement to financial statements and schedules and other information which is "described," "disclosed," "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the 1934 Act which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. If the Company elects to rely on Rule 434 under the 1933 Act Regulations, all references to the Prospectus shall be deemed to include, without limitation, the form of prospectus and the term sheet, taken together, provided to the Underwriters by the Company in reliance on Rule 434 under the 1933 Act (the "Rule 434 Prospectus"). If the Company files a registration statement to register a portion of the Securities and relies on Rule 462(b) for such registration statement to become effective upon filing with the Commission (the "Rule 462 Registration Statement"), then any reference to "Registration Statement" herein shall be deemed to be to both the registration statement referred to above (No. 333-26437) and the Rule 462 Registration Statement, as each such registration statement may be amended pursuant to the 1933 Act. The Company understands that the Underwriters propose to sell the Securities in a public offering as soon as the Underwriters deem advisable after this Agreement has been executed and delivered. SECTION 1. Representations and Warranties. (a) The Company represents and warrants to the Underwriters as of the date hereof and as of the Closing Time referred to in Section 2(b) hereof, and agrees with the Underwriters, as follows: (i) The Company meets the requirements for use of Form S-3 under the 1933 Act, and at the respective times the Registration Statement became effective and any post-effective amendments thereto become effective and on the date hereof, the Registration Statement did and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act and the rules and regulations of the Commission under the 1939 Act, and did not and will not contain an untrue 2 statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, on the date hereof (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement first becomes effective, in which case at the time it is first provided to the Underwriter for such use), and at the Closing Time, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriter expressly for use in the Registration Statement or Prospectus. For purposes of this Section l(a), all references to the Registration Statement, any post-effective amendments thereto and the Prospectus shall be deemed to include, without limitation, any electronically transmitted copies thereof, including, without limitation, any copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR"). (ii) The accountants who certified the financial statements and supporting schedules included or incorporated by reference in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iii) The financial statements included or incorporated by reference in the Registration Statement and the Prospectus, together with the related schedule and notes, present fairly the financial position of the Company and its consolidated Subsidiaries (as defined below) at the dates indicated and the statement of income, shareholders' equity and cash flows of the Company and its consolidated Subsidiaries for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis ("GAAP") throughout the periods involved. The supporting schedules, if any, included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly in accordance with GAAP the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. The pro forma financial information included in the Prospectus presents fairly the information shown therein, has been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and has been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business 3 prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business ("Material Adverse Change"), (B) there have been no transactions entered into by the Company or any of its Subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its Subsidiaries considered as one enterprise, and (C) except for regular quarterly dividends on the common stock, par value $.01 per share, of the Company (the "Common Stock") in amounts per share that are consistent with past practice, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (v) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; the Company is duly qualified as a foreign corporation to transact business and is in good standing in the State of Arizona and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not, either singly or in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise (a "Material Adverse Effect"). (vi) Each Subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not, either singly or in the aggregate, have a Material Adverse Effect; all of the issued and outstanding capital stock of each such Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and all of the capital stock of each Subsidiary other than FFCA Funding Corporation, a Delaware corporation ("Funding Corp."), and 100 % of the preferred stock of Funding Corp., which represents 99% of the equity interest in Funding Corp., is owned directly by the Company, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity, none of the outstanding shares of capital stock of the Subsidiaries was issued in violation of the preemptive or similar rights of any stockholder of such corporation arising by operation of law, under the charter or by-laws of any Subsidiary or under any agreement to which the Company or any Subsidiary is a party. The Company does not own, directly or indirectly through a "qualified REIT subsidiary" (within the meaning of Section 856(i) of the Internal Revenue Code of 1986, as amended (the "Code")), any partnership, limited liability company, association or other entity, any shares of stock or any other debt or equity securities of, or other interests in, any corporation, firm, partnership, limited liability 4 company, association or other entity, other than (1) stock of a corporation or equity of any entity that the Company has been advised by its legal counsel qualifies as a "qualified REIT subsidiary" within the meaning of Section 856(i) of the Code, (2) stock or other debt or equity securities of any issuer (other than a partnership or limited liability company, the ownership of which is governed by (3) below) where (i) the Company has been advised by legal counsel that such ownership would not constitute ownership of more than 9.8% of the voting securities of such issuer (within the meaning of Section 856(c)(5) of the Code) and (ii) the Company has determined in good faith that the fair market value of the stock and securities of any one such issuer does not exceed 4.8% of the value of the total assets of the Company, or (3) interests in a partnership or limited liability company where (i) the Company has received a written opinion of its legal counsel that such a partnership or limited liability company is properly treated as a partnership, rather than an association or publicly traded partnership taxable as a corporation, for federal income tax purposes and (ii) such partnership or limited liability company does not itself own debt or equity securities of any issuer that could cause the Company to violate the representation contained in clause (2) above. As used in this Agreement, "Subsidiary" shall mean any of the following: (i) any corporation, trust, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equivalent interests entitled to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more of the other Subsidiaries of the Company (or a combination thereof), (ii) any partnership (a) the sole general partner or the managing general partner of which is the Company or a Subsidiary of the Company or (b) the only general partners of which are the Company or one or more Subsidiaries of the Company (or any combination thereof), and (iii) Funding Corp. (vii) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Historical" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to employee benefit plans referred to in the Prospectus, pursuant to the exercise of options referred to in the Prospectus or pursuant to the Company's dividend reinvestment plan), and all of such outstanding shares of capital stock have been duly authorized and validly issued and are fully paid and nonassessable and were not issued in violation of, and are not subject to, preemptive or other similar rights. (viii) Neither the Company nor any of its Subsidiaries is (a) in violation of its charter or bylaws or (b) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them may be bound, or to which any of the property or assets of the Company or any of its Subsidiaries is subject, except for, in the case of (b), any such defaults which would not, either singly or in the aggregate, have a Material Adverse Effect; and the execution, delivery and performance of this Agreement, the Indenture and the Securities and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder (including the use of the proceeds from the sale of the Securities as described in the Prospectus under the 5 caption "Use of Proceeds") have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, (i) conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Subsidiaries pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, including the Third Amended and Restated Credit Agreement and the Credit Agreement between the Company, certain lenders and Bank of America, N.A., both dated as of September 15, 2000 (collectively, the "Bank of America Facility"), and the Master Loan Purchase Agreement between FFCA Funding Corporation, as successor by assignment from FFCA Acquisition Corporation, and Washington Mutual Bank, FA, dated December 14, 1999, as amended, (the "WMB Facility"), or to which any of the property or assets of the Company or any of its Subsidiaries is subject except for any such conflict, breach, default or Repayment Event which would not, either singly or in the aggregate, have a Material Adverse Effect, (ii) violate Section 6.2 of the Bank of America Facility, or (iii) result in any violation of the provisions of the charter or by-laws of the Company or any of its Subsidiaries or any applicable law, statute, rule or regulation, or any judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its Subsidiaries. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Subsidiaries. (ix) There is no existing labor dispute with the employees of the Company or any of its Subsidiaries that would have, either singly or in the aggregate, a Material Adverse Effect. (x) There is no action, suit, proceeding, inquiry or investigation before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any of its Subsidiaries, which is required to be disclosed in the Registration Statement, or which might reasonably be expected to result in any Material Adverse Change, or which might reasonably be expected to have a Material Adverse Effect or materially and adversely affect the consummation of this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any Subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Change. (xi) There are no contracts or documents which are required to be described in the Registration Statement, the Prospectus or the documents incorporated by reference therein or to be filed as exhibits thereto by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the rules and 6 regulations of the Commission under the 1934 Act (the "1934 Act Regulations") which have not been so described and filed as required. (xii) To the extent applicable, the Company and its Subsidiaries own or possess, or can acquire on reasonable terms, the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, "patent and proprietary rights") presently employed by them in connection with the business now operated by them, and neither the Company nor any of its Subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any patent or proprietary rights or of any facts or circumstances which would render any patent and proprietary rights invalid or inadequate to protect the interest of the Company or any of its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, either singly or in the aggregate, would result in any Material Adverse Change. (xiii) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as have already been obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws. (xiv) The Company and its Subsidiaries possess such certificates, authorities, permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, except where the failure to possess or comply with any such Governmental License would not, either singly or in the aggregate, have a Material Adverse Effect; the Company and its Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, either singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have, either singly or in the aggregate, a Material Adverse Effect; and neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, either singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. (xv) This Agreement has been duly authorized, executed and delivered by the Company. (xvi) The Indenture has been duly authorized by the Company and has been duly qualified under the 1939 Act and duly executed and delivered by the Company and (assuming the due authorization, execution and delivery of the Indenture by the Trustee) will constitute a valid and binding agreement 7 of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditor's rights generally or by general equitable principles. (xvii) The Securities have been duly authorized and, at the Closing Time, will have been duly executed by the Company and, when authenticated in the manner provided for in the Indenture and delivered against payment of the purchase price therefor as specified on Exhibit A hereto, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles, and will be in the form contemplated by, and entitled to the benefits of, the Indenture. (xviii) The Securities and the Indenture will conform in all material respects to the respective statements relating thereto contained in the Prospectus and will be in substantially the respective forms filed or incorporated by reference, as the case may be, as exhibits to the Registration Statement. (xix) Except as set forth in the Prospectus, the Company and its Subsidiaries are in compliance in all material respects with all applicable laws, statutes, ordinances, rules or regulations, the violation of which, either singly or in the aggregate, would be reasonably expected to have a Material Adverse Effect. (xx) Except as otherwise disclosed in the Prospectus: (i) the Company and its Subsidiaries have good and marketable title to all properties and assets (or a valid first lien as to mortgaged properties) described in the Prospectus as being owned (or mortgaged) by them, or reflected in the most recent consolidated balance sheet of the Company contained in the Prospectus; (ii) all liens, charges, claims, restrictions or encumbrances on or affecting the properties and assets of the Company or any of its Subsidiaries which are required to be disclosed in the Prospectus are disclosed therein; (iii) no person or entity, other than tenants under the leases or guarantors thereof pursuant to which the Company and its Subsidiaries lease all or a portion of their properties, has an option or right of first refusal or any other right to purchase any of such properties; (iv) each of the properties of the Company and its Subsidiaries, at the time such property was acquired or at the time the loan by the Company with respect to such property was made, had access to public rights of way, either directly or through insured easements; (v) each of such properties, at the time such property was acquired or at the time the loan by the Company with respect to such property was made, was served by all public utilities necessary for the current operations on such property in sufficient quantities for such operations; (vi) each of such properties complies with all applicable codes and zoning and subdivision laws and regulations, except for such failures to comply which would not, either singly or in the aggregate, have a Material Adverse Effect; (vii) the real property leases and equipment leases, if any, relating to each of such properties are in full force and effect, except where the failure to be in full force and effect would not, singly or in the aggregate, have a Material Adverse Effect; and (viii) there is no pending or threatened 8 condemnation, zoning change, or other proceeding or action that will in any manner affect the size of, use of, improvements on, construction on or access to the properties of the Company and its Subsidiaries, except such proceedings or actions which would not, either singly or in the aggregate, have a Material Adverse Effect. (xxi) The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder (collectively, the "Cuba Act") or is exempt therefrom. (xxii) The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus under the caption "Use of Proceeds" will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xxiii) Except as described in the Registration Statement, (A) neither the Company nor any of its Subsidiaries is in violation of any federal, state, local or foreign laws or regulations relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), except where the Company or its Subsidiaries have obtained one or more policies of environmental insurance to cover such risks, with deductible amounts, loss limits and aggregate liability limitations which were deemed reasonably appropriate by the Company under the circumstances, and, except such violations as would not, either singly or in the aggregate, have a Material Adverse Effect, and (B) there are no events or circumstances that could form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its Subsidiaries relating to any Hazardous Materials or the violation of any Environmental Laws, which, either singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect (after taking into account any amounts to which the Company would be entitled under its environmental liability insurance policies). (xxiv) The documents incorporated or deemed to be incorporated by reference in the Prospectus, when they became effective or at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1933 Act or the 1934 Act, as applicable, and the rules and regulations of the Commission thereunder, and, when read together with the other information in the Prospectus, at the time the Registration Statement and any post-effective amendments thereto become effective and at the Closing Time, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements 9 therein, in the light of the circumstances under which they were made, not misleading. (xxv) The Company and its Subsidiaries have filed all federal, state, local and foreign tax returns that are required to be filed or have duly requested extensions thereof and have paid all taxes required to be paid by any of them and any related assessments, fines or penalties, except for any such tax, assessment, fine or penalty that is being contested in good faith and by appropriate proceedings; and adequate charges, accruals and reserves have been provided for in the financial statements referred to in Section 1(a)(iii) above in respect of all federal, state, local and foreign taxes for all periods as to which the tax liability of the Company or any of its Subsidiaries has not been finally determined or remains open to examination by applicable taxing authorities. (xxvi) The Company and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general and specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxvii) The Company and its Subsidiaries have not (i) taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or (ii) since the initial filing of the Registration Statement (A) sold, bid for, purchased or paid anyone (other than, to the extent applicable, payments made by the Company pursuant to the terms of, and in accordance with, the Company's dividend reinvestment plan) any compensation for soliciting purchases of, the Securities, or (B) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company. (xxviii) No relationship, direct or indirect, exists between or among any of the Company or any affiliate of the Company, on the one hand, and any director, officer, stockholder, customer or supplier of any of them, on the other hand, which is required by the 1933 Act or by the 1933 Act Regulations to be described in the Registration Statement or the Prospectus which is not so described or is not described as required. (xxix) The Company has not distributed and, prior to the later to occur of (i) the Closing Time and (ii) completion of the distribution of the Securities, will not distribute any prospectus (as such term is defined in the 1933 Act and the 1933 Act Regulations) in connection with the offering and sale of the Securities other than the Registration Statement, any preliminary prospectus, the Prospectus or other materials, if any, permitted by the 1933 Act or by the 1933 Act Regulations and approved by the Underwriters. 10 (xxx) The Company has been and is organized in conformity with the requirements for qualification and taxation as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), and its method of operation has at all times enabled, and its proposed method of operation will enable, the Company to qualify as a REIT under the Code. (xxxi) The Company and each of its Subsidiaries has title insurance on all real property described in the Prospectus as being owned (or held under a ground lease) or financed by any of them in an amount at least equal to the cost of acquisition of such property or the original principal amount of the loan provided by any of them, as the case may be. Each such property is insured by extended coverage hazard and casualty insurance in an amount not less than 90% of the full replacement cost of the improvements located thereon (exclusive of excavation and foundations), except for such properties which are covered by insurance in an amount less than 90%, the total loss of which would not have, except such properties where the Company allows the operator thereof to self-insure the property, either singly or in the aggregate, a Material Adverse Effect, and, except for such properties where the Company allows the operators thereof to self-insure the property, there are in effect for such properties and assets insurance policies covering risks and in amounts that are commercially reasonable for such types of properties and assets and that are consistent with the types and amounts of insurance typically maintained by prudent owners of similar properties or assets or required by commercial lenders with respect to similar properties or assets and all such insurance is in full force and effect. (b) Any certificate signed by any officer of the Company and delivered to the Underwriters or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. SECTION 2. SALE AND DELIVERY TO UNDERWRITER; CLOSING. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each of the Underwriters, severally and not jointly, and each of the Underwriters, severally and not jointly, agrees to purchase from the Company, at the prices set forth on Exhibit A hereto (which is a part hereof), the aggregate principal amount of Securities set forth in Schedule I hereto opposite the name of such Underwriter. The initial public offering price and the purchase price to be paid by the Underwriters for the Securities, and the interest rate on the Securities are set forth on Exhibit A hereto and a prospectus supplement will be filed in accordance with Rule 424(b) of the 1933 Act. (b) Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the office of Franchise Finance Corporation of America, 17207 North Perimeter Drive, Scottsdale, Arizona, or at such other place as shall be agreed upon by the Underwriters and the Company, at 9:00 A.M. Scottsdale, Arizona time on the third business day (unless postponed in accordance with the provisions of Section 10) following the date after execution of this Agreement, or such other time not later than ten business days after such date as shall be agreed upon by the Underwriters and the Company (such time and date of payment and delivery being herein called "Closing Time"). Payment shall be made to the Company in immediately available funds against delivery to 11 the Underwriters for their respective accounts of certificates for the Securities to be purchased by them. Certificates for the Securities shall be in such denominations and registered in such names as the Underwriters may request in writing at least one business day before the Closing Time. The certificates for the Securities will be made available for examination by the Underwriters in the City of New York not later than 3:00 P.M. on the last business day prior to the Closing Time. SECTION 3. COVENANTS OF THE COMPANY. THE COMPANY COVENANTS WITH THE UNDERWRITERS AS FOLLOWS: (a) Promptly following the execution of this Agreement, the Company will prepare a prospectus supplement setting forth the terms of such Securities not otherwise specified in the Prospectus or the Indenture, the price at which the Securities are to be purchased by the Underwriters from the Company, the initial public offering price, the selling concession and reallowances, if any, and such other information as the Underwriters and the Company deem appropriate in connection with the offering of the Securities. The Company will promptly transmit copies of the prospectus supplement to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations and will furnish to the Underwriters as many copies of the Prospectus and such prospectus supplement as the Underwriters shall reasonably request. (b) The Company will notify each Underwriter immediately, and confirm the notice in writing, (i) of the effectiveness of any amendment to the Registration Statement, or when any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus supplement, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. If the Company elects to rely on Rule 434, the Company will provide each Underwriter with copies of the form of Rule 434 Prospectus, in such number as each Underwriter may reasonably request, and file or transmit for filing with the Commission the form of Prospectus complying with Rule 434(c)(2) of the 1933 Act in accordance with Rule 424(b) of the 1933 Act by the close of business in New York on the business day immediately succeeding the date of this Agreement. (c) At any time when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act in connection with sales of the Securities, the Company will give each Underwriter notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the 12 prospectus on file at the Commission at the time the Registration Statement first becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations or any term sheet prepared in reliance on Rule 434 of the 1933 Act Regulations), will furnish each Underwriter with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which the Underwriters or counsel for the Underwriters shall reasonably object. (d) The Company has furnished or will deliver to each Underwriter and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to each Underwriter a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits). (e) The Company will furnish to each Underwriter, without charge, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as each Underwriter may reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act or the respective applicable rules and regulations of the Commission thereunder. (f) If any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to each Underwriter such number of copies of such amendment or supplement as each Underwriter may reasonably request. (g) The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Underwriters may designate and to maintain such qualifications in effect for a period of not less than one year from the effective date of the Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is 13 not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement. (h) The Company will make generally available to its security holders as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (i) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds." (j) In accordance with the Cuba Act and without limitation to the provisions of Sections 6 and 7 hereof, the Company agrees to indemnify and hold harmless each Underwriter from and against any and all loss, liability, claim, damage and expense whatsoever (including fees and disbursements of counsel), as incurred, arising out of any violation by the Company of the Cuba Act. (k) The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. (l) The Company will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the 1934 Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. Notwithstanding the foregoing, the Company may make repurchases of its common stock in compliance with Rule 10b-18 promulgated under the 1934 Act. SECTION 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, the Indenture and such other documents as may be required in connection with the offering, purchase, sale and delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(g) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey, if any, any supplement thereto and any Legal Investment Survey, (vi) the printing and delivery to the Underwriters of copies of the Prospectus and any amendments or supplements thereto including any term sheet delivered by the Company pursuant to Rule 434 of the 1933 Act Regulations, 14 (vii) the preparation, printing and delivery to the Underwriters of copies of any Blue Sky Survey, any supplement thereto and any Legal Investment Survey, (viii) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee, (xi) the fee of any filing for review of the offering with the National Association of Securities Dealers, Inc., if any, including the fees and expenses of counsel for the Underwriters in connection therewith, and (xii) any fees payable in connection with the rating of the Securities. If this Agreement is terminated by the Underwriters in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company herein contained, to the performance by the Company of its obligations hereunder and to the following further conditions: (a) The Registration Statement shall be effective prior to the date hereof, and at the Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus supplement shall have been transmitted to the Commission for filing in accordance with Rule 424(b) of the 1933 Act Regulations within the prescribed time period and prior to Closing Time the Company shall have provided evidence satisfactory to the Underwriters of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of the 1933 Act Regulations. The Indenture shall have been qualified under the 1939 Act. (b) At the Closing Time the Underwriters shall have received: (1) The favorable opinion, dated as of the Closing Time, of Kutak Rock LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and to enter into and perform its obligations under this Agreement. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in Arizona and in each other jurisdiction in which such qualification is required, 15 whether by reason of the ownership or leasing of property or the conduct of business, except in the case of jurisdictions other than Arizona, where the failure to so qualify or to be in good standing would not, either singly or in the aggregate, have a Material Adverse Effect. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Historical" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to employee benefit plans referred to in the Prospectus, pursuant to the exercise of options referred to in the Prospectus or pursuant to the Company's dividend reinvestment plan) and, to the best of their knowledge, all of such outstanding shares of capital stock have been duly authorized and validly issued and are fully paid and nonassessable. (v) Each Subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of its business, except where the failure to so qualify or to be in good standing would not, either singly or in the aggregate, have a Material Adverse Effect; all of the issued and outstanding capital stock of each such Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of their knowledge and information, all of the outstanding capital stock of each Subsidiary other than Funding Corp., and 100% of the outstanding preferred stock of Funding Corp., is owned directly by the Company, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (vi) This Agreement has been duly authorized, executed and delivered by the Company. (vii) The Indenture has been duly authorized, executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the Trustee) constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. 16 (viii) The Securities are in the form contemplated by the Indenture, have been duly authorized by the Company and, when executed by the Company and authenticated by the Trustee in the manner provided in the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee) and delivered against payment of the purchase price therefor as specified in Exhibit A hereto, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditor's rights generally or by general equitable principles, and will be entitled to the benefits of the Indenture. (ix) The Indenture has been qualified under the 1939 Act. (x) The Securities and the Indenture conform in all material respects to the descriptions thereof contained in the Prospectus. (xi) The Registration Statement has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. (xii) The Registration Statement, the Prospectus and each amendment or supplement to the Registration Statement and Prospectus, as of their respective effective or issue dates (other than the financial statements and schedules and other financial data included or incorporated by reference therein and the Trustee's Statement of Eligibility on Form T-1 (the "Form T-1"), as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xiii) To the best of their knowledge and information, there is not pending, and the Company has not received any notice of any threatened, action, suit, proceeding, inquiry or investigation, to which the Company or any of its Subsidiaries is a party, or to which the property of the Company or any of its Subsidiaries is subject, before or brought by any court or governmental agency or body, which might reasonably be expected to result in any Material Adverse Change, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of this Agreement or the performance by the Company of its obligations hereunder; and all pending legal or governmental proceedings to which the Company or any of its Subsidiaries is a party or that affect any of their respective properties that are not described 17 in the Prospectus, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Change. (xiv) The information in the Prospectus under "Business and Properties--Properties," "Business and Properties--Regulation," "Business and Properties--Legal Proceedings," "Description of the Notes," "Description of Debt Securities," "Certain Federal Income Tax Considerations," "Restrictions on Transfers of Capital Stock," "Description of Preferred Stock" and "Description of Common Stock" and in the Registration Statement under Item 15 of Part II thereof, to the extent that it constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by them and is correct in all material respects; to the best of such counsel's knowledge, there are no statutes or regulations, and no legal or governmental actions, suits or proceedings pending or threatened against the Company that are required to be described in the Prospectus that are not described as required and the opinion of such firm set forth under "Certain Federal Income Tax Considerations" is confirmed. (xv) All descriptions in the Prospectus of contracts and other documents to which the Company or its Subsidiaries are a party are accurate in all material respects; to the best of their knowledge and information, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, the descriptions thereof or references thereto are correct in all material respects, and, to the best of their knowledge or information, no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument so described, referred to, filed or incorporated by reference. (xvi) No authorization, approval, consent or order of any court or governmental authority or agency (other than under the 1933 Act and the 1933 Act Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states and except for the qualification of the Indenture under the 1939 Act, which has been obtained) is required in connection with the due authorization, execution and delivery of this Agreement and the Indenture or for the offering, issuance or sale of the Securities to the Underwriters; and the execution, delivery and performance of this Agreement, the Indenture and the Securities and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder (including the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use Of Proceeds") will not, whether with or without the giving of 18 notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Subsidiaries pursuant to (A) the Bank of America Facility or the WMB Facility or (B) to the best of their knowledge and information, any other contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its Subsidiaries is subject except for any such conflict, breach, default or Repayment Event which would not, either singly or in the aggregate, have a Material Adverse Effect, nor will such action result in any violation of the provisions of the charter or by-laws of the Company, or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its Subsidiaries or any of their respective properties, assets or operations. (xvii) The documents incorporated by reference in the Prospectus (other than the financial statements and schedules and other financial or statistical data included or incorporated by reference therein, as to which no opinion need be rendered), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the 1933 Act or the 1934 Act, as applicable, and the rules and regulations of the Commission thereunder. (xviii) The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act. (xix) To the best of such counsel's knowledge, neither the Company nor its Subsidiaries are in violation of their charter or bylaws; and the Company and its Subsidiaries are in compliance with all laws, rules, regulations, judgments, decrees, orders and statutes in the jurisdictions in which they are conducting their business, except where such non-compliance would not have, either singly or in the aggregate, a Material Adverse Effect. (xx) The Company has been and is organized in conformity with the requirements for qualification and taxation as a REIT under the Code and its method of operation has at all times enabled, and its proposed method of operation will enable, the Company to qualify as a REIT under the Code. Such opinion shall be to such further effect with respect to legal matters relating to this Agreement and the sale of the Securities as counsel to the Underwriters may reasonably request. In rendering such opinion, such counsel may 19 rely as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). (2) The favorable opinion, dated as of the Closing Time, of Latham & Watkins, counsel for the Underwriters, with respect to the matters set forth in clauses (i) and (vi) through (xii), inclusive, of subsection (b)(1) of this Section, except that, with respect to the matters referred to in (xii), no opinion need be expressed as to the documents incorporated by reference in the Registration Statement. (3) In giving their opinions required by subsections (b)(1) and (b)(2), respectively, of this Section, Kutak Rock LLP and Latham & Watkins shall each additionally state that nothing has come to their attention that led them to believe that the Registration Statement (except for financial statements and schedules and other financial data included or incorporated by reference therein and the Form T-1, as to which such counsel need make no statement), at the time it became effective or on the date hereof, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (except for financial statements and schedules and other financial data included or incorporated by reference therein, as to which such counsel need make no statement), on the date hereof (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the date of such prospectus), or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) At the Closing Time there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any Material Adverse Change, whether or not arising in the ordinary course of business, and the Underwriter shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of the Closing Time, to the effect that (i) there has been no such Material Adverse Change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened by the Commission. As used in this Section 5(c) the term "Prospectus" means the Prospectus in the form first used by the Underwriters to confirm sales of the Securities. 20 (d) At the time of the execution of this Agreement, the Underwriters shall have received from Arthur Andersen LLP a letter dated such date, in form and substance satisfactory to the Underwriters, to the effect that (i) they are independent public accountants with respect to the Company and its Subsidiaries within the meaning of the 1933 Act and the 1934 Act and the applicable published rules and regulations thereunder; (ii) in their opinion, the consolidated financial statements and financial statement schedules audited by them and included or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1934 Act and the related published rules and regulations; (iii) based upon limited procedures set forth in detail in such letter (which shall include, without limitation, the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in SAS No. 71, Interim Financial Information, with respect to the unaudited consolidated financial statements of the Company and its Subsidiaries included or incorporated by reference in the Registration Statement), nothing has come to their attention which causes them to believe that (A) any material modifications should be made to the unaudited consolidated financial statements included or incorporated by reference in the Registration Statement for them to be in conformity with generally accepted accounting principles or (B) the unaudited consolidated financial statements included or incorporated by reference in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act as it applies to Form 10-Q and the related published rules and regulations or (C) at a specified date not more than three days prior to the date of this Agreement, there has been any change in the consolidated capital stock of the Company or any increase in total liabilities or any decrease in total assets as compared with the amounts shown in the June 30, 2000 balance sheet included in the Registration Statement or, during the period from June 30, 2000 to a specified date not more than three days prior to the date of this Agreement, there were any decreases as compared with the corresponding period in the preceding year, in total revenues, net income, net income per share or funds from operations of the Company and its Subsidiaries, except in all instances for changes, increases or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur; (iv) in addition to the examination referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included in the Registration Statement and Prospectus and which are specified by the Underwriters, and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Company and its Subsidiaries identified in such letter; (v) based upon limited procedures set forth in detail in such letter, nothing came to their attention that caused them to believe that the pro forma financial information included in the Registration Statement and the Prospectus does not comply as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of the unaudited pro forma information included in the Prospectus; (vi) they have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K; (vii) based upon limited procedures set forth in detail in such letter, nothing has come to their 21 attention which causes them to believe that (A) any material modifications should be made to the unaudited consolidated financial statements incorporated by reference in the Registration Statement for them to be in conformity with generally accepted accounting principles or (B) the unaudited consolidated financial statements included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1934 Act Regulations, and (viii) the unaudited amounts set forth under "Summary Financial Information" and "Selected Financial Data" in the Prospectus agree with the amounts set forth in the unaudited consolidated financial statements for those periods or were determined on a basis substantially consistent with that of the corresponding amounts in the audited consolidated financial statements included in the Registration Statement and Prospectus. (e) At the Closing Time the Underwriters shall have received from Arthur Andersen LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the specified date referred to shall be a date not more than three days prior to the Closing Time. (f) At the Closing Time, the Securities shall be rated at least Baa3 by Moody's Investor's Service Inc. and BBB- by Standard & Poor's Corporation; and since the date of this Agreement, there shall not have occurred a downgrading in the rating assigned to any of the Company's other debt by any nationally recognized securities rating agency, and no such securities rating agency shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Securities or any of the Company's other debt. (g) At the Closing Time, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Underwriters and counsel for the Underwriters. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriters by notice to the Company at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 3(k), 6 and 7 shall survive any such termination and remain in full force and effect. SECTION 6. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement 22 (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 434 of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to the third sentence of Section 6(c) hereof, the reasonable fees and disbursements of counsel chosen by Salomon), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Salomon expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Salomon expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability 23 which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) For purposes of this Section 6, all references to the Registration Statement, any preliminary prospectus or the Prospectus, or any amendment or supplement to any of the foregoing, shall be deemed to include, without limitation, any electronically transmitted copies thereof, including, without limitation, any copies filed with the Commission pursuant to EDGAR. SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the 24 Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total underwriting discount received by it as set forth on the cover of the Prospectus exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement, or contained in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. SECTION 9. TERMINATION OF AGREEMENT. (a) The Underwriters may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or elsewhere, any outbreak of hostilities or escalation 25 thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Underwriters, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in the Common Stock has been suspended or limited by the Commission or the New York Stock Exchange or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the over-the-counter market has been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal, New York or Arizona authorities. As used in this Section 9(a), the term "Prospectus" means the Prospectus in the form first used by the Underwriters to confirm sales of the Securities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 3(k), 6 and 7 shall survive such termination and remain in full force and effect. SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of the Underwriters shall fail at the Closing Time to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the other Underwriters shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, such arrangements shall not have been completed within such 24-hour period; then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters; or (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either (i) the other Underwriters or (ii) the Company shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. 26 SECTION 11. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriter shall be directed to Salomon Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, attention of Brad Ganz, Director and General Counsel; notices to the Company shall be directed to it at 17207 North Perimeter Drive, Scottsdale, Arizona 85255, attention of Christopher H. Volk, with a copy to Dennis L. Ruben at the same address. SECTION 12. PARTIES. This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein or therein contained. This Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. 27 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, FRANCHISE FINANCE CORPORATION OF AMERICA By: /s/ John Barravecchia ------------------------------------- Name: John Barravecchia Title: Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary CONFIRMED AND ACCEPTED, as of the date first above written: SALOMON SMITH BARNEY INC. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION BANC OF AMERICA SECURITIES LLC By: SALOMON SMITH BARNEY INC. By /s/ Mark Patterson --------------------------------- Authorized Signatory 28 SCHEDULE I to PURCHASE AGREEMENT PRINCIPAL AMOUNT UNDERWRITER OF THE NOTES - ----------- ------------ Salomon Smith Barney Inc.................................... $ 80,000,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated 40,000,000 Donaldson, Lufkin & Jenrette Securities Corporation......... 20,000,000 Banc of America Securities LLC.............................. 10,000,000 Total..................................................... $150,000,000 ============ S-1 EXHIBIT A The initial public offering price of the Securities is 99.205% of the principal amount thereof, plus accrued interest, if any, from the date of issuance. The purchase price to be paid by the Underwriters for the Securities shall be 98.555% of the principal amount thereof. The interest rate on the Securities shall be 8.75% per annum. A-1 EX-4.01 3 0003.txt OFFICERS' CERTIFICATE FRANCHISE FINANCE CORPORATION OF AMERICA OFFICER'S CERTIFICATE The undersigned, John Barravecchia and Dennis L. Ruben, do hereby certify that they are the duly appointed and acting Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary and Executive Vice President, General Counsel and Secretary, respectively, of Franchise Finance Corporation of America, a Delaware corporation (the "Company"). Each of the undersigned also hereby certifies, pursuant to the Indenture dated as of November 21, 1995 (the "Indenture"), by and between the Company and Wells Fargo Bank Arizona, National Association, as successor in interest to Norwest Bank Arizona, National Association, as Trustee (the "Trustee"), that: 1. Pursuant to the resolutions adopted by the Executive Committee of the Board of Directors of the Company on September 13, 2000, a series of Debt Securities (as defined in the Indenture) to be issued under the Indenture has been established: the 8.75% Senior Notes due 2010 (the "Notes"), and such series is to have the following terms: (a) The Notes shall constitute a series of Securities having the title "8.75% Senior Notes due 2010." (b) The aggregate principal amount of the Notes that may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 3.04, 3.05, 3.06 or 9.06 of the Indenture) shall be $150,000,000. (c) The entire outstanding principal of the Notes shall be payable on October 15, 2010 (the "Maturity Date"), unless earlier redeemed as provided below. (d) The rate at which the Notes shall bear interest shall be 8.75% per annum; the date from which such interest shall accrue shall be September 21, 2000; the Interest Payment Dates on which such interest will be payable shall be April 15 and October 15 of each year, beginning April 15, 2001; the Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the preceding April 1 (in the case of interest payable on any April 15) and October 1 (in the case of interest payable on any October 15); and the basis upon which interest shall be calculated shall be that of a 360-day year consisting of twelve 30 day months. (e) The place in addition to the Borough of Manhattan, The City of New York, where the principal of and interest on the Notes shall be payable and Notes may be surrendered for the registration of transfer or exchange shall be the Corporate Trust Office of the Trustee at 100 West Washington, Phoenix, Arizona, 85003. The place in addition to the Borough of Manhattan, The City of New York, where notices or demands to or upon the Company in respect of the Notes and the Indenture may be served shall be the Corporate Trust Office of the Trustee at 100 West Washington, Phoenix, Arizona, 85003. (f) The Notes will be redeemable, at the option of the Company, in whole or in part at any time or from time to time, upon not less than 30 and not more than 60 days' notice, on any date prior to maturity (the "Redemption Date") at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued interest to the Redemption Date (subject to the right of holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) plus a Make-Whole Premium, if any (the "Redemption Price"). In no event will the Redemption Price ever be less than 100% of the principal amount of the Notes plus accrued interest to the Redemption Date. The amount of the Make-Whole Premium with respect to any Note (or portion thereof) to be redeemed will be equal to the excess, if any, of: (1) the sum of the present values, calculated as of the Redemption Date, of: (a) each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) being redeemed on each interest payment date occurring after the Redemption Date (excluding any accrued interest for the period prior to the Redemption Date); and (b) the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof) being redeemed; over (2) the principal amount of the Note (or portion thereof) being redeemed. The present values of interest and principal payments referred to in clause (1) above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the Treasury Yield (as defined below) plus 35 basis points. The Make-Whole Premium will be calculated by an independent investment banking institution of national standing appointed by the Company; PROVIDED, that if the Company fails to make such appointment at least 30 calendar days prior to the Redemption Date, or if the institution so appointed is unwilling or unable to make such calculation, such calculation will be made by Salomon Smith Barney Holdings Inc., or an affiliate thereof, or, if such firm is unwilling or unable to make such calculation, by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). 2 For purposes of determining the Make-Whole Premium, "Treasury Yield" means a rate of interest per annum equal to the weekly average yield to maturity of United States Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The Treasury Yield will be determined as of the third business day immediately preceding the applicable Redemption Date. The weekly average yields of United States Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for United States Treasury Notes having a constant maturity that is the same as the Remaining Term, then the Treasury Yield will be equal to such weekly average yield. In all other cases, the Treasury Yield will be calculated by interpolation. On a straight-line basis, between the weekly average yields on the United States Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the United States Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200th of 1% or above being rounded upward. If weekly average yields for United States Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. Any notice to the holders of Notes of such a redemption need not set forth the redemption price of such Notes but need only set forth the calculation thereof as described in the immediately preceding paragraph. The redemption price, calculated as aforesaid, shall be set forth in an Officers' Certificate delivered to the Trustee no later than two business days prior to the Redemption Date. In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Note of $1,000 in original principal amount or less shall be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. (g) The Notes shall not be redeemable at the option of any Holder thereof, upon the occurrence of any particular circumstances or otherwise. The Notes will not have the benefit of any sinking fund. (h) The Notes shall be issued in denominations of $1,000 and any integral multiple thereof. (i) The Trustee shall be the Security Registrar and Paying Agent. 3 (j) The entire outstanding principal amount of the Notes shall be payable upon declaration of acceleration of its maturity pursuant to Section 5.02 of the Indenture. (k) Payments of the principal of and interest on the Notes shall be made in Dollars, and the Notes shall be denominated in Dollars. (l) The Notes will be payable on the Maturity Date in an amount equal to the principal amount thereof plus unpaid interest accrued to such Maturity Date. (m) The Holders of the Notes shall have no special rights in addition to those provided in the Indenture upon the occurrence of any particular events. (n) (i) There shall be no deletions from, modifications of or addition to the Events of Default with respect to the Notes set forth in the Indenture. (ii) There shall be the following additions to the covenants set forth in the Indenture with respect to the Notes: LIMITATIONS ON INCURRENCE OF TOTAL DEBT. The Company will not, and will not permit any Subsidiary to, incur any Debt (as defined below) if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds therefrom, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with generally accepted accounting principles is greater than 60% of the sum of (A) the Company's Total Assets (as defined below) as of the end of the calendar quarter prior to the incurrence of such additional Debt and (B) the increase in Total Assets from the end of such quarter including, without limitation, any increase in Total Assets caused by the incurrence of such additional Debt. LIMITATION ON INCURRENCE OF SECURED DEBT. In addition to the foregoing limitation on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security interest of any kind on any of its properties, and will not otherwise grant or convey any such mortgage, charge, pledge, encumbrance or security interest of any kind, if immediately after giving effect thereto, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with generally accepted accounting principles which is secured by any mortgage, charge, pledge, encumbrance or security interest of any kind on property of the Company or any Subsidiary is greater than 40% of the sum of (A) the Company's Total Assets as of the end of the calendar quarter prior to the incurrence of such Debt, and (B) any increase in Total Assets from the end of such quarter including, without limitation, any increase in Total Assets caused by the incurrence of such additional Debt. DEBT SERVICE COVERAGE. In addition to the foregoing limitations on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Debt if the ratio of 4 Consolidated Income Available for Debt Service (as defined below) to Annual Service Charge (as defined below) for the four consecutive calendar quarters most recently ended prior to the date on which such additional Debt is to be incurred is less than 1.5 to 1.0 on a pro forma basis after giving effect to the incurrence of such Debt and the application of the proceeds therefrom. MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Company will maintain at all times Total Unencumbered Assets (as defined below) of not less than 150% of the aggregate outstanding principal amount of all outstanding unsecured Debt of the Company and its Subsidiaries. (iii) As used in Paragraph (n)(ii), the following terms have the meanings set forth below: "ANNUAL SERVICE CHARGE" means the interest expense of the Company and its Subsidiaries for the four consecutive fiscal quarters 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. "CAPITALIZED LEASE" means any lease of property by the Company or any Subsidiary as lessee that is reflected on the Company's consolidated balance sheet as a capitalized lease in accordance with generally accepted accounting principles. "CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means Consolidated Net Income (as defined below) of the Company and its Subsidiaries plus amounts which have been deducted, and minus amounts which have been added, for (A) interest on Debt of the Company and its Subsidiaries, (B) provision for taxes of the Company 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 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 means the amount of consolidated net income (or loss) of the Company and its Subsidiaries for such period determined on a consolidated basis in accordance with generally accepted accounting principles. 5 "DEBT" means any indebtedness of the Company or any Subsidiary, 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 the Company or any Subsidiary, (C) letters of credit or amounts representing the balance deferred and unpaid of the purchase price of any 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 the Company's consolidated balance sheet in accordance with generally accepted accounting principles, and also includes, to the extent not otherwise included, any obligation by the Company or any Subsidiary 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 the Company or any Subsidiary) (it being understood that Debt shall be deemed to be incurred by the Company or any Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof). "SUBSIDIARY" means (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 the Company or one or more of the other Subsidiaries of the Company, and (B) any partnership or limited liability company in which the Company or one or more of the other Subsidiaries of the Company, directly or indirectly, possesses more than a 50% interest in the total capital or total income of such partnership or limited liability company. "TOTAL ASSETS" as of any date means the sum of (A) Undepreciated Real Estate Assets and, (B) all other assets of the Company and its Subsidiaries determined in accordance with generally accepted accounting principles (but excluding accounts receivable and intangibles). "TOTAL UNENCUMBERED ASSETS" means Total Assets minus the value of any properties of the Company and its Subsidiaries that are encumbered by any mortgage, charge, pledge, lien, security interest or other encumbrance of any kind, including the value of any stock of any Subsidiary that is so encumbered. For purposes of this definition, the value of each property shall be equal to the purchase price or cost of each such property and the value of any stock subject to any encumbrance shall be determined by reference to the value of the properties owned by the issuer of such stock as aforesaid. 6 "UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the amount of real estate assets of the Company and its Subsidiaries on such date, before depreciation and amortization determined on a consolidated basis in accordance with generally accepted accounting principles. (iv) There shall be the following modification to the definition of "Subsidiary" set forth in the indenture with respect to the Notes: "SUBSIDIARY" means (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 the Company or one or more of the other Subsidiaries of the Company, and (B) any partnership or limited liability company in which the Company or one or more of the other Subsidiaries of the Company, directly or indirectly, possesses more than a 50% interest in the total capital or total income of such partnership or limited liability company. (o) The Notes shall be issuable only as Registered Securities in permanent global form (without coupons). Beneficial owners of interests in the permanent global Note may exchange such interests for Notes of like tenor or any authorized form and denomination only in the manner provided in Section 3.05 of the Indenture. DTC shall be the depository with respect to each permanent global Note. (p) The Notes shall not be issuable as Bearer Securities. (q) Interest on the Notes shall be payable only to the Person in whose name the Note (or one or more predecessor Notes thereof) is registered at the close of business on the Regular Record Date for such interest payment. (r) Sections 14.02 and 14.03 of the Indenture shall be applicable to the Notes, including the Company's ability to defease "its obligations under any other covenant" as provided in Section 14.03 of the Indenture. (s) The Notes shall not be issuable in definitive form except under the circumstances described in Section 3.05 of the Indenture. (t) The Notes will be authenticated and delivered as provided in Section 3.03 of the Indenture. (u) The Company shall not pay Additional Amounts with respect to the Notes as contemplated by Section 10.10 of the Indenture. (v) The Notes shall not be convertible into Common Stock or Preferred Stock. 7 (w) The Notes shall not be subordinated to any other Debt of the Company, and shall constitute senior unsecured obligations of the Company. 2. The foregoing form and terms of the Notes have been established in conformity with the provisions of the Indenture. 3. Each of the undersigned has read the Indenture and the definitions relating thereto and has examined the resolutions referred to in paragraph 1 above and the Notes and has made such examination or investigation as is necessary to enable the undersigned to represent as to whether or not all conditions precedent provided in the Indenture relating to the establishment, authentication and delivery of the Notes have been complied with. On the basis of the foregoing, all such conditions precedent have been complied with. 8 IN WITNESS WHEREOF, we have hereunto signed our names this 21st day of September, 2000. By /s/ John Barravecchia ------------------------------------- John Barravecchia, Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary By /s/ Dennis L. Ruben ------------------------------------- Dennis L. Ruben, Executive Vice President, General Counsel and Secretary 9 EX-5.01 4 0004.txt OPINION & CONSENT OF KUTAK ROCK LLP [LETTERHEAD OF KUTAK ROCK LLP] September 18, 2000 Franchise Finance Corporation of America 17207 North Perimeter Drive Scottsdale, Arizona 85255 Ladies and Gentlemen: We have acted as your counsel in connection with the preparation of the registration statement on Form S-3, File No. 333-26437, as amended (the "Registration Statement"), filed by Franchise Finance Corporation of America (the "Company"), with the Securities and Exchange Commission (the "SEC") in connection with the registration of $1,000,000,000 aggregate offering price of securities. The Registration Statement was declared effective under the Securities Act of 1933, as amended, on March 25, 1998. Further, we have acted as your counsel in connection with the preparation of the Prospectus dated April 16, 1998 (the "Prospectus") and Prospectus Supplement dated September 18, 2000 (the "Prospectus Supplement") relating to the issuance of $150,000,000 8.75% Senior Notes due 2010 (the "Senior Notes"). We are familiar with the proceedings taken by the Company in connection with the authorization and registration, and in preparation for the issuance and sale, of the Senior Notes. For the purpose of rendering this opinion, we have examined such corporate records, certificates and other documents of the Company, and have made such investigations of law as we deemed necessary or appropriate and we are familiar with the procedures taken or proposed to be taken by the Company in connection with the issuance and sale of the Senior Notes. We have examined the Registration Statement, the Prospectus included therein and the Prospectus Supplement. Except as otherwise indicated herein, all terms defined in the Registration Statement, Prospectus and Prospectus Supplement are used herein as so defined. We have assumed for purposes of the opinions set forth below: (a) that no stop orders relating to the Registration Statement have been issued by the SEC from the date of this opinion to the date of the issuance and sale of the Senior Notes; (b) the genuineness of all signatures and the authenticity and completeness of all documents submitted to us as originals; (c) the authorization, execution and delivery of the Indenture by the Trustee; (d) the conformity to the originals and the authenticity of all documents supplied to us as certified, photocopied, conformed or facsimile copies and the authenticity and completeness of the originals of any such documents; (e) that the Senior Notes will be duly executed, authenticated and delivered in accordance with the provisions of the Indenture and related corporate documents; and (f) the due receipt of payment of the purchase price for the Senior Notes. On the basis of and subject to the foregoing, it is our opinion that the Senior Notes will, upon issuance and sale thereof in the manner referred to in the Registration Statement, Prospectus and Prospectus Supplement, constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws relating to or affecting creditors' rights generally and by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law and will be entitled to the benefits of the Indenture. This opinion is given for the sole benefit of the addressee hereof and may not be relied upon by or delivered to any other person. In addition, this opinion relates only to the matters and the transactions specifically referred to, and no other opinions should be implied therefrom. Very truly yours, /s/ Kutak Rock LLP Kutak Rock LLP EX-99.01 5 0005.txt 3RD AMENDED & RESTATED CREDIT AGR- FACILITY A ================================================================================ THIRD AMENDED AND RESTATED CREDIT AGREEMENT (Facility A) Dated as of September 15, 2000 AMONG FRANCHISE FINANCE CORPORATION OF AMERICA, CERTAIN LENDERS and BANK OF AMERICA, N.A. as Administrative Agent and WELLS FARGO BANK, NATIONAL ASSOCIATION as Documentation Agent COMMERZBANK AKTIENGESELLSCHAFT, New York Branch as Syndication Agent COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH as Managing Agent BANK ONE, ARIZONA, N.A. UNION BANK OF CALIFORNIA, N.A. WASHINGTON MUTUAL BANK (d/b/a Western Bank) as Co-Agents ================================================================================ BANC OF AMERICA SECURITIES LLC, AS SOLE LEAD ARRANGER AND BOOK MANAGER TABLE OF CONTENTS ARTICLE I. DEFINITIONS 1.1 Definitions.............................................................1 1.2 Accounting and Other Terms.............................................24 ARTICLE II. AMOUNTS AND TERMS OF ADVANCES 2.1 The Advances...........................................................24 2.2 Making Advances........................................................25 2.3 Evidence of Indebtedness...............................................28 2.4 Reduction of Commitment................................................28 2.5 Prepayments............................................................29 2.6 Repayment..............................................................30 2.7 Interest...............................................................30 2.8 Default Interest.......................................................31 2.9 Continuation and Conversion Elections..................................31 2.10 Fees...................................................................32 2.11 Funding Losses.........................................................33 2.12 Computations and Manner of Payments....................................34 2.13 Yield Protection.......................................................35 2.14 Letters of Credit......................................................37 ARTICLE III. CONDITIONS PRECEDENT 3.1 Conditions Precedent to the Initial Advance and the Initial Letter of Credit..............................................................42 3.2 Conditions Precedent to All Advances and Letters of Credit.............44 ARTICLE IV. REPRESENTATIONS AND WARRANTIES 4.1 Organization and Qualification.........................................45 4.2 Due Authorization; Validity............................................46 4.3 Conflicting Agreements and Other Matters...............................46 4.4 Financial Statements...................................................46 4.5 Litigation.............................................................47 4.6 Compliance With Laws Regulating the Incurrence of Indebtedness.........47 4.7 Authorizations, Title to Properties, and Related Matters...............47 4.8 Outstanding Debt and Liens.............................................48 4.9 Taxes..................................................................48 4.10 ERISA..................................................................48 4.11 Environmental Laws.....................................................48 4.12 Disclosure.............................................................49 4.13 Investments; Subsidiaries..............................................49 4.14 Certain Fees...........................................................49 4.15 Intellectual Property..................................................50 4.16 Investment Company Act.................................................50 4.17 Restricted Payments....................................................50 4.18 Status as a Real Estate Investment Trust...............................50 4.19 Common Enterprise......................................................50 4.20 Survival of Representations and Warranties, etc........................50 4.21 Year 2000 Compliance...................................................51 ARTICLE V. AFFIRMATIVE COVENANTS 5.1 Compliance with Laws and Payment of Debt...............................51 5.2 Insurance..............................................................51 5.3 Inspection Rights......................................................52 5.4 Records and Books of Account; Changes in GAAP..........................52 5.5 Reporting Requirements.................................................52 5.6 Use of Proceeds........................................................54 5.7 Maintenance of Existence and Assets....................................54 5.8 Payment of Taxes.......................................................54 5.9 INDEMNITY..............................................................55 5.10 Authorizations and Material Agreements.................................56 5.11 Intercompany Notes.....................................................56 5.12 Further Assurances.....................................................56 5.13 Subsidiaries and Other Obligors........................................56 5.14 Interest Hedge Agreements..............................................56 5.15 Year 2000 Compliance...................................................56 -ii- ARTICLE VI. NEGATIVE COVENANTS 6.1 Financial Covenants....................................................57 6.2 Indebtedness...........................................................57 6.3 Contingent Liabilities.................................................58 6.4 Liens..................................................................58 6.5 Prohibition of Fundamental Changes.....................................58 6.6 Dispositions of Assets.................................................58 6.7 Distributions and Restricted Payments..................................59 6.8 Business...............................................................59 6.9 Transactions with Affiliates...........................................59 6.10 Loans and Investments..................................................60 6.11 Fiscal Year and Accounting Method......................................60 6.12 Amendment of Corporate Documents.......................................60 6.13 Compliance with ERISA..................................................60 6.14 Subsidiaries and Other Obligors........................................61 6.15 Amendments to Material Agreements......................................61 6.16 Prohibited Transactions................................................61 6.17 No New Subsidiaries....................................................61 6.18 Asset Securitization and Loan Sale Affiliates..........................61 ARTICLE VII. EVENTS OF DEFAULT 7.1 Events of Default......................................................62 7.2 Remedies Upon Default..................................................64 7.3 Cumulative Rights......................................................64 7.4 Waivers................................................................65 7.5 Performance by Administrative Agent or any Lender......................65 7.6 Expenditures...........................................................65 7.7 Control................................................................65 ARTICLE VIII. ADMINISTRATIVE AGENT 8.1 Authorization and Action...............................................65 8.2 Administrative Agent's Reliance, Etc...................................66 -iii- 8.3 Bank of America, N.A. and Affiliates...................................66 8.4 Lender Credit Decision.................................................67 8.5 INDEMNIFICATION BY LENDERS.............................................67 8.6 Successor Administrative Agent.........................................67 8.7 Notice of Default......................................................68 ARTICLE IX. MISCELLANEOUS 9.1 Amendments and Waivers.................................................68 9.2 Notices................................................................69 9.3 Parties in Interest....................................................71 9.4 Assignments and Participations.........................................71 9.5 Sharing of Payments....................................................72 9.6 Right of Set-off.......................................................72 9.7 Costs, Expenses, and Taxes.............................................73 9.8 Rate Provision.........................................................75 9.9 Confidentiality........................................................76 9.10 Severability...........................................................76 9.11 Exceptions to Covenants................................................77 9.12 Counterparts...........................................................77 9.13 No Liability of Issuing Bank...........................................77 9.14 No Duties of Documentation Agent, Syndication Agent, Managing Agent or Co-Agents...........................................................77 9.15 GOVERNING LAW; WAIVER OF JURY TRIAL....................................78 9.16 ENTIRE AGREEMENT.......................................................78 -iv- TABLE OF SCHEDULES AND EXHIBITS SCHEDULES Schedule 4.1 Organization and Qualification Schedule 4.5 Litigation Schedule 4.8 Debt, Contingent Liabilities and Liens of Company and each Subsidiary Entity in Existence on the Closing Date Schedule 4.11 Environmental Liabilities of Company and each Subsidiary on the Closing Date Schedule 4.13 Investments EXHIBITS Exhibit A Note (Evidencing Revolving Loan) Exhibit B Guaranty Agreement Exhibit C Compliance Certificate Exhibit D Conversion/Continuation Notice Exhibit E Borrowing Notice Exhibit F Assignment and Acceptance Exhibit G Subordination Agreement Exhibit H Confidentiality Agreement Exhibit I Swing Line Note -v- FRANCHISE FINANCE CORPORATION OF AMERICA THIRD AMENDED AND RESTATED CREDIT AGREEMENT (FACILITY A) THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT (FACILITY A) (this "AGREEMENT") is dated as of September 15, 2000, among FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("COMPANY"), Lenders from time to time party hereto or to an Assignment and Acceptance, and BANK OF AMERICA, N.A., a national banking association, as Administrative Agent (in such capacity, "ADMINISTRATIVE AGENT"), and WELLS FARGO BANK, NATIONAL ASSOCIATION (in such capacity, "DOCUMENTATION AGENT"), COMMERZBANK AKTIENGESELLSCHAFT, New York Branch (in such capacity, "SYNDICATION AGENT"), COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH (in such capacity, "MANAGING AGENT") and BANK ONE, ARIZONA, N.A., UNION BANK OF CALIFORNIA, N.A. and WASHINGTON MUTUAL BANK (d/b/a Western Bank) (in such capacity, collectively, "Co-Agents"). BACKGROUND Company, certain Lenders and Administrative Agent are parties to that certain Amended and Restated Credit Agreement, dated as of December 29, 1997 (as heretofore amended and in effect on the date of this Agreement, the "EXISTING CREDIT AGREEMENT") providing for loans to be made to Company in the aggregate principal amount not exceeding $350,000,000 at any one time outstanding. The parties hereto desire to amend and restate the Existing Credit Agreement as hereinafter set forth. AGREEMENT NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties hereto agree that the Existing Credit Agreement is amended and restated in its entirety as follows: ARTICLE I. DEFINITIONS 1.1 DEFINITIONS. As used in this Agreement, the following terms have the respective meanings indicated below (such meanings to be applicable equally to both the singular and plural forms of such terms): -1- "ACCUMULATED DEPRECIATION" means, as of any date of determination, the accumulated depreciation and amortization of prepaid expenses of Company and its Consolidated Subsidiaries determined in accordance with GAAP as of such date of determination. "ADJUSTED NET WORTH" means, as of any date of determination, for Company and its Consolidated Subsidiaries determined in accordance with GAAP, the sum of (a) Net Worth, plus (b) Accumulated Depreciation. "ADJUSTMENT DATE" means, for purposes of the determination of the Applicable Margin and the Commitment Fee, the effective date of any issuance of, or change in, the Index Debt Rating which results in a change in the Applicable Margin and the Commitment Fee. "ADMINISTRATIVE AGENT" means Bank of America, N.A., in its capacity as Administrative Agent hereunder, or any successor Administrative Agent appointed pursuant to SECTION 8.6 hereof. "ADVANCE" means an advance made by a Lender to Company pursuant to SECTION 2.1 hereof, and which shall include any Swing Line Loan. "AFFILIATE" means a Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled By or is Under Common Control with another Person. "AGREEMENT" means this Third Amended and Restated Credit Agreement (Facility A), as hereafter amended, modified, or supplemented from time to time. "APPLICABLE LAW" means (a) in respect of any Person, all provisions of Laws applicable to such Person, and all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party and (b) in respect of contracts made or performed in the State of Texas, "Applicable Law" shall also mean the laws of the United States of America, including, without limiting the foregoing, 12 USC Sections 85 and 86, as amended to the date hereof and as the same may be amended at any time and from time to time hereafter, and any other statute of the United States of America now or at any time hereafter prescribing the maximum rates of interest on loans and extensions of credit, and the laws of the State of Texas, including, without limitation, Chapter 303 of the Texas Finance Code, as amended, and any other statute of the State of Texas now or at any time hereafter prescribing maximum rates of interest on loans and extensions of credit, provided however, that the parties agree that the provisions of Chapter 346 of the Texas Finance Code, as amended, shall not apply to the Advances hereunder, this Agreement, the Notes or any other Loan Papers. "APPLICABLE MARGIN" means the following per annum percentages, applicable in the following situations: -2- APPLICABILITY BASE RATE LIBOR ------------- --------- ----- CATEGORY 1 - There is no Index Debt Rating or the 0.25 1.75 Index Debt Rating is the following: below BBB- by S&P and below Baa3 by Moody's CATEGORY 2 - The Index Debt Rating is the following: 0.00 1.35 BBB- by S&P and Baa3 by Moody's CATEGORY 3 - The Index Debt Rating is the following: 0.00 1.25 BBB by S&P and Baa2 by Moody's CATEGORY 4 - The Index Debt Rating is the following: 0.00 1.15 BBB+ by S&P and Baa1 by Moody's CATEGORY 5 - The Index Debt Rating is the following: 0.00 0.95 A- or better by S&P and A3 or better by Moody's The Applicable Margin payable by Company on the Advances outstanding hereunder shall be adjusted on each Adjustment Date according to the most recent determination of the Index Debt Rating; PROVIDED, that if (i) there exists a Default or (ii) Company does not have an Index Debt Rating, the Applicable Margin shall be (A) 0.25% per annum with respect to Base Rate Advances and (B) 1.75% per annum with respect to LIBOR Advances. For purposes of the foregoing, if the Index Debt Rating established by S&P or Moody's shall fall within a different category, the Applicable Margin shall be determined by reference to whichever Index Debt Rating shall fall within the superior (or numerically higher) category, unless the superior (or numerically higher) category is greater than one level above the other category, in which case the Applicable Margin shall be determined using the category immediately below the superior (or numerically higher) category. If the rating system of Moody's or S&P shall change prior to the Maturity Date, Company and Lenders shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system. "ASSET SALE" means any sale or other disposition, or series of sales or other dispositions (including, without limitation, by merger or consolidation, and whether by operation of law or otherwise, but excluding the Maryland Merger), made on or after the Closing Date by Company or any of its Subsidiaries to any Person (other than Company or any of its Subsidiaries) of (a) all or substantially all of the outstanding Capital Stock of any of its Subsidiaries, (b) all or substantially all of its assets or the assets of any division of Company or any of its Subsidiaries or (c) any other asset or assets of Company or any of its Subsidiaries, including the sale of notes in connection with an Asset Securitization (but excluding any Retained Securities in connection with such Asset Securitization) or any Loan Sale; PROVIDED, HOWEVER, that the following shall not be considered an Asset Sale hereunder: (i) the sale or other disposition by Company or any of its Subsidiaries of worn out or obsolete tools, property or equipment; (ii) the sale of debt or equity investment securities in the ordinary course of business; and (iii) sales resulting from the exercise by Tenants under Leases with respect to Property owned by Company and its Subsidiaries as of the Closing Date of purchase options granted by Company and its Subsidiaries to such Tenants. -3- "ASSET SALE PROCEEDS" means cash payments received by Company or any of its Subsidiaries (including, without limitation, any cash payments received by way of deferred payment of principal pursuant to a note or receivable or otherwise, but only as and when received) from any Asset Sale (after repayment of any Indebtedness due by reason of such Asset Sale or to effect the release of any Lien on the property or assets being sold), in each case net of the amount of (a) reasonable brokers', underwriters' and advisors' fees and commissions payable in connection with such Asset Sale, (b) all Taxes reasonably estimated to be payable as a direct consequence of such Asset Sale, (c) the reasonable fees and expenses (including, without limitation, severance payments) attributable to such Asset Sale, and (d) to the extent not included in clauses (a) through (c), any amount required to be paid to any Person (other than Company and any of its Subsidiaries) owning a beneficial interest in the property or assets sold. For purposes of this definition, Asset Sale Proceeds shall be deemed to include, without limitation, any award of compensation for any asset or property or group thereof taken by condemnation or eminent domain and insurance proceeds for the loss of or damage to any asset or property if such award or proceeds equals or exceeds $50,000 (per occurrence) and within 90 days after the receipt thereof replacement or repair of such asset or property has not commenced, except that in the event that at any time such replacement or repair is abandoned or is otherwise discontinued or is not diligently pursued, the remaining award or proceeds, as the case may be, shall constitute Asset Sale Proceeds at such time. "ASSET SECURITIZATION" means the sale, disposition, transfer or assignment by Company or any of its Subsidiaries to a special purpose corporation, trust or other entity, of notes evidencing obligations to repay secured or unsecured loans owned by Company or any such Subsidiary, which notes are subsequently sold, transferred or assigned to one or more Asset Securitization Affiliates, and, as a result of such sale, transfer or assignment, bonds, certificates or other evidences of ownership representing interests in pools of such loans are issued, either simultaneously or subsequently. "ASSET SECURITIZATION AFFILIATE" means an Affiliate of Company or any of its Subsidiaries which owns no assets (other than initial capitalization of each Affiliate not to exceed $100,000) and transacts no business other than as a depositor, conduit or grantor in an Asset Securitization, including, without limitation, any real estate mortgage investment conduit or special purpose corporation, trust or other entity whose sole purpose is to effect an Asset Securitization or a warehousing of loans in anticipation of an Asset Securitization. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by Administrative Agent, in the form of EXHIBIT F hereto, as each such agreement may be amended, modified, extended, restated, renewed, substituted or replaced from time to time. -4- "AUDITOR" means Arthur Andersen LLP, or other independent certified public accountants selected by Company and acceptable to Administrative Agent. "AUTHORIZATIONS" means all filings, recordings and registrations with, and all validations or exemptions, consents and Licenses from, any Tribunal. "AUTHORIZED OFFICER" means the chief executive officer, an executive vice president or senior vice president of Company or any other executive officer of Company authorized by Company from time to time of which Administrative Agent has been notified in writing. "BANK AFFILIATE" means the holding company of any Lender, or any wholly-owned direct or indirect subsidiary of such holding company or of such Lender. "BASE RATE ADVANCE" means an Advance bearing interest at the Base Rate. "BASE RATE" means a fluctuating rate per annum as shall be in effect from time to time equal to the lesser of (a) the higher of (i) the sum of the Applicable Margin plus the rate of interest as then in effect announced publicly by Bank of America, N.A. from time to time as its U.S. dollar prime commercial lending rate (such rate may or may not be the lowest rate of interest charged by Bank of America, N.A. from time to time) or (ii) the sum of the Applicable Margin, plus 0.50%, plus the Federal Funds Rate, and (b) the Highest Lawful Rate. The Base Rate shall be adjusted automatically without notice as of the opening of business on the effective date of each change in the prime rate or Federal Funds Rate, as applicable, to account for such change. "BORROWING" means a borrowing under the Facility of the same Type made on the same day. "BORROWING NOTICE" has the meaning set forth in SECTION 2.2(a) hereof. "BUSINESS DAY" means a day on which commercial banks are open (a) for the transaction of commercial banking business in Dallas, Texas and Phoenix, Arizona and (b) with respect to any LIBOR Advance for the transaction of international business (including dealings in Dollar deposits) in London, England. "CAPITAL LEASES" means capital leases and subleases, as defined in accordance with GAAP. "CAPITAL STOCK" means, as to any Person, the equity interests in such Person, including, without limitation, the shares of each class of capital stock of any Person that is a corporation and each class of partnership interests (including, without limitation, general, limited and preference units) in any Person that is a partnership. "CASH EQUIVALENTS" means investments (directly or through a money market fund) in (a) certificates of deposit and other interest bearing deposits or accounts with United States commercial banks having a combined capital and surplus of at least $300,000,000, which certificates, deposits, and accounts -5- mature within one year from the date of investment and are fully insured as to principal by the Federal Deposit Insurance Corporation or any successor agency, (b) obligations issued or unconditionally guaranteed by the United States government, or issued by an agency thereof and backed by the full faith and credit of the United States government, which obligations mature within one year from the date of investment, (c) direct obligations issued by any state or political subdivision of the United States, which mature within one year from the date of investment and have the highest rating obtainable from S&P or Moody's on the date of investment, and (d) commercial paper which has one of the three highest ratings obtainable from S&P or Moody's. "CASH FLOW FROM OPERATIONS" means, for any period of determination, for Company and its Consolidated Subsidiaries on a consolidated basis, net income PLUS depreciation and amortization, all as determined in accordance with GAAP; PROVIDED that there shall not be included in such calculation (a) any proceeds of any insurance policy other than rental guaranty insurance or business interruption insurance received by such Person, (b) any gain or loss which is classified as "extraordinary" in accordance with GAAP, (c) any capital gains and taxes on capital gains or (d) any gains or losses from sales of Properties. "CHANGE OF CONTROL" means (a) a transaction or series of transactions whereby any Person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "1934 ACT")) shall acquire beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of Company (or other securities convertible into such securities) representing 35% of the combined voting power of all securities of Company entitled to vote in the election of directors (for purposes of this definition, a "Controlling Person") or (b) at any time a majority of Company's directors are persons who were not (i) in office on the Closing Date or (ii) initially nominated by directors who were in office on the Closing Date or by successor directors elected or appointed upon the initial nomination of such directors or successors directors. In connection with clause (a) above, a Person or group shall not be a "Controlling Person" if such Person or group holds voting power in good faith and not for the purpose of circumventing the effect of the occurrence of a Change of Control as an agent, bank, broker, nominee, trustee or holder of revocable proxies given in response to a solicitation pursuant to the 1934 Act, for one or more beneficial owners who do not individually, or, if they are a group acting in concert, as a group, have the voting power specified in the previous sentence. "CLOSING DATE" means the date of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, and the rules and regulations issued thereunder, as from time to time in effect. "COMMITMENT" means $235,000,000, as such amount may be reduced from time to time in accordance with the terms of SECTION 2.4 hereof. -6- "COMMITMENT FEE" means the fee described in SECTION 2.10(a) hereof. "COMPANY" means (a) prior to the Maryland Merger, Franchise Finance Corporation of America, a Delaware corporation and (b) subsequent to the Maryland Merger, Franchise Finance Corporation of America, a Maryland corporation. "COMPLIANCE CERTIFICATE" means a certificate of an Authorized Officer of Company acceptable to Administrative Agent, in the form of EXHIBIT C hereto, (a) certifying that such individual has no knowledge that a Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action being taken or proposed to be taken with respect thereto, and (b) setting forth detailed calculations with respect to each of the covenants described in SECTION 6.1 hereof. "CONFIDENTIAL INFORMATION" has the meaning specified in SECTION 9.9 hereof. "CONFIDENTIALITY AGREEMENT" means a Confidentiality Agreement in substantially the form of EXHIBIT H hereto, as such agreement may be amended, modified or supplemented from time to time. "CONSENSUAL LIEN" means any Lien of the type described in clauses (h) and (i) of the definition of Permitted Liens. "CONSEQUENTIAL LOSS," with respect to (a) Company's payment of all or any portion of the then-outstanding principal amount of a LIBOR Advance or a Swing Line Loan on a day other than the last day of the related Interest Period or at maturity, as applicable, including, without limitation, payments made as a result of the acceleration of the maturity of a Note, (b) (subject to Administrative Agent's prior consent), a LIBOR Advance or Swing Line Loan made on a date other than the date on which the LIBOR Advance or Swing Line Loan is to be made according to SECTION 2.2(a) hereof, SECTION 2.2(h) hereof or SECTION 2.9 hereof, as applicable, or (c) any of the circumstances specified in SECTION 2.4 hereof and SECTION 2.5 hereof on which a Consequential Loss may be incurred, means any loss, cost or expense incurred by any Lender as a result of the timing of the payment or Advance or in liquidating, redepositing, redeploying or reinvesting the principal amount so paid or affected by the timing of the Advance or the circumstances described in SECTION 2.4 hereof and SECTION 2.5 hereof, which amount shall be the sum of (i) the interest that, but for the payment or timing of Advance, such Lender would have earned in respect of that principal amount, reduced, if such Lender is able to redeposit, redeploy, or reinvest the principal amount, by the interest earned by such Lender as a result of redepositing, redeploying or reinvesting the principal amount plus (ii) any expense or penalty incurred by such Lender by reason of liquidating, redepositing, redeploying or reinvesting the principal amount. Each determination by each Lender of any Consequential Loss is, in the absence of demonstrable error, conclusive and binding. -7- "CONSOLIDATED SUBSIDIARY" means, as to any Person, each Subsidiary of such Person (whether then existing or thereafter created or acquired) the financial statements of which are (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. "CONTINGENT LIABILITY" means, as to any Person, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or obligation of any other Person in any manner, whether directly or indirectly, including without limitation any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase Property or services for the purpose of assuring the owner of such Indebtedness of its payment, or (c) to maintain the solvency, working capital, equity, cash flow, fixed charge or other coverage ratio, or any other financial condition of the primary obligor so as to enable the primary obligor to pay any Indebtedness or to comply with any agreement relating to any Indebtedness or obligation, and shall, in any event, include any contingent obligation under any letter of credit, application for any letter of credit or other related documentation; PROVIDED, HOWEVER, that liabilities resulting from indemnities or other similar agreements of the Company, any of its Subsidiaries, any Asset Securitization Affiliate or Loan Sale Affiliate made in the ordinary course of business in connection with Asset Securitizations or Loan Sales shall not be considered a Contingent Liability. "CONTINUE," "CONTINUATION" and "CONTINUED" each refer to the continuation pursuant to SECTION 2.9 hereof of a LIBOR Advance from one Interest Period to the next Interest Period. "CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" mean possession, direct or indirect, of power to direct or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise); provided that, in any event (a) it shall include any director (or Person holding the equivalent position) or executive officer (or Person holding the equivalent position) of such Person or of any Affiliate of such Person, (b) any Person which beneficially owns 5% or more (in number of votes) of the securities having ordinary voting power for the election of directors of a corporation shall be conclusively presumed to control such corporation, (c) any general partner of any partnership shall be conclusively presumed to control such partnership, (d) any other Person who is a member of the immediate family (including parents, spouse, siblings and children) of any general partner of a partnership, and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust, or is the executor, administrator or other personal representative of such Person, shall be conclusively presumed to control such Person, and (e) no Person shall be deemed to be an Affiliate of a corporation solely by reason of his being an officer or director of such corporation. "CONTROLLED GROUP" means, as to any Person, all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) which are under common control with such Person and which, together with such Person, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. -8- "CONVERSION OR CONTINUANCE NOTICE" has the meaning set forth in SECTION 2.9(b) hereof. "DEBT FOR BORROWED MONEY" means, as to any Person, at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, letters of credit (or applications for letters of credit) or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (d) all obligations of such Person secured by a Lien on any assets or property of any Person and (e) Intercompany Notes. "DEBTOR RELIEF LAWS" means applicable bankruptcy, reorganization, insolvency, receivership, liquidation, arrangement, conservatorship, moratorium, or similar Laws, or principles of equity affecting the enforcement of creditors' rights generally. "DEFAULT" means any event specified in SECTION 7.1 hereof, whether or not any requirement in connection with such event for the giving of notice, lapse of time, or happening of any further condition has been satisfied. "DISTRIBUTION" means, as to any Person, (a) any declaration or payment of any distribution or dividend (other than a stock dividend) on, or the making of any pro rata distribution, loan, advance, or investment to or in any holder (in its capacity as a partner, shareholder or other equity holder) of, any partnership interest or shares of Capital Stock or other equity interest of such Person, or (b) any purchase, redemption, or other acquisition or retirement for value of any shares of partnership interest or Capital Stock or other equity interest of such Person. "DOLLARS" and "$" means the lawful currency of the United States of America. "ELIGIBLE ASSIGNEE" means (a) a Lender, (b) an Affiliate oa Lender, and (c) any other Person approved by both Administrative Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with SECTION 9.4(a) hereof, Company, such approval not to be unreasonably withheld or delayed by Company or Administrative Agent and such approval to be deemed given by Company if no objection is received by assigning Lender and Administrative Agent from Company within two Business Days after notice of such proposed assignment has been provided by assigning Lender to Company; PROVIDED, HOWEVER, that neither Company nor any of its Affiliates shall qualify as an Eligible Assignee. "ENVIRONMENTAL CLAIM" means any written notice by any Tribunal alleging potential liability for damage to the environment, or by any Person alleging potential liability for personal injury (including sickness, disease or death), resulting from or based upon (a) the presence or release (including sudden or non-sudden, accidental or non-accidental, leaks or spills) of any Hazardous Material at, in or from property, whether or not owned by Company or any of its Subsidiaries, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. -9- "ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.ss.9601 ET SEQ.) ("CERCLA"), the Hazardous Material Transportation Act (49 U.S.C.ss.1801 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.Css.6901 ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C.ss.1251 ET SEQ.), the Clean Air Act (42 U.S.C.ss.7401 ET SEQ.), the Toxic Substances Control Act (15 U.S.C.ss.2601 ET SEQ.), and the Occupational Safety and Health Act (29 U.S.C. ss.651 ET SEQ.) ("OSHA"), as such laws have been or hereafter may be amended or supplemented, and any and all similar present or future federal, state and local Laws. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rulings and regulations issued thereunder, as from time to time in effect. "ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of Company or any of its Subsidiaries, or is under common control with Company or any of its Subsidiaries, within the meaning of Section 414(c) of the Code. "ERISA EVENT" means (a) a Reportable Event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC, (b) the issuance by the administrator of any Plan of a notice of intent to terminate such Plan in a distress situation, pursuant to Section 4041(a)(2) and 4041(c) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA), (c) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA, (d) the withdrawal by Company, any Subsidiary of Company, or an ERISA Affiliate from a Multiple Employer Plan during a Plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, (e) the failure by Company, any Subsidiary of Company, or any ERISA Affiliate to make a payment to a Plan required under Section 302 of ERISA, (f) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA, or (g) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. "EVENT OF DEFAULT" means any of the events specified in SECTION 7.1 hereof, provided there has been satisfied any requirement in connection therewith for the giving of notice, lapse of time, or happening of any further condition. "FACILITY" means the Revolving Loan, the Swing Line Loans and the Letters of Credit evidenced by this Agreement and the other Loan Papers. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Dallas, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such date on such transactions received by Administrative Agent from three federal funds brokers of recognized standing selected by it. -10- "FEE LETTERS" means those certain letter agreements addressed to Company and acknowledged by Company describing certain fees payable to Administrative Agent and/or Lenders in connection with this Agreement and the credit facility, as such letter agreements may be amended, modified, substituted or replaced with the consent of Company and Administrative Agent and/or Lenders, as appropriate. "FFCA FUNDING" means FFCA Funding Corporation, a Delaware corporation and Subsidiary of Company. "FIXED CHARGE COVERAGE RATIO" means, as of any date of determination, for Company and its Consolidated Subsidiaries determined in accordance with GAAP, the ratio of (a) the sum of (i) Flow From Operations for the twelve calendar month period ending on or most recently ended prior to such date of determination PLUS (ii) cash interest payable on all Indebtedness (including interest in respect of Capital Leases) of Company and its Consolidated Subsidiaries during such period to (b) the sum of (i) cash interest payable on all Indebtedness (including interest in respect of Capitalized Leases) of Company and its Consolidated Subsidiaries during such period PLUS (ii) regularly scheduled principal amounts of all Indebtedness of Company and its Consolidated Subsidiaries (including the principal portion of rentals payable under Lease Obligations) payable during such period, excluding, however, any regularly scheduled principal payment on Indebtedness of Company and its Consolidated Subsidiaries which pays such Indebtedness in full, but only to the extent that the amount of such final payment is greater than the scheduled principal payment immediately preceding such final payment, plus (iii) without duplication, the principal amounts of all Indebtedness of Company and its Subsidiaries (including the principal portion of rentals payable under Lease Obligations) required to be prepaid or purchased during such period. "FUNDED MORTGAGES" means promissory notes secured by duly recorded first priority mortgages, deeds of trust, deeds to secure debt, assignments of rents, security agreements, fixture filings and similar instruments executed by a purchaser or owner of a Property in favor of Company or any Subsidiary of Company, or a trustee acting for the benefit of Company or any Subsidiary of Company, relating to loans made by Company or any Subsidiary of Company to unaffiliated third parties secured by such Property, the principal amount of which was or will be funded from proceeds of Advances or Intercompany Loans. "GAAP" means generally accepted accounting principles applied on a consistent basis. Application on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period, except for new developments or statements promulgated by the Financial Accounting Standards Board. "GUARANTY" of a Person means any agreement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes liable upon, the obligation of any other -11- Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor or such other Person against loss, including, without limitation, any agreement which assures any creditor or such other Person payment or performance of any obligation, or any take-or-pay contract and shall include without limitation, the contingent liability of such Person in connection with any application for a letter of credit (without duplication of any amount already included in Indebtedness). "GUARANTY AGREEMENT" means a Guaranty Agreement, duly executed by each Guarantor, in substantially the form of EXHIBIT B hereto, appropriately completed, as such agreement may be amended, modified, extended, renewed, restated, substituted or replaced from time to time. "GUARANTORS" means each Subsidiary of Company and each other Person from time to time guaranteeing payment of the Obligations to Administrative Agent and Lenders. "HAZARDOUS MATERIALS" means all materials subject to any Environmental Law, including, without limitation, materials listed in 49 C.F.R. ss. 172.101, Hazardous Substances, explosive or radioactive materials, hazardous or toxic wastes or substances, petroleum or petroleum distillates, asbestos, or material containing asbestos. "HAZARDOUS SUBSTANCES" means hazardous waste as defined in the Clean Water Act, 33 U.S ss. 1251 ET SEQ., the Comprehensive Environmental Response Compensation and Liability Act as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.ss. 9601 ET SEQ., the Resource Conservation Recovery Act, 42 U.S.C. ss. 6901 ET SEQ., and the Toxic Substances Control Act, 15 U.S.C.ss. 2601 ET SEQ. "HIGHEST LAWFUL RATE" means at the particular time in question the maximum rate of interest which, under Applicable Law, Administrative Agent is then permitted to charge on the Obligations. If the maximum rate of interest which, under Applicable Law, such Lender is permitted to con the Obligations shall change after the date hereof, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Highest Lawful Rate without notice to Company. For purposes of determining the Highest Lawful Rate under the Applicable Law of the State of Texas, the applicable rate ceiling shall be (a) the weekly rate ceiling described in and computed in accordance with the provisions of Chapter 303.301 of the Texas Finance Code, as amended; or (b) if the parties subsequently contract as allowed by Applicable Law, the quarterly or the annualized ceiling computed pursuant to Chapter 303.302 of the Texas Finance Code, as amended; PROVIDED, HOWEVER, that at any time the indicated rate ceiling, the annualized ceiling or the quarterly ceiling, as applicable, shall be less than 18% per annum or more than 24% per annum, the provisions of Sections 303.304 and 303.305 of the Texas Finance Code, as amended, shall control for purposes of such determination, as applicable. "INCREASED COSTS" has the meaning specified in SECTION 2.13(e) hereof. -12- "INCREASED COSTS RETROACTIVE EFFECTIVE DATE" has the meaning specified in SECTION 2.13(e) hereof. "INCREASED COSTS SET DATE" has the meaning specified in SECTION 2.13(e) hereof. "INDEBTEDNESS" means, without duplication, with respect to any Person, all obligations of such Person, determined on a consolidated basis and measured in accordance with GAAP that is required to be classified on the balance sheet as liabilities, and in any event shall include (without duplication) (a) Debt for Borrowed Money, (b) Capital Lease obligations, (c) reimbursement obligations relating to letters of credit, (d) Contingent Liabilities relating to any of the foregoing, (e) Withdrawal Liability, (f) indebtedness, if any, associated with Interest Hedge Agreements with other Persons, (g) payments due for the deferred purchase price of property and services (but excluding trade payables that are less than 90 days old and (h) obligations (contingent or otherwise) to purchase, retire or redeem any Capital Stock of such Person. "INDEMNITEES" has the meaning ascribed thereto in SECTION 5.9 hereof. "INDEX DEBT RATING" means the rating applicable to Company's senior, unsecured, non-credit enhanced long term indebtedness for borrowed money. "INITIAL ADVANCE" means the initial Advance made in accordance with the terms hereof, which shall only be made after Company has satisfied each of the conditions set forth in SECTION 3.1 and SECTION 3.2 hereof (or any such condition shall have been waived by each Lender). "INITIAL LETTER OF CREDIT" means the initial Letter of Credit issued in accordance with the terms hereof, which shall only be issued after the Company has satisfied each of the conditions set forth in SECTION 3.1 and SECTION 3.2 hereof (or any such condition shall have been waived by each Lender). "INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of ERISA. "INTERCOMPANY LOANS" means all loans made by Company to its Subsidiaries or by its Subsidiaries to other Subsidiaries. "INTERCOMPANY NOTES" means all promissory notes payable to Company or to its Subsidiaries by any Subsidiary of Company evidencing the obligation to repay Intercompany Loans, as such notes may be amended, modified, extended, renewed, substituted or replaced from time to time. "INTEREST HEDGE AGREEMENTS" means any interest rate swap agreements, interest cap agreements, interest rate collar agreements, or any similar agreements or arrangements designed to hedge the risk of variable interest rate volatility, or foreign currency hedge, exchange or similar agreements, on terms and conditions reasonably acceptable to Administrative Agent (evidenced by Administrative Agent's consent in writing), as such agreements or arrangements may be modified, supplemented, and in effect from time to time. -13- "INTEREST PERIOD" means the period beginning on the date an Advance is made or continued as or converted into a LIBOR Advance and ending one, two, three or six months thereafter (as Company, in its sole discretion, shall select) PROVIDED, HOWEVER, that: (a) Company may not select any Interest Period that ends after any principal repayment date unless, after giving effect to such selection, the aggregate principal amount of LIBOR Advances having Interest Periods that end on or prior to such principal repayment date, shall be at least equal to the principal amount of Advances due and payable on and prior to such date; (b) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, PROVIDED, HOWEVER, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (c) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "INVESTMENT" means any acquisition of all or substantially all assets of any Person, or any direct or indirect purchase or other acquisition of, or a beneficial interest in, capital stock or other securities of any other Person, or any direct or indirect loan, extension of credit, advance (other than advances to employees for moving and travel expenses, drawing accounts, and similar expenditures in the ordinary course of business), or capital contribution to or investment in any other Person, including without limitation the incurrence or sufferance of Debt or accounts receivable of any other Person that are not current assets or do not arise from sales to that other Person in the ordinary course of business. "ISSUING BANK" means Bank of America, N.A., in its capacity as issuer of Letters of Credit and any successor thereto appointed in accordance with SECTION 8.6 hereof. "LAW" means any constitution, statute, law, ordinance, regulation, rule, order, writ, injunction, or decree of any Tribunal. "LEASE" means any lease, sublease, license, franchise, concession or other agreement, whether written or oral, permitting any other Person to use, occupy or possess any Property. -14- "LEASE OBLIGATIONS" means the obligations of Company and its Consolidated Subsidiaries to pay rent or other amounts under a Capital Lease or any Operating Lease. "LENDERS" means the lenders listed on the signature pages of this Agreement, and each Eligible Assignee which hereafter becomes a party to this Agreement pursuant to SECTION 9.4 hereof, for so long as any such Person is owed any portion of the Obligations or obligated to make any Advances under the Revolving Loan, and shall also include the Swing Line Lender. "LENDING OFFICE" means, with respect to each Lender, its branch or affiliate, (a) initially, the office of such Lender, branch or affiliate identified as such on the signature pages hereof, and (b) subsequently, such other office of such Lender, branch or affiliate as such Lender may designate in writing to Company and Administrative Agent as the office from which the Advances of such Lender will be made and maintained and for the account of which all payments of principal and interest on the Advances and the Commitment Fee will thereafter be made. Lenders may have more than one Lending Office for the purpose of making Base Rate Advances and LIBOR Advances. "L/C CASH COLLATERAL ACCOUNT" has the meaning specified in SECTION 2.14(f)(i) hereof. "L/C RELATED DOCUMENTS" has the meaning specified in SECTION 2.14(d)(i) hereof. "LETTER OF CREDIT" has the meaning specified in SECTION 2.14(a) hereof. "LETTER OF CREDIT AGREEMENT" has the meaning specified in SECTION 2.14(b) hereof. "LETTER OF CREDIT FACILITY" has the meaning specified in SECTION 2.14(a) hereof. "LIBOR ADVANCE" means an Advance bearing interest at the LIBOR Rate. "LIBOR RATE" means a simple per annum interest rate equal to the lesser of (a) the Highest Lawful Rate, and (b) the sum of the LIBOR Rate plus the Applicable Margin. The LIBOR Rate shall, with respect to LIBOR Advances subject to reserve or deposit requirements, be subject to premiums assessed therefor by each Lender, which are payable directly to each Lender. "LIBOR RATE BASIS" means, for any LIBOR Advance for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of one percent) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "LIBOR Rate Basis" shall mean, for any LIBOR Advance for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, 1/100th of one percent) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. -15- "LICENSE" means, as to any Person, any license, permit, certificate of need, authorization, orders, certification, accreditation, franchise, approval, or grant of rights by any Tribunal or third person necessary or appropriate for such Person to own, maintain, or operate its business or Property, unless the failure to obtain, retain, or comply with same would not constitute a Material Adverse Change. "LIEN" means any mortgage, pledge, security interest, encumbrance, lien, or charge of any kind, including without limitation any agreement to give or not to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or other similar form of public notice under any Laws (except for the filing of a financing statement or notice in connection with an Operating Lease). "LITIGATION" means any proceeding, claim, lawsuit, arbitration, and/or investigation conducted or threatened by or before any Tribunal, including without limitation proceedings, claims, lawsuits, and/or investigations under or pursuant to any environmental, occupational, safety and health, antitrust, unfair competition, securities, Tax, or other Law, or under or pursuant to any contract, agreement, or other instrument. "LOAN PAPERS" means this Agreement; the Notes; any Interest Rate Hedge Agreements executed between Company and any Lender or Bank Affiliate; all Guaranty Agreements; all L/C Related Documents; each Assignment and Acceptance; all promissory notes evidencing any portion of the Obligations; and all other documents, instruments, agreements or certificates executed or delivered by Company or any of its Subsidiaries, as security for Company's obligations hereunder, in connection with the loans to Company or otherwise; as each such document shall, with the consent of Lenders pursuant to the terms hereof, be amended, revised, renewed, extended, substituted or replaced from time to time. "LOAN SALE" means the sale, disposition or assignment by Company or any of its Subsidiaries, directly or indirectly through a Loan Sale Affiliate, of notes evidencing obligations to repay secured or unsecured loans initially owned by Company or any such Subsidiary. "LOAN SALE AFFILIATE" means an Affiliate of Company or any of its Subsidiaries which is organized primarily to engage in the simultaneous origination and sale of loans for Loan Sales to a Person or Persons not Affiliated with the Company or any of its Subsidiaries; PROVIDED, HOWEVER, FFCA Funding shall not be a Loan Sale Affiliate. "MAJORITY LENDERS" means any combination of Lenders having at least 66.67% of the Advances under the Revolving Loan (which for purposes of calculation shall include for each Lender an amount equal to the product of such Lender's Specified Percentage and the aggregate principal amount of Swing Line Loans outstanding); provided, however, (a) that if no Advances under the Revolving -16- Loan are outstanding under this Agreement, such term means any combination of Lenders having a Specified Percentage equal to at least 66.67% of the Commitment and (b) there shall be excluded from the calculation hereunder the Advances owed to and portion of the Commitment held by any Lender which is in default of its obligations hereunder. "MANAGEMENT FEES" means all fees from time to time directly or indirectly paid or payable by Company or any Subsidiary of Company to any Person for management services for managing any portion of any Property. "MARYLAND MERGER" means the merger of Company with and into FFCA Maryland Corp., a Maryland corporation, which surviving Maryland corporation will be renamed Franchise Finance Corporation of America. "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any circumstance or event that (a) can reasonably be expected to cause a Default or an Event of Default, (b) otherwise can reasonably be expected to (i) be material and adverse to the continued operation of any Company and its Subsidiaries taken as a whole, or (ii) be material and adverse to the financial condition, business operations, prospects or Properties of Company and its Subsidiaries taken as a whole, or (c) in any manner whatsoever does or can reasonably be expected to (i) materially and adversely affect the validity or enforceability of any material provision of any of the Loan Papers or (ii) materially and adversely affect the ability of Company or any Subsidiary of Company to perform its obligations under the Loan Papers executed by it. "MATURITY DATE" means September 15, 2003, or such earlier date all of the Obligations become due and payable (whether by acceleration, prepayment in full, scheduled reduction or otherwise). "MAXIMUM AMOUNT" means the maximum amount of interest which, under Applicable Law, Administrative Agent or any Lender is permitted to charge on the Obligations. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which Company, any Subsidiary of Company, or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in Section 400 of ERISA, that (a) is maintained for employees of Company, any Subsidiary of Company, or any ERISA Affiliate and at least one Person other than Company, any Subsidiary of Company, and any ERISA Affiliate, or (b) was so maintained and in respect of which Company, any Subsidiary of Company, or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. -17- "NET CASH PROCEEDS" means with respect to any offering or other disposition of Capital Stock by any Person, the aggregate amount of cash received by such Person in connection with such transaction minus reasonable fees, costs and expenses and related Taxes. "NET WORTH" means, at any time, the shareholders' equity of Company and its Consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP at such time. "NOTE" means each and "NOTES" means all (a) Revolving Loan Notes, and (b) the Swing Line Note. "OBLIGATIONS" means all present and future obligations, indebtedness and liabilities, and all renewals and extensions of all or any part thereof, of Company and each Subsidiary of Company to any Lender, Administrative Agent or Issuing Bank arising from, by virtue of, or pursuant to this Agreement, any of the other Loan Papers and any and all renewals and extensions thereof or any part thereof, or future amendments thereto, all interest accruing on all or any part thereof and reasonable attorneys' fees incurred by Lenders and Administrative Agent for the administration, execution of waivers, amendments and consents, and in connection with any restructuring, workouts or in the enforcement or the collection of all or any part thereof, whether such obligations, indebtedness and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several. Without limiting the generality of the foregoing, "Obligations" includes all amounts which would be owed by Company, each Subsidiary of Company and any other Person (other than Administrative Agent or Lenders) to Administrative Agent, Lenders or Issuing Bank under any Loan Paper, but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving Company, any Subsidiary of Company or any other Person (including all such amounts which would become due but for the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding of Company, any Subsidiary of Company or any other Person under any Debtor Relief Law). "OPERATING LEASES" means operating leases, as defined in accordance with GAAP. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor agency or entity performing substantially the same functions. "PERMITTED DISTRIBUTIONS" means, for Company for any fiscal year of Company, an amount not to exceed (a) 95% of Cash Flow From Operations for fiscal year 1999 of Company and (b) 90% of Cash Flow From Operations for each fiscal year thereafter. "PERMITTED LIENS" means -18- (a) those imposed by the Loan Papers (as defined in this Agreement) or by the Loan Papers (as defined in the 364-Day Credit Agreement); (b) Liens in connection with workers' compensation, unemployment insurance or other social security obligations (which phrase shall not be construed to refer to ERISA); (c) deposits, pledges or liens to secure the performance of bids, tenders, contracts (other than contracts for the payment of borrowed money), leases, statutory obligations, surety, customs, appeal, performance and payment bonds and other obligations of like nature arising in the ordinary course of business; (d) mechanics', workmen's, carriers, warehousemen's, materialmen's, landlords' or other like Liens arising in the ordinary course of business with respect to obligations which are not due or which are either (i) being contested in good faith and by appropriate proceedings diligently conducted (including, if applicable, by a Tenant of a Property as required under the Lease relating thereto or by a mortgagor under a Funded Mortgage as required thereby) and in respect of which adequate reserves shall have been established in accordance with GAAP on the books of Company or of its Subsidiaries or (ii) the obligation of a Tenant of a Property under its Lease or of a mortgagor under a Funded Mortgage and Company or any of its Subsidiaries has made a demand upon such Tenant or mortgagor to pay amounts owed in order to remove such Liens; provided that if the Tenant fails to pay such amounts then Company or its Subsidiary, as applicable, shall promptly take all necessary action to remove such Liens; (e) Liens for taxes, assessments, fees or governmental charges or levies not delinquent or to the extent that payment hereof is either (i) being contested in good faith and by appropriate proceedings diligently conducted (including, if applicable, by a Tenant of a Property as required under the Lease relating thereto or by a mortgagor under a Funded Mortgage as required thereby), and in respect of which adequate reserves shall have been established in accordance with GAAP on the books of Company or any Subsidiary of Company or (ii) the obligation of a Tenant of Property under its Lease or of a mortgagor under a Funded Mortgage and Company or any of its Subsidiaries has made a demand upon such Tenant or mortgagor to pay amounts owed in order to remove such Liens; provided that if the Tenant fails to pay such amounts then Company or its Subsidiary, as applicable, shall promptly take all necessary action to remove such Liens; (f) easements, rights of way, restrictions, leases of Property to others, easements for installations of public utilities, title imperfections and restrictions, zoning ordinances and other similar encumbrances affecting Property which in the aggregate do not materially adversely affect the value of such Property or materially impair its use for the operation of the business of Company or any Subsidiary of Company; (g) Liens securing Intercompany Loans; -19- (h) Liens on Property acquired by Company or any of its Subsidiaries in the ordinary course of business, securing Indebtedness of Company or any of its Subsidiaries incurred or assumed for the purpose of financing all or part of the cost of acquiring such Property; provided that (i) such Lien attaches solely to the Property so acquired in such transaction, (ii) such Lien attaches to such Property concurrently with or within 30 days after the acquisition thereof, (iii) such Property is used in the business of Company or any of its Subsidiaries, (iv) the amount of Indebtedness secured by Lien shall not exceed 100% of the cost of such Property, and (v) such Indebtedness is permitted to be incurred hereunder and would not otherwise result in a Default or Event of Default hereunder; and (i) Liens on the Property constituting Company's executive offices located in Scottsdale, Arizona, securing Indebtedness for the acquisition, refinancing, construction or improvement thereof. "PERSON" means an individual, partnership, joint venture, corporation, trust, Tribunal, unincorporated organization, and government, or any department, agency, or political subdivision thereof. "PLAN" means a Single Employer Plan or a Multiple Employer Plan. "PROHIBITED TRANSACTION" has the meaning specified therefor in Section 4975 of the Code or Section 406 of ERISA. "PROPERTY" means all types of real, personal, tangible, intangible, or mixed property, whether owned in fee simple or leased. "QUARTERLY DATE" means the last Business Day of each March, June, September and December during the term of this Agreement, commencing on September 30, 2000. "RATABLE" means, as to any Lender, in accordance with its Specified Percentage. "REAL ESTATE INVESTMENT TRUST means the classification for federal tax purposes as a real estate investment trust pursuant to Part II, Subchapter M of Chapter 1 of the Code. "REFINANCING ADVANCE" means an Advance that is used to pay the principal amount of an existing Advance (or any performance thereof) at the end of its Interest Period and which, after giving effect to such application, does not result in an increase in the aggregate amount of outstanding Advances. "REGULATORY CHANGE" means any change after the date hereof in federal, state, or foreign Laws (including the introduction of any new Law) or the adoption or making after such date of any interpretations, directives, or requests of or under any federal, state, or foreign Laws (whether or not having -20- the force of Law) by any Tribunal charged with the interpretation or administration thereof, applying to a class of financial institutions that includes any Lender. "REIMBURSEMENT OBLIGATIONS" means, at any date of determination, the sum of (a) the maximum aggregate amount which is then available to be drawn under all Letters of Credit plus (b) the aggregate amount of all drawings under Letters of Credit which have not been reimbursed by Company or refinanced by Advances. "REPORTABLE EVENT" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waivers in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "RESTRICTED PAYMENTS" means (a) any direct or indirect distribution, Distribution or other payment on account of any general or limited partnership interest in (or the setting aside of funds for, or the establishment of a sinking fund or analogous fund with respect to), or shares of Capital Stock or other securities of, Company or any Subsidiary of Company; (b) any payments of principal of, or interest on, or fees related to, or any other payments and prepayments with respect to, or the establishment of, or any payment to, any sinking fund or analogous fund for the purpose of making any such payments on, Indebtedness of Company or any Subsidiary of Company (including, without limitation, Debt evidenced by the Intercompany Notes, but excluding the Obligations); (c) any Management Fee or any management, consulting or other similar fees, or any interest thereon, payable by Company or any of its Subsidiaries to any Affiliate of Company; and (d) any administration fee or any administration, consulting or other similar fees, or any interest thereon, payable by Company or any of its Subsidiaries to any Affiliate of Company or to any other Person. "RETAINED SECURITIES" means any class of securities or portion thereof purchased or retained by the Company or any Subsidiary from any corporation, trust or other entity in conjunction with any Asset Securitization. "REVOLVING LOAN" means that certain revolving loan made to Company on the Closing Date until the Maturity Date in accordance with SECTION 2.1(a) hereof. "REVOLVING LOAN NOTE" means each promissory note of Company evidencing the Advances and obligations owing hereunder to each Lender under the Revolving Loan, in substantially the form of EXHIBIT A hereto, as each such note may be amended, extended, restated, renewed, substituted or replaced from time to time. "RIGHTS" means rights, remedies, powers, and privileges. -21- "S&P" means Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation. "SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, other than a Multiple Employer Plan, that is maintained for employees of Company or any ERISA Affiliate. "SOLVENT" means, with respect to any Person, that on such date (a) the fair value of the Property of such Person is greater than the total amount of liabilities, including, without limitation, Contingent Liabilities of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's Property would constitute an unreasonably small capital. "SPECIAL COUNSEL" means the law firm of Donohoe, Jameson & Carroll, P.C., Dallas, Texas, special counsel to Administrative Agent, or such other counsel selected by Administrative Agent from time to time. "SPECIFIED PERCENTAGE" means, as to any Lender, the percentage indicated beside its name on the signature pages hereof, or as adjusted or specified in any Assignment and Acceptance, or amendment to this Agreement. "SUBORDINATION AGREEMENT" means a subordination agreement substantially in the form of EXHIBIT G hereto, as amended, modified or supplemented from time to time. "SUBSIDIARY" of any Person means (a) any corporation, partnership, joint venture, trust, estate or other Person of which (or in which) more than 50% of: (i) the outstanding Capital Stock having voting power to elect a majority of the Board of Directors of such corporation (or other Persons performing similar functions of such entity, and irrespective of whether at the time Capital Stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (ii) the interest in the capital or profits of such partnership or joint venture, (iii) the beneficial interest of such trust or estate, or -22- (iv) the equity interest of such other Person, is at the time directly or indirectly owned by (A) such Person, (B) such Person and one or more of its Subsidiaries or (C) one or more of such Person's Subsidiaries, and (b) any corporation which is a non-qualified REIT Subsidiary under the Code of which more than 50% of the non-voting preferred Capital Stock is at the time directly or indirectly owned by (i) such Person, (ii) such Person and one or more of its Subsidiaries or (iii) one or more of such Person's Subsidiaries; PROVIDED, HOWEVER, Subsidiary does mean and include FFCA Funding but does not mean or include any Asset Securitization Affiliate or Loan Sale Affiliate. "SWING LINE FACILITY" has the meaning specified in SECTION 2.1(b) hereof. "SWING LINE LENDER" means Bank of America, N.A. and any successor thereto appointed in accordance with SECTION 8.6 hereof. "SWING LINE LOAN" means a loan made to Company in accordance with SECTION 2.1(b) hereof. "SWING LINE NOTE" means the promissory note of Company evidencing Swing Line Loans owing hereunder to Swing Line Lender, in substantially the form of EXHIBIT I, as such note may be amended, extended, restated, renewed, substituted or replaced from time to time. "SWING LINE RATE" means an absolute fixed rate of interest per annum. "TAXES" means all taxes, assessments, imposts, fees, or other charges at any time imposed by any Laws or Tribunal. "TENANTS" means any and all tenants, licensees, occupants, concessionaires or other Person or Persons possessing, occupying or otherwise using or having a right to use, any space at Property of Company or its Subsidiaries and giving or paying rent or other consideration, whether under written agreement or otherwise. "364-DAY CREDIT AGREEMENT" means that certain Credit Agreement (Facility B), dated as of September 15, 2000, among Company, certain lenders and agents, and Administrative Agent, as amended, modified, supplemented or restated from time to time. "TOTAL ASSETS" means, at any time, all assets (calculated without any deduction for accumulated depreciation) of Company and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP at such time. "TOTAL INDEBTEDNESS" means, without duplication, with respect to Company and its Consolidated Subsidiaries, the sum of all Indebtedness of Company and its Consolidated Subsidiaries, excluding Indebtedness evidenced by the Intercompany Notes (which Debt is subject to a Subordination Agreement), calculated on a consolidated basis in accordance with GAAP. -23- "TOTAL SECURED INDEBTEDNESS" means, at any time, the aggregate amount of Indebtedness of Company and its Consolidated Subsidiaries determined in accordance with GAAP on a consolidated basis that is secured solely by a Consensual Lien. "TOTAL UNENCUMBERED ASSETS" means, at any time, the aggregate amount of Total Assets of Company and its Consolidated Subsidiaries determined in accordance with GAAP on a consolidated basis which are not subject to a Lien, other than Permitted Liens of the type described in clauses (a) through (g) of the definition thereof. "TOTAL UNSECURED INDEBTEDNESS" means, at any time, the aggregate amount of Indebtedness of Company and its Consolidated Subsidiaries that is not secured by a Lien, other than Permitted Liens of the type described in clauses (a) through (g) of the definition thereof. "TRIBUNAL" means any state, commonwealth, federal, foreign, territorial, or other court or government or regulatory body, subdivision, agency, department, commission, board, bureau, or instrumentality of a governmental body. "TYPE" refers to the distribution between Advances bearing interest at the Base Rate, LIBOR Rate, or Swing Line Rate. "UCC" means the Uniform Commercial Code as adopted in the State of Texas. "UNUSED COMMITMENT" means, on any date, with respect to each Lender, an amount equal to the product of such Lender's Specified Percentage multiplied by the Commitment in effect on such date, minus an amount equal to the sum of (a) all outstanding Advances made by such Lender under the Revolving Loan which are outstanding on such date and (b) the product of such Lender's Specified Percentage multiplied by all outstanding Reimbursement Obligations on such date. "WITHDRAWAL LIABILITY" has the meaning given such term under Part I of Subtitle E of Title IV of ERISA. 1.2 ACCOUNTING AND OTHER TERMS. All accounting terms used in this Agreement which are not otherwise defined herein shall be construed in accordance with GAAP consistently applied on a consolidated basis for Company and its Consolidated Subsidiaries, unless otherwise expressly stated herein. References herein to one gender shall be deemed to include all other genders. Except where the context otherwise requires, all references to time are deemed to be Dallas, Texas time. -24- ARTICLE II. AMOUNTS AND TERMS OF ADVANCES 2.1 THE ADVANCES. (a) ADVANCES UNDER THE REVOLVING LOAN. Each Lender severally agrees, on the terms and subject to the conditions hereinafter set forth, to make Advances under the Revolving Loan to Company on any Business Day during the period from the Closing Date until the Maturity Date, in an aggregate principal amount not to exceed at any time outstanding such Lender's Specified Percentage of the Commitment. Subject to the terms and conditions of this Agreement, until the Maturity Date, Company may borrow, repay and reborrow the Advances under the Revolving Loan. Notwithstanding anything in this SECTION 2.1(a) or SECTION 2.1(b) to the contrary, at no time shall the sum of (i) the aggregate principal amount of Advances outstanding under the Revolving Loan, (ii) the aggregate principal amount of Swing Line Loans outstanding and (iii) the aggregate principal amount of the Reimbursement Obligations outstanding exceed the Commitment. (b) SWING LINE LOANS. Company may request Swing Line Lender to make, and Swing Line Lender shall make, on the terms and conditions hereinafter set forth, advances ("SWING LINE LOANS") to Company from time to time on any Business Day from the Closing Date until the Maturity Date in an aggregate principal amount not to exceed at any time outstanding the lesser of (a) $25,000,000 and (b) an amount equal to the Commitment minus (i) the aggregate principal amount of Advances then outstanding under the Revolving Loan and (ii) the aggregate principal amount of all Reimbursement Obligations then outstanding (the "SWING LINE FACILITY"). Each Swing Line Loan shall be in a principal amount which is at least $1,000,000 and which is an integral multiple of $1,000,000 in excess thereof. Within the limits of the Swing Line Facility and subject to the terms hereof, Swing Line Loans may be repaid and then reborrowed. 2.2 MAKING ADVANCES. (a) Each Borrowing of Advances under the Revolving Loan shall be made upon the written notice of Company, received by Administrative Agent not later than (i) 12:00 noon three Business Days prior to the proposed date of the Borrowing, in the case of LIBOR Advances and (ii) not later than 10:00 a.m. on the date of such Borrowing, in the case of Base Rate Advances. Each such notice of a Borrowing (a "BORROWING NOTICE") shall be by telecopy, promptly confirmed by letter, in substantially the form of EXHIBIT E hereto specifying therein: (i) the date of such proposed Borrowing, which shall be a Business Day; (ii) the amount of such proposed Borrowing which, (A) with respect to Advances under the Revolving Loan, shall not exceed the Commitment less the sum of Advances under the Revolving Loan plus Swing Line Loans and Reimbursement Obligations then outstanding, and (B) shall, for the Revolving Loan in the case of a Borrowing of LIBOR Advances, be in an -25- amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof and, in the case of a Borrowing of Base Rate Advances, be in an amount of not less than $1,000,000 or an integral multiple of $500,000 in excess thereof; (iii) the Type of Advances of which the Borrowing is to be comprised; and (iv) if the Borrowing is to be comprised of LIBOR Advances, the duration of the initial Interest Period applicable to such Advances. If the Borrowing Notice fails to specify the duration of the initial Interest Period for any Borrowing comprised of LIBOR Advances, such Interest Period shall be one month. Administrative Agent shall give prompt notice (which may be by telecopy or telephonic, to be confirmed by telecopy) of its receipt of a Borrowing Notice to each Lender. Each Lender shall, before 2:00 p.m. on the date of each Advance hereunder under the Revolving Loan (other than a Refinancing Advance), make available to Administrative Agent Bank of America Plaza 901 Main Street 14th Floor Dallas, Texas 75202 Attn. Tonya Parker such Lender's Specified Percentage of the aggregate Advances under the Revolving Loan to be made on that day in immediately available funds. (b) Unless any applicable condition specified in ARTICLE III hereof has not been satisfied, Administrative Agent will make the funds on Advances under the Revolving Loan promptly available to Company (other than with respect to a Refinancing Advance) by wiring Norwest Bank Minneapolis, N.A., ABA #091000019, Beneficiary Bank: Norwest Bank Arizona, Beneficiary Account: 8711701002, Beneficiary Name: FFCA, or such other account as shall have been specified by Company. (c) After giving effect to any Borrowing, (i) there shall not be more than ten different Interest Periods in effect and (ii) the aggregate principal of outstanding Advances, Swing Line Loans and Reimbursement Obligations shall not exceed the Commitment. (d) No Interest Period for a Borrowing under the Facility shall extend beyond the Maturity Date. (e) Unless a Lender shall have notified Administrative Agent prior to the date of any Advance under the Revolving Loan that it will not make available its Specified Percentage of any such Advance, Administrative Agent may assume that such Lender has made the appropriate amount available in accordance with SECTION -26- 2.2(a), and Administrative Agent may, in reliance upon such assumption, make available to Company a corresponding amount. If and to the extent any Lender shall not have made such amount available to Administrative Agent, such Lender and Company severally agree to repay to Administrative Agent immediately on demand such corresponding amount together with interest thereon, from the date such amount is made available to Company until the date such amount is repaid to Administrative Agent, at (i) in the case of Company, the Base Rate, and (ii) in the case of such Lender, the Federal Funds Rate. The obligation of Company under this SECTION 2.2(e) shall not affect or impair any right of Company against any Lender for such Lender's breach of its obligation to fund Advances under the Revolving Loan. (f) The failure by any Lender to make available its Specified Percentage of any Advance under the Revolving Loan shall not relieve any other Lender of its obligation, if any, to make available its Specified Percentage of any such Advance. In no event, however, shall any such Lender be responsible for the failure of any other Lender to make available any portion of any Advance. (g) Company shall indemnify each Lender against any Consequential Loss incurred by each Lender as a result of (i) any failure to fulfill, on or before the date specified in the Borrowing Notice for an Advance under the Revolving Loan, the conditions to such Advance set forth herein or (ii) Company's requesting that an Advance under the Revolving Loan not be made on the date specified in the Borrowing Notice. (h) With respect to each Borrowing consisting of Swing Line Loans, Company shall give Swing Line Lender and Administrative Agent prior to 12:00 noon on the date of such proposed Borrowing irrevocable telephonic notice (provided, however, (i) Company shall deliver written notice at least once a week confirming telephonic notices given by Company with respect to Swing Line Loans during the immediately preceding week and (ii) Company's failure to confirm any telephonic notice in writing shall not invalidate any notice so given), of its intention to borrow a Swing Line Loan. Such notice of borrowing shall specify (i) the requested funding date, which shall be a Business Day, (ii) the amount of such proposed Swing Line Loan and (iii) the maturity date of the proposed Swing Line Loan (which maturity date shall be no later than seven days after the requested funding date of such Swing Line Loan). (i) After giving effect to a Swing Line Loan Borrowing, the aggregate principal of outstanding Swing Line Loans, Advances and Reimbursement Obligations shall not exceed the Commitment. (j) Company shall indemnify Swing Line Lender against any Consequential Loss incurred by Swing Line Lender as a result of (i) any failure by Company to fulfill, on or before the date specified for the Swing Line Loan Borrowing, the conditions to such Swing Line Loan set forth herein or (ii) Company's requesting that a Swing Line Loan not be made on the date requested. (k) Swing Line Lender shall, not later than 2:00 p.m. on the date of any Swing Line Loan, deliver to Administrative Agent at its address set forth herein, the amount of such Swing Line Loan in immediately available funds in -27- accordance with the Administrative Agent's instructions. Prior to 2:30 p.m. on the date of any Swing Line Loan, Administrative Agent shall, subject to the conditions set forth in ARTICLE III hereof, disburse the amount made available to Administrative Agent by Swing Line Lender by (i) transferring such amounts by wire transfer pursuant to the Company's instruction or (ii) in the absence of such instructions, crediting such amounts to the account of the Company maintained with Administrative Agent. Forthwith upon demand by the Swing Line Lender at any time, including after a Default or Event of Default, and in any event upon the making of the direction specified by SECTION 7.2 hereof to authorize Administrative Agent to declare the Advances due and payable pursuant to the provisions of SECTION 7.2 hereof, each Lender, including the Swing Line Lender, notwithstanding the failure of Company at such time to satisfy each condition specified in ARTICLE III hereof, shall make by 12:00 noon on the first Business Day following receipt by such Lender of notice from the Swing Line Lender, an Advance under the Revolving Loan in an amount equal to the product of (i) the Specified Percentage of such Lender and (ii) the aggregate outstanding principal amount of the Swing Line Loans. The proceeds of such Advances under the Revolving Loan shall be applied by the Administrative Agent to repay the outstanding Swing Line Loans. If as a result of termination of the Commitment pursuant to any Debtor Relief Law, Lenders are prohibited from making an Advance under the Revolving Loan pursuant to the immediately preceding sentence, each Lender with a Specified Percentage on the date that such Advance under the Revolving Loan was to have been made pursuant to this SECTION 2.2(K), will purchase an undivided participation interest in the Swing Line Loans equal to the product of (i) the Specified Percentage of such Lender and (ii) the aggregate principal amount of the Swing Line Loans. Each Lender with a Specified Percentage will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its participation. 2.3 EVIDENCE OF INDEBTEDNESS. (a) The obligations of Company with respect to all Advances (i) under the Revolving Loan made by each Lender shall be evidenced by a Revolving Loan Note in the amount of such Lender's Specified Percentage of $235,000,000 (as the same may be modified pursuant to SECTION 9.4 hereof), and (ii) in respect of Swing Line Loans made by Swing Line Lender shall be evidenced by the Swing Line Note in the principal amount of $25,000,000. (b) Absent demonstrable error, Administrative Agent's and each Lender's records shall be conclusive as to amounts owed Administrative Agent and such Lender under the Notes and this Agreement. 2.4 REDUCTION OF COMMITMENT. (a) VOLUNTARY COMMITMENT REDUCTION. Company shall have the right from time to time upon notice by Company to Administrative Agent not later than 1:00 p.m., five Business Days in advance, to reduce the Commitment, in whole or in part; provided, however, that Company shall pay the accrued and unpaid Commitment Fee on the amount of such reduction, if any, and any partial reduction shall be in an aggregate amount which is not less than $1,000,000 and an integral multiple -28- of $500,000. Such notice shall specify the amount of reduction and the proposed date of such reduction. (b) MANDATORY COMMITMENT REDUCTION OR TERMINATION. (i) SCHEDULED REDUCTION. The Commitment shall be terminated on the Maturity Date. (ii) ASSET SALES. On the date of any Asset Sale by Company or any Subsidiary of Company with respect to which a mandatory prepayment of Advances under the Revolving Loan is required pursuant to the second sentence of SECTION 2.5(b), the Commitment shall be automatically and permanently reduced by an amount equal to the amount by which the Asset Sale Proceeds of such Asset Sale exceeds the amount not otherwise permitted pursuant to SECTION 6.6 hereof. (c) COMMITMENT REDUCTIONS, GENERALLY. To the extent that the sum of the aggregate outstanding (i) Advances under the Revolving Loan plus (ii) Swing Line Loans, plus (iii) Reimbursement Obligations exceed the Commitment after any reduction thereof, Company shall simultaneously repay on the date of such reduction, any such excess amount and all accrued interest thereon, together with any amounts constituting any Consequential Loss. Once reduced or terminated pursuant to this SECTION 2.4, the Commitment may not be increased or reinstated. 2.5 PREPAYMENTS. (a) OPTIONAL PREPAYMENTS. Company may, upon at least three Business Days prior written notice to Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, prepay the outstanding principal amount of any Advances in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid without premium other than any Consequential Loss; PROVIDED, HOWEVER, that in the case of a prepayment of a Base Rate Advance, the notice of prepayment may be given by telephone by 11:00 a.m. on the date of prepayment. Each partial prepayment shall, in the case of Base Rate Advances, be in an aggregate principal amount of not less than $1,000,000 or a larger integral multiple of $500,000 in excess thereof and, in the case of LIBOR Advances, be in an aggregate principal amount of not less than $5,000,000 or a larger integral multiple of $1,000,000 in excess thereof. If any notice of prepayment is given, the principal amount stated therein, together with accrued interest on the amount prepaid and the amount, if any, due under SECTIONS 2.11 and 2.13 hereof, shall be due and payable on the date specified in such notice. (b) MANDATORY PREPAYMENTS. On the date of any Asset Sale (excluding any Loan Sale) by Company or any Subsidiary of Company (x) which occurs on a date on which there are no amounts due and owing under the 364-Day Credit Agreement (after giving effect to any prepayments required on such day pursuant to the 364-Day Credit Agreement) and (y) in which the Asset Sale Proceeds thereof exceed $3,000,000, Company shall make a mandatory prepayment of Advances under the Revolving Loan in an amount equal to the amount by which the Asset Sale Proceeds of such Asset Sale exceeds $3,000,000 (less the amount of any prepayment of Advances required on such day pursuant to the 364-Day Credit -29- Agreement). On the date of any Asset Sale (excluding any Loan Sale) of Company or any Subsidiary of Company (x) which occurs on a date on which there are no amounts due and owing under the 364-Day Credit Agreement (after giving effect to any prepayments required on such day pursuant to the 364-Day Credit Agreement) and (y) which is not otherwise permitted to be made pursuant to SECTION 6.6 hereof, Company shall make a mandatory prepayment of Advances under the Revolving Loan by an amount equal to the amount by which the Asset Sale Proceeds of such Asset Sale exceeds the amount not otherwise permitted pursuant to SECTION 6.6 hereof. (c) PREPAYMENTS, GENERALLY. No prepayments of Advances under the Revolving Loan made pursuant to SECTION 2.5(a) or the first sentence of SECTION 2.5(b) shall cause the Commitment to be reduced. Any prepayment of Advances under the Revolving Loan pursuant to the second sentence of SECTION 2.5(b) shall cause the Commitment to be automatically and permanently reduced by the amount of such required prepayment. Any prepayment of Advances pursuant to this SECTION 2.5 shall be applied FIRST to Base Rate Advances, if any, then outstanding under the Facility, SECOND to LIBOR Advances for which the date of prepayment is the last day of the applicable Interest Period, if any, outstanding under the Facility and THIRD to LIBOR Advances with the shortest remaining Interest Periods outstanding under the Facility. 2.6 REPAYMENT. (a) THE REVOLVING LOAN. (i) On the date of any reduction of the Commitment pursuant to SECTION 2.4 hereof, Company shall immediately repay Advances under the Revolving Loan to the extent that the sum of (i) the aggregate outstanding Advances under the Revolving Loan on the date of reduction, plus (ii) the aggregate outstanding Swing Line Loans on the date of reduction, plus (iii) the aggregate outstanding Reimbursement Obligations on the date of reduction exceed the Commitment as reduced, which principal payment may not be made by means of a Refinancing Advance and (ii) Advances outstanding under the Revolving Loan are due and payable in full on the Maturity Date. (b) SWING LINE LOANS. Company shall repay Swing Line Loans at such time as agreed upon between Company and Swing Line Lender pursuant to SECTION 2.2(h). (c) OTHER OBLIGATIONS. Except if an earlier date is otherwise provided in this Agreement, all Obligations not otherwise due and payable under SECTIONS 2.6(a) and 2.6(b) above shall be due and payable in full on the Maturity Date. 2.7 INTEREST. Subject to SECTION 2.8 below, Company shall pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal shall be paid in full, at the following rates: -30- (a) BASE RATE ADVANCES. Base Rate Advances shall bear interest at a rate per annum equal to the lesser of (i) the Base Rate as in effect from time to time and (ii) the Highest Lawful Rate. If the amount of interest payable in respect of any interest computation period is reduced to the Highest Lawful Rate pursuant to the immediately preceding sentence and the amount of interest payable in respect of any subsequent interest computation period would be less than the Maximum Amount, then the amount of interest payable in respect of such subsequent interest computation period shall be automatically increased to the Maximum Amount; PROVIDED that at no time shall the aggregate amount by which interest paid has been increased pursuant to this sentence exceed the aggregate amount by which interest has been reduced pursuant to the immediately preceding sentence. (b) LIBOR ADVANCES. LIBOR Advances shall bear interest at the rate per annum equal to the LIBOR Rate applicable to such Advance, which at no time shall exceed the Highest Lawful Rate. (c) PAYMENT DATES. Accrued and unpaid interest on Base Rate Advances shall be paid quarterly in arrears on each Quarterly Date and on the appropriate maturity, repayment or prepayment date. Accrued and unpaid interest on LIBOR Advances shall be paid on the last day of the appropriate Interest Period and on the date of any prepayment or repayment of such Advance; PROVIDED, HOWEVER, that if any Interest Period for a LIBOR Advance exceeds three months, interest shall also be paid on each date occurring during the Interest Period which is the three month anniversary date of the first day of the Interest Period. (d) SWING LINE LOANS. Swing Line Loans shall bear interest at a fixed rate per annum agreed to by Company and Swing Line Lender. Interest on such Swing Line Loans shall be payable in arrears on the appropriate maturity, repayment or prepayment date. 2.8 DEFAULT INTEREST. During the continuation of any Event of Default, Company shall pay, on demand, interest (after as well as before judgment to the extent permitted by Law) on the principal amount of all Advances outstanding and on all other Obligations due and unpaid hereunder for each Advance equal to the lesser of the (a) the Highest Lawful Rate and (b) the Base Rate (whether or not in effect) plus 3.00%. 2.9 CONTINUATION AND CONVERSION ELECTIONS. (a) Company may upon irrevocable written notice to Administrative Agent and subject to the terms of this Agreement: (i) elect to convert, on any Business Day, all or any portion of outstanding Base Rate Advances (in an aggregate amount not less than $5,000,000 or a larger integral multiple of $1,000,000 in excess thereof) into LIBOR Advances. -31- (ii) elect to convert at the end of any Interest Period therefor, all or any portion of outstanding LIBOR Advances comprised of the same Borrowing (in an aggregate amount not less than $1,000,000 or a larger integral multiple of $500,000 in excess thereof) into Base Rate Advances; or (iii) elect to continue, at the end of any Interest Period therefor, any LIBOR Advances; PROVIDED, HOWEVER, that if the aggregate amount of outstanding LIBOR Advances comprised in the same Borrowing shall have been reduced as a result of any payment, prepayment or conversion of part thereof to an amount less than $1,000,000, the LIBOR Advances comprised in such Borrowing shall automatically convert into Base Rate Advances at the end of each respective Interest Period. (b) Company shall deliver a notice of conversion or continuation (a "NOTICE OF CONVERSION/CONTINUATION"), in substantially the form of EXHIBIT D hereto, to Administrative Agent not later than (i) 12:00 noon three Business Days prior to the proposed date of conversion or continuation, if the Advances or any portion thereof are to be converted into or continued as LIBOR Advances; and (ii) not later than 10:00 a.m. on the proposed date of conversion or continuation, if the Advances or any portion thereof are to be converted into Base Rate Advances. Each such Notice of Conversion/Continuation shall be by telecopy or telephone, promptly confirmed in writing, specifying therein: (i) the proposed date of conversion or continuation; (ii) the aggregate amount of Advances to be converted or continued; (iii) the nature of the proposed conversion or continuation; and (iv) the duration of the applicable Interest Period. (c) If, upon the expiration of any Interest Period applicable to LIBOR Advances, Company shall have failed to select a new Interest Period to be applicable to such LIBOR Advances or if an Event of Default shall then have occurred and be continuing, Company shall be deemed to have elected to convert such LIBOR Advances into Base Rate Advances effective as of the expiration date of such current Interest Period. (d) Upon receipt of a Notice of Conversion/Continuation, Administrative Agent shall promptly notify each Lender thereof. All conversions and continuations shall be made pro rata among Lenders based on their Specified Percentage of the respective outstanding principal amounts of the Advances with respect to which such notice was given. -32- (e) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Advances, there shall not be outstanding Advances under the Revolving Loan with more than ten different Interest Periods. 2.10 FEES. (a) Subject to SECTION 9.8 hereof, Company agrees to pay to Administrative Agent, for the account of each Lender, a Commitment Fee on the average daily amount of each Lender's Unused Commitment, from the Closing Date through the Maturity Date, payable quarterly in arrears on each Quarterly Date occurring after the Closing Date, with the last such payment due and owing on the Maturity Date at the following per annum percentage applicable in the following situations: APPLICABILITY PERCENTAGE ------------- ---------- CATEGORY 1 - There is no Index Debt Rating or the Index Debt 0.375% Rating is the following: below BBB- by S&P and below Baa3 by Moody's CATEGORY 2 - The Index Debt Rating is the following: BBB-, 0.225% BBB or BBB+ by S&P and Baa3, Baa2 or Baa1 by Moody's CATEGORY 3 - The Index Debt Rating is the following: A- or 0.175% better by S&P or A3 and better by Moody's The Commitment Fee shall be (i) fully earned when due and nonrefundable when paid and (ii) adjusted on each Adjustment Date according to the most recent determination of the Index Debt Rating. For purposes of the foregoing, if the Index Debt Rating established by S&P or Moody's shall fall within a different category, the Commitment Fee shall be determined by reference to whichever Index Debt Rating shall fall within the superior (or numerically higher) category, unless the superior (or numerically higher) category is greater than one level above the other category, in which case the Commitment Fee shall be determined using the category immediately below the superior (or numerically higher) category. For purposes of calculating the Commitment Fee under this Section 2.10, no portion of the Commitment shall be deemed utilized as a result of outstanding Swing Line Loans. (b) Subject to SECTION 9.8 hereof, Company agrees to pay to Administrative Agent fits own account as administrative lender and underwriter, and to Banc of America Securities LLC, as sole lead arranger and book manager hereunder, such fees as agreed to in writing among Company and Administrative Agent and Banc of America Securities LLC, payable as set forth in that certain Fee Letter executed among Company, Administrative Agent and Banc of America Securities LLC in accordance with the terms of the Fee Letter. (c) Subject to SECTION 9.8 hereof, Company agrees to pay to Administrative Agent, for the account of certain of Lenders, such fees as are agreed to in writing in any such Fee Letters. -33- 2.11 FUNDING LOSSES. If Company makes any payment or prepayment of principal with respect to any LIBOR Advance or Swing Line Loan (including payments made after any acceleration thereof) or converts any Advance from a LIBOR Advance on any day other than the last day of an Interest Period or maturity date applicable thereto, as applicable, or if Company fails to prepay, borrow, convert, or continue any LIBOR Advance after a notice or prepayment, borrowing, conversion or continuation has been given (or is deemed to have been given) to Administrative Agent, Company shall pay to each Lender on demand (subject to SECTION 9.8 hereof) any Consequential Loss. 2.12 COMPUTATIONS AND MANNER OF PAYMENTS. (a) Company shall make each payment not later than 1:00 p.m. on the day when due in immediately available funds to Administrative Agent, (i) in respect of the Revolving Loan, for the Ratable account of Lenders unless otherwise specifically provided herein, and (ii) in respect of the Swing Line Loans, for the account of Swing Line Lender, at Administrative Agent Bank of America Plaza 901 Main Street 14th Floor Dallas, Texas 75202 Attn. Tonya Parker for the further credit to the account of Franchise Finance Corporation of America. No later than the end of each day when each payment hereunder is made, Company shall notify Theresa Belk, telephone (214) 209-9177, facsimile (214) 209-2515, or such other Person as Administrative Agent may from time to time specify. Notwithstanding anything in this SECTION 2.12(a) or any other provision of this Agreement or any other Loan Paper to the contrary, any payment by Company in respect of any Advances after acceleration of the Advances pursuant to SECTION 7.2 or any monies received by Administrative Agent or any Lender as a result of the exercise of remedies under any Loan Paper after acceleration of Advances pursuant to SECTION 7.2 shall be distributed pro rata to each Lender based on the percentage that the outstanding Advances owed to such Lender bears to the aggregate Advances owed to all Lenders. (b) Unless Administrative Agent shall have received notice from Company prior to the date on which any payment is due hereunder that Company will not make payment in full, Administrative Agent may assume that such payment is so made on such date and may, in reliance upon such assumption, make distributions to Lenders. If and to the extent Company shall not have made such payment in full, each Lender shall repay to Administrative Agent forthwith on demand the applicable amount distributed, together with interest thereon at the Federal Funds Rate, from the date of distribution until the date of repayment. Company hereby authorizes each Lender, if and to the extent payment is not made when due hereunder, to charge the amount so due against any account of Company with such Lender. -34- (c) Subject to SECTION 9.8 hereof, interest on Advances, the Commitment Fee and other amounts due under the Loan Papers shall be calculated on the basis of actual days elapsed but computed as if each year consisted of 360 days. Such computations shall be made including the first day but excluding the last day occurring in the period for which such interest, payment or Commitment Fee is payable. Each determination by Administrative Agent or a Lender of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent demonstrable error. All payments under the Loan Papers shall be made in United States dollars, and without setoff, counterclaim, or other defense. (d) Reference to any particular index or reference rate for determining any applicable interest rate under this Agreement is for purposes of calculating the interest due and is not intended as and shall not be construed as requiring any Lender to actually fund any Advance at any particular index or reference rate. 2.13 YIELD PROTECTION. (a) If any Lender determines that either (i) the adoption, after the date hereof, of any Applicable Law, rule, regulation or guideline regarding capital adequacy and applicable to commercial banks or financial institutions generally or any change therein, or any change, after the date hereof, in the interpretation or administration thereof by any Tribunal, central bank or comparable agency charged with the interpretation or administration thereof, or (ii) compliance by any Lender (or Lending Office of any Lender) with any request or directive made after the date hereof applicable to commercial banks or financial institutions generally regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency has the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy (but excluding consequences of such Lender's negligence or intentional disregard of law or regulation)) by an amount reasonably deemed by such Lender to be material, then from time to time, within fifteen days after demand by such Lender, Company shall, subject to SECTION 9.8 hereof, pay to such Lender such additional amount or amounts as will adequately compensate such Lender for such reduction. Each Lender will notify Company of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this SECTION 2.13(a) as promptly as practicable after such Lender obtains actual knowledge of such event; PROVIDED, no Lender shall be liable for its failure or the failure of any other Lender to provide such notification. A certificate of such Lender claiming compensation under this SECTION 2.13(a), setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder and certifying that such claim is consistent with such Lender's treatment of similar customers having similar provisions generally in their agreements with such Lender shall be conclusive in the absence of demonstrable error. Each Lender shall use reasonable efforts to mitigate the effect upon Company of any such increased costs payable to such Lender under this SECTION 2.13(a). -35- (b) If, after the date hereof, any Tribunal, central bank or other comparable authority, at any time imposes, modifies or deems applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the amount of, or credit extended by, any Lender or Issuing Bank, or imposes on any Lender or Issuing Bank any other condition affecting a LIBOR Advance, the Notes, its obligation to make a LIBOR Advance, a Letter of Credit, or its obligation to purchase a participation in a Letter of Credit; and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining its LIBOR Advances, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under the Notes or reimbursement obligations, or to increase the cost to Issuing Bank of issuing or maintaining any Letter of Credit or to any Lender of purchasing any participation therein by an amount deemed by such Lender to be material, THEN, within five days after demand by such Lender, Company shall, subject to SECTION 9.8 hereof, pay to such Lender or Issuing Bank such additional amount or amounts as will compensate such Lender or Issuing Bank for such increased cost or reduction. Each Lender and Issuing Bank will (i) notify Company and Administrative Agent of any event occurring after the date of this Agreement that entitles such Lender or Issuing Bank to compensation pursuant to this SECTION 2.13(b), as promptly as practicable after such Lender or Issuing Bank obtains actual knowledge of the event; PROVIDED, no Lender or Issuing Bank shall be liable for its failure or the failure of any other Lender to provide such notification and (ii) use good faith and reasonable efforts to designate a different Lending Office for LIBOR Advances or Letters of Credit of such Lender or Issuing Bank if the designation will avoid the need for, or reduce the amount of, the compensation and will not, in the sole opinion of such Lender or Issuing Bank, be disadvantageous to such Lender or Issuing Bank. A certificate of such Lender or Issuing Bank claiming compensation under this SECTION 2.13(b), setting forth in reasonable detail the computation of the additional amount or amounts to be paid to it hereunder and certifying that such claim is consistent with such Lender's or Issuing Bank's treatment of similar customers having similar provisions generally in their agreements with such Lender or Issuing Bank shall be conclusive in the absence of demonstrable error. If such Lender or Issuing Bank demands compensation under this SECTION 2.13(b), Company may at any time, on at least five Business Days' prior notice to such Lender (i) repay in full the then outstanding principal amount of LIBOR Advances, of such Lender, together with accrued interest thereon, or (ii) convert the LIBOR Advances to Base Rate Advances in accordance with the provisions of this Agreement; PROVIDED, HOWEVER, that Company shall be liable for the Consequential Loss arising pursuant to those actions. (c) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation or administration of any Law shall make it unlawful, or any central bank or other Tribunal shall assert that it is unlawful, for a Lender to perform its obligations hereunder to make LIBOR Advances or to continue to fund or maintain LIBOR Advances hereunder, then, on notice thereof and demand therefor by such Lender to Company, (i) each LIBOR Advance will automatically, upon such demand, convert into a Base Rate Advance and (ii) the obligation of such Lender to make, or to convert Advances into, LIBOR Advances shall be suspended until such Lender notifies Administrative Agent and Company that such Lender has determined that the circumstances causing such suspension no longer exist. -36- (d) Upon the occurrence and during the continuance of any Default or Event of Default, (i) each LIBOR Advance will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Advance and (ii) the obligation of each Lender to make, or to convert Advances into, LIBOR Advances shall be suspended. (e) Failure on the part of any Lender or Issuing Bank to demand compensation for any increased costs, increased capital or reduction in amounts received or receivable or reduction in return on capital pursuant to this SECTION 2.13 (collectively, "INCREASED COSTS") with respect to any period shall not constitute a waiver of any Lender's or Issuing Bank's right to demand compensation with respect to such period or any other period, subject, however, to the limitations set forth in this SECTION 2.13. Notwithstanding the foregoing, any Lender's or Issuing Bank's demand for Increased Costs shall not include any Increased Costs with respect to any period more than two years prior to the date that such Lender gives notice to Company of such Increased Costs unless the effective date of the condition which results in the right to receive Increased Costs is retroactive (the "INCREASED COSTS RETROACTIVE EFFECTIVE DATE"). If any Increased Costs has an Increased Costs Retroactive Effective Date and any Lender or Issuing Bank demands compensation within two years after the date setting the Increased Costs Retroactive Effective Date (the "INCREASED COSTS SET DATE"), such Lender shall have the right to receive such Increased Costs from the Increased Costs Retroactive Effective Date. If a Lender or Issuing Bank does not demand such Increased Costs within two years after the Increased Costs Set Date, such Lender or Issuing Bank may not receive payment of Increased Costs with respect to any period more than two years prior to such demand. (f) The obligations of Company under this SECTION 2.13 shall survive any termination of this Agreement, subject, however, to the limitations set forth in SECTION 2.13(e) above. (g) Determinations by Lenders and Issuing Bank for purposes of this SECTION 2.13 shall be conclusive, absent demonstrable error. Any certificate delivered to Company by a Lender or Issuing Bank pursuant to this SECTION 2.13 shall include in reasonable detail the basis for such Lender's or Issuing Bank's demand for additional compensation and a certification that the claim for compensation is consistent with such Lender's or Issuing Bank's treatment of similar customers having similar provisions generally in their agreements with such Lender or Issuing Bank. (h) If any Lender notifies Administrative Agent that, in its reasonable determination, the LIBOR Rate for any Interest Period for any LIBOR Advances will not adequately reflect the cost to such Lender of making, funding or maintaining LIBOR Advances for such Interest Period, Administrative Agent shall promptly so notify Company, whereupon (i) each such LIBOR Advance will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Advance and (ii) the obligation of such Lender to make, or to convert Advances into, LIBOR Advances shall be suspended until such Lender notifies Administrative Agent that such Lender has determined that the circumstances causing such suspension no longer exist and Administrative Agent notifies Company of such fact. -37- 2.14 LETTERS OF CREDIT. (a) THE LETTER OF CREDIT FACILITY. Company may request Issuing Bank, on the terms and conditions hereinafter set forth, to issue, and Issuing Bank shall, if so requested, issue, one or more letters of credit for the account of Company and/or any of its Subsidiaries ("LETTERS OF CREDIT") (PROVIDED THAT, if any Letter of Credit is issued for the account of any Subsidiary, Company shall be jointly and severally liable with respect to such Letter of Credit pursuant to the terms of the Letter of Credit Agreement (as defined below) governing such Letter of Credit) from time to time on any Business Day from the Closing Date until the Maturity Date in an aggregate maximum amount (assuming compliance with all conditions to drawing) not to exceed, at any time outstanding, the lesser of (i) $10,000,000 and (ii) an amount equal to the Commitment MINUS the aggregate principal amount of Advances outstanding under the Revolving Loan and Swing Line Loans then outstanding (the "LETTER OF CREDIT FACILITY"). No Letter of Credit shall have an expiration date (including all rights of renewal) later than the earlier of (i) ten days prior to the Maturity Date or (ii) one year after the date of issuance thereof (provided that any Letter of Credit may provide for the renewal thereof for additional periods of up to one year, which in no event extend beyond the date referred to in clause (i) of this sentence). Immediately upon the issuance of each Letter of Credit, Issuing Bank shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed to have purchased and received from Issuing Bank, in each case irrevocably and without any further action by any party, an undivided interest and participation in such Letter of Credit, each drawing thereunder and the obligations of Issuing Bank under this Agreement in respect thereof in an amount equal to the product of (x) such Lender's Specified Percentage and (y) the maximum amount available to be drawn under such Letter of Credit (assuming compliance with all conditions to drawing). Within the limits of the Letter of Credit Facility, and subject to the limits referred to above, Company may request the issuance of Letters of Credit under this SECTION 2.14(a), repay any Advances under the Revolving Loan resulting from drawings thereunder pursuant to SECTION 2.14(c) hereof and request the issuance of additional Letters of Credit under this SECTION 2.14(a). (b) REQUEST FOR ISSUANCE. Each Letter of Credit shall be issued upon notice, given not later than 11:00 a.m. on the third Business Day prior to the date of the proposed issuance of such Letter of Credit, by Company to Issuing Bank and Administrative Agent. Each Letter of Credit shall be issued upon notice given in accordance with the terms of any separate agreement between Company and Issuing Bank in form and substance reasonably satisfactory to Company and Issuing Bank providing for the issuance of Letters of Credit pursuant to this Agreement (a "LETTER OF CREDIT AGREEMENT"), PROVIDED that if any terms and conditions of such Letter of Credit Agreement are inconsistent with or more restrictive than this Agreement, this Agreement shall control. Each such request of issuance of a Letter of Credit by Company (a "REQUEST FOR ISSUANCE") shall be by telephone or telecopier, specifying therein, in the case of a Letter of Credit, the requested (i) date of such issuance (which shall be a Business Day), (ii) maximum amount of such Letter of Credit, (iii) expiration date of such Letter of Credit, (iv) name and address of the beneficiary of such Letter of Credit, and (v) form of such Letter of Credit and specifying such other information as shall be required pursuant to the relevant Letter of Credit Agreement. Upon sending each Request for Issuance to Issuing Bank, Company shall promptly send a copy thereof to Administrative Agent. If the requested terms of -38- such Letter of Credit are acceptable to Issuing Bank in its reasonable discretion, Issuing Bank will, upon fulfillment of the applicable conditions set forth in ARTICLE III hereof, make such Letter of Credit available to Company at its office referred to in SECTION 9.2(b) hereof or as otherwise agreed with Company in connection with such issuance. No less than once each calendar month, Issuing Bank shall give a summary report of the issued and outstanding Letters of Credit to Administrative Agent, in form and substance satisfactory to Administrative Agent. (c) DRAWING AND REIMBURSEMENT. The payment by Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by Issuing Bank of an Advance under the Revolving Loan, which shall bear interest at a rate per annum equal to the lesser of (i) the Base Rate as in effect from time to time and (ii) the Highest Lawful Rate, in the amount of such draft (but without any requirement for compliance with the conditions set forth in ARTICLE III hereof); provided, however, if as a result of termination of the Commitment pursuant to any Debtor Relief Law Issuing Bank is prohibited from making an Advance under the Revolving Loan, the obligation of Company to repay Issuing Bank the amount of such draft shall bear interest at a rate per annum equal to the lesser of (i) the Base Rate in effect from time to time and (ii) the Highest Lawful Rate. In the event that a drawing under any Letter of Credit is not reimbursed by Company by 12:00 noon on the first Business Day after such drawing, Issuing Bank shall promptly notify Administrative Agent, which shall notify each other Lender. Each such Lender shall, on the first Business Day following such notification, make an Advance under the Revolving Loan (or, if as a result of any Debtor Relief Law the Lenders are prohibited from making an Advance under the Revolving Loan, each Lender shall fund its participation purchased pursuant to SECTION 2.14(a) hereof by making such amount available to Administrative Agent), which shall bear interest at a rate per annum equal to the lesser of (i) the Base Rate in effect from time to time and (ii) the Highest Lawful Rate, and shall be used to repay the applicable portion of Issuing Bank's Advance with respect to such Letter of Credit, in an amount equal to the amount of its participation in such drawing for application to reimburse Issuing Bank (but without any requirement for compliance with the applicable conditions set forth in ARTICLE III hereof) and shall make available to Administrative Agent for the account of Issuing Bank, by deposit at Administrative Agent's office, in same day funds, the amount of such Advance (or funded participation, as the case may be). In the event that any Lender fails to make available to Administrative Agent for the account of Issuing Bank the amount of such Advance, Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon at a rate per annum equal to the lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds Rate. (d) OBLIGATIONS ABSOLUTE. The obligations of Company under this Agreement with respect to any Letter of Credit, any Letter of Credit Agreement and any other agreement or instrument relating to any Letter of Credit or any Advance under the Revolving Loan pursuant to SECTION hereof shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances: -39- (i) any lack of validity or enforceability of this Agreement, any other Loan Paper, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (collectively, the "L/C RELATED DOCUMENTS"); (ii) (A) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of Company in respect of the Letters of Credit or any Advance under the Revolving Loan pursuant to SECTION 2.14(c) hereof or (B) any other amendment or waiver of or any consent to departure from the requirements of all or any of the L/C Related Documents; (iii) the existence of any claim, set-off, defense or other right that Company or any other Person may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), Issuing Bank, any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C Related Documents or any unrelated transaction; (iv) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect, except to the extent that any such forged, fraudulent, invalid, insufficient, untrue or inaccurate statement was relied upon as a result of Issuing Bank's gross negligence or willful misconduct; (v) payment by Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not comply with the terms of the Letter of Credit, except for any payment made upon Issuing Bank's gross negligence or willful misconduct; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from the requirements of any guarantee, for all or any of the obligations of Company in respect of the Letters of Credit or any Advance under the Revolving Loan pursuant to SECTION 2.14(c) hereof; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, Company or a Guarantor, other than Issuing's Bank gross negligence or willful misconduct. (e) COMPENSATION FOR LETTERS OF CREDIT. (i) LETTER OF CREDIT FEE. Subject to SECTION 9.8 hereof, Company shall pay to Administrative Agent for the account of Lenders according to their Specified Percentages, a per annum fee (which shall be payable quarterly in arrears on each Quarterly Date and on the Maturity Date) equal to the product of (i) the Applicable Margin in effect from time to time for LIBOR -40- Advances and (ii) the average daily amount available for drawing under all outstanding Letters of Credit. (ii) FRONTING FEE. Subject to SECTION 9.8 hereof, Company shall pay to Administrative Agent for the account of Issuing Bank a per annum fronting fee (which shall be payable quarterly in arrears on each Quarterly Date and on the Maturity Date) in an amount equal to the product of 0.125% multiplied by the average daily amount available for drawing under all outstanding Letters of Credit. (iii) ADMINISTRATIVE FEE. Subject to SECTION 9.8 hereof, Company shall pay, with respect to each amendment, renewal or transfer of each Letter of Credit and each drawing made thereunder, reasonable documentary and processing charges in accordance with Issuing Bank's standard schedule for such charges in effect at the time of such amendment, renewal, transfer or drawing, as the case may be. (f) L/C CASH COLLATERAL ACCOUNT. (i) Upon the occurrence and during the continuance of an Event of Default and demand by Administrative Agent pursuant to SECTION 7.2(d) hereof (except in the case of an Event of Default specified in SECTION 7.1(g) hereof, without any demand or taking of any other action by Administrative Agent or any Lender), Company will promptly pay to Administrative Agent in immediately available funds an amount equal to the maximum amount then available to be drawn under the Letters of Credit then outstanding. Any amounts so received by Administrative Agent shall be deposited by Administrative Agent in a deposit account maintained by Administrative Agent (the "L/C CASH COLLATERAL ACCOUNT"). (ii) As security for the payment of all Reimbursement Obligations and for any other Obligations, Company hereby grants, conveys, assigns, pledges, sets over and transfers to Administrative Agent (for the benefit of Issuing Bank and Lenders), and creates in Administrative Agent's favor (for the benefit of Issuing Bank and Lenders) a Lien in, all money, instruments and securities at any time held in or acquired in connection with the L/C Cash Collateral Account, together with all proceeds thereof. The L/C Cash Collateral Account shall be under the sole dominion and control of Administrative Agent and Company shall have no right to withdraw or to cause Administrative Agent to withdraw any funds deposited in the L/C Cash Collateral Account during the continuance of any Event of Default. At any time and from time to time, upon Administrative Agent's reasonable request, Company promptly shall execute and deliver any and all such further instruments and documents, including UCC financing statements, as may be necessary, appropriate or desirable in Administrative Agent's reasonable judgment to obtain the full benefits (including perfection and priority) of the security interest created or intended to be created by this paragraph (ii) and of the rights and powers herein granted. Company shall not create or suffer to exist any Lien on any amounts or investments -41- held in the L/C Cash Collateral Account other than the Lien granted under this paragraph (ii). (iii) Administrative Agent shall (A) apply any funds in the L/C Cash Collateral Account on account of Reimbursement Obligations when the same become due and payable, (B) after the Maturity Date, apply any proceeds remaining in the L/C Cash Collateral Account FIRST to pay any unpaid Obligations then outstanding hereunder and THEN to refund any remaining amount to Company. (iv) Company, no more than once in any calendar month, may direct Administrative Agent to invest the funds held in the L/C Cash Collateral Account (so long as the aggregate amount of such funds exceeds any relevant minimum investment requirement) in (A) Cash Equivalents and (B) one or more other types of investments permitted by Majority Lenders, in each case with such maturities as Company, with the consent of Majority Lenders, may specify, pending application of such funds on account of Reimbursement Obligations or on account of other Obligations, as the case may be. In the absence of any such direction from Company, Administrative Agent shall invest the funds held in the L/C Cash Collateral Account (so long as the aggregate amount of such funds exceeds any relevant minimum investment requirement) in one or more types of investments with the consent of Majority Lenders with such maturities as Administrative Agent, with the consent of Majority Lenders, may determine, pending application of such funds on account of Reimbursement Obligations or on account of other Obligations, as the case may be. All such investments shall be made in Administrative Agent's name for the account of the Lenders, subject to the ownership interest therein of Company. Company recognizes that any losses or taxes with respect to such investments shall be borne solely by Company, and Company agrees to hold Administrative Agent and Lenders harmless from any and all such losses and taxes, Administrative Agent may liquidate any investment held in the L/C Cash Collateral Account in order to apply the proceeds of such investment on account of the Reimbursement Obligations as provided in SECTION 2.14(f)(iii) hereof (or on account of any other Obligation then due and payable, as the case may be) without regard to whether such investment has matured and without liability for any penalty or other fee incurred (with respect to which Company hereby agrees to reimburse Administrative Agent) as a result of such application. (v) After the establishment of the L/C Cash Collateral Account pursuant to SECTION 2.14(f)(i) hereof, Company shall pay to Administrative Agent the fees customarily charged by the Administrative Agent with respect to the maintenance of accounts similar to the L/C Cash Collateral Account. (vi) At such time as no Event of Default is in existence, Administrative Agent shall return any amount remaining in the L/C Cash Collateral Account to Company. -42- ARTICLE III. CONDITIONS PRECEDENT 3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND THE INITIAL LETTER OF CREDIT. The obligations of each Lender under this Agreement and the obligation of each Lender to make the Initial Advance and the obligation of Issuing Bank to issue the Initial Letter of Credit shall be subject to the following conditions precedent that on the Closing Date: (a) All terms, conditions and documentation in connection with this amendment and restatement shall be acceptable to Lenders. (b) The making of the Commitment shall not contravene any Law applicable to Administrative Agent or any Lender. (c) Each Lender shall have received a Certificate from an Authorized Officer stating that no Material Adverse Change has occurred since the December 31, 1999 financial statements provided to Lenders. Administrative Agent shall have received financial information regarding Company and each Subsidiary of Company requested by it. (d) Each Lender shall have received an executed copy of this Agreement and its respective Notes, duly completed and correct. Lenders shall have received copies of the Fee Letters signed by Company, as applicable. Each of the following shall have been delivered to Administrative Agent on behalf of Lenders, in form and substance satisfactory to Administrative Agent, Special Counsel and each Lender. The Guaranty Agreement executed by each Guarantor and a Subordination Agreement executed by each payee of an Intercompany Note. (e) Company shall have delivered to Administrative Agent a Certificate, dated the Closing Date, executed by an Authorized Officer, certifying that, to such Authorized Officer's knowledge, (i) no Default or Event of Default has occurred and is continuing, (ii) the representations and warranties set forth in ARTICLE IV hereof are true and correct in all material respects, and (iii) Company and each Subsidiary of Company has complied with all agreements and conditions to be complied with by it in all material respects under the Loan Papers by such date. (f) Company and each Guarantor shall have each delivered to Administrative Agent on behalf of Lenders a Secretary's Certificate, dated the Closing Date, certifying (i) that attached copies of the certificates of organization certified by the Secretary of States of the appropriate states, and bylaws are true and complete, and in full force and effect, without amendment except as shown, and (ii) that a copy of the resolutions authorizing execution and delivery of this Agreement and any Loan Papers, as appropriate, are true and complete, and that such resolutions are in full force and effect, were duly adopted, have not been amended, modified, or revoked, and constitute all resolutions adopted with respect to this loan transaction. Administrative Agent and Lenders may conclusively rely on the certificates delivered pursuant to this subsection until they receive notice in writing to the contrary. -43- (g) Administrative Agent shall have received an opinion or opinions of counsel to Company and its Subsidiaries, dated the Closing Date, acceptable to Lenders and otherwise in form and substance satisfactory to Lenders and Special Counsel, with respect to this loan transaction and otherwise, including, without limitation, opinions (i) to the valid and binding nature of the Loan Papers, (ii) to the power, authorization and corporate matters of each such Person taken in connection with the transactions contemplated by the Loan Papers, (iii) that the execution, delivery and performance by Company and the Subsidiaries of Company of the respective Loan Papers does not violate any of the terms of Company's or any such Subsidiary's agreements, and (iv) to such other matters as are reasonably requested by Special Counsel. (h) Simultaneously with the receipt of proceeds of the Initial Advance, all Indebtedness under the Existing Credit Agreement shall be paid in full, whereupon the Existing Credit Agreement shall automatically terminate and be of no further force or effect. (i) Administrative Agent shall have received, on behalf of Lenders, each of the following, in form and substance satisfactory to Administrative Agent and Special Counsel: (i) evidence that all proceedings of Company and its Subsidiaries taken in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to Lenders and Special Counsel; and each Lender shall have received copies of all documents or other evidence which Lenders or Special Counsel may reasonably request in connection with this facility, including without limitation the resolutions of the Board of Directors of Company and each Subsidiary, and the requisite authorizations of all other Persons necessary to authorize the transactions contemplated herein, certified to be true and correct by an Authorized Officer; (ii) payment of all fees, costs and expenses (including, without limitation, attorneys' fees of Special Counsel and the fees set forth in the Fee Letter due to be paid through the Closing Date); and (iii) a Compliance Certificate computed after giving effect to the Initial Advance. (j) All corporate proceedings of Company and its Subsidiaries taken in connection with the transactions contemplated hereby, and all documents incidental thereto, shall be satisfactory in form and substance to each Lender. Administrative Agent and each Lender shall have received copies of all documents or other evidence that it may reasonably request in connection with such transactions. (k) All conditions to the Initial Advance (as defined in the 364-Day Credit Agreement) shall have been satisfied (or waived by such Lender). -44- 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT. The obligation of each Lender to make each Advance (including the Initial Advance) and the obligation of Issuing Bank to issue or extend each Letter of Credit (including the Initial Letter of Credit) shall be subject to the further conditions precedent that on the date of such Advance or issuance or extension (a) the following statements shall be true (and the delivery of each Borrowing Notice under SECTIO, request for funding of Swing Line Loan under SECTION 2.2(h) each Application and each Conversion or Continuation Notice under SECTION 2.9(b), or the failure to deliver a Conversion or Continuation Notice under SECTION 2.9(b), and each Request for Issuance under SECTION 2.15(a) shall constitute a representation that on the disbursement or issuance or extension date (except as to representations and warranties which (i) refer to a specific date, (ii) have been modified by transactions permitted pursuant to this Agreement or any other Loan Paper or (iii) have been specifically waived by Administrative Agent, to the extent permitted pursuant to SECTION 9.1) are true: (i) The representations and warranties contained in ARTICLE IV hereof are true and correct on such date, as though made on and as of such date; (ii) No event has occurred and is continuing, or would result from such Advance or Letter of Credit (including the intended application of the proceeds of such Advance or Letter of Credit), that does or could constitute a Default or Event of Default; and (iii) There shall have occurred no Material Adverse Change, and the making of such Advance or the issuance or extension of such Letter of Credit, shall not cause or result in a Material Adverse Change; and (iv) After giving effect to each such Advance or the issuance or extension of such Letter of Credit, the aggregate outstanding Advances and Reimbursement Obligations do not exceed the Commitment; and (b) Administrative Agent shall have received, in form and substance acceptable to it, such other approvals, documents, certificates, opinions, and information as it may deem necessary or appropriate. Notwithstanding the above, the obligation of each Lender to make an Advance under the Revolving Loan pursuant to SECTION 2.2(K) hereof (or fund its participation in respect of Swing Line Loans pursuant to SECTION 2.2(K) hereof) and SECTION 2.14(c) hereof (or fund its participation in respect of Letters of Credit pursuant to SECTION 2.14(c) hereof) shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, (i) the occurrence of any Default or Event of Default, (ii) the failure of Company to satisfy any condition set forth in this SECTION 3.2, or (iii) any other circumstance, happening or event whatsoever. -45- ARTICLE IV. REPRESENTATIONS AND WARRANTIES Company represents and warrants that the following are true and correct: 4.1 ORGANIZATION AND QUALIFICATION. Company and each of its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the Laws of its state of incorporation. Company and each of its Subsidiaries is qualified to do business in all jurisdictions where the nature of its business or Properties require such qualification, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. Set forth on SCHEDULE 4.1 attached hereto is a complete and accurate listing with respect to Company and each of its Subsidiaries, showing (a) the jurisdiction of its organization and its mailing address, which is the principal place of business and executive offices of each unless otherwise indicated, (b) the classes of Capital Stock and shares of Capital Stock issued and outstanding in Company and each of its Subsidiaries, and the numbers or amounts of Capital Stock authorized and outstanding of Company and each of its Subsidiaries, and (c) each record and beneficial owner of outstanding Capital Stock on the date hereof, indicating the ownership percentage (provided that, with Administrative Agent's consent, SCHEDULE 4.1 need only set forth each record and beneficial owner of 1% or more of Capital Stock of Company based on the most current records of Company prior to the Closing Date). All Capital Stock of Company and each of its Subsidiaries is validly issued and fully paid (except the common stock of FFCA Funding) and has been issued in compliance with all requirements of Applicable Law. No share of Capital Stock of Company or any Subsidiary of Company is subject to any Lien, including any restrictions on hypothecation or transfer (except the common stock of FFCA Funding and except for restrictions set forth in each Certificate of Incorporation of each Subsidiary). 4.2 DUE AUTHORIZATION; VALIDITY. The board of directors of Company and each Subsidiary of Company have duly authorized the execution, delivery, and performance of the Loan Papers to be executed by Company and each Subsidiary of Company, as appropriate. Company and each Subsidiary of Company has full legal right, power, and authority to execute, deliver, and perform under the Loan Papers to be executed and delivered by it. The Loan Papers constitute the legal, valid, and binding obligations of Company and each Subsidiary of Company, as appropriate, enforceable in accordance with their terms (subject as to enforcement of remedies to any applicable Debtor Relief Laws). 4.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. The execution or delivery of any Loan Papers, and performance thereunder, does not conflict with, or result in a breach of the terms, conditions, or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien (other than in favor of Administrative Agent) upon any Properties of Company or any Subsidiary of Company under, or require any consent, approval, or other action by, notice to, or filing with, any Tribunal or Person pursuant to, the certificate of incorporation or bylaws of Company or any Subsidiary of Company, any award of any arbitrator, or any agreement, instrument, or Law to which Company or any Subsidiary of Company, or any of their Properties is subject. -46- 4.4 FINANCIAL STATEMENTS. The financial statements of Company and its Consolidated Subsidiaries, dated December 31, 1999 and delivered to Administrative Agent, fairly present its financial condition and the results of operations as of the dates and for the periods shown, all in accordance with GAAP. Such financial statements reflect all material liabilities, direct and contingent, of Company and its Consolidated Subsidiaries that are required to be disclosed in accordance with GAAP. As of the date of such financial statements, there were no Contingent Liabilities, liabilities for Taxes, forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments that are substantial in amount and that are not reflected on such financial statements or otherwise disclosed in writing to Administrative Agent. Since December 31, 1999, there has been no Material Adverse Change. Company and each Subsidiary of Company is Solvent. The projections of Company dated July 2, 2000 delivered to Administrative Agent were pin good faith and management believes them to be based on reasonable assumptions (each of ware stated in such statement) and to provide reasonable estimations of future performance as of the dates and for the periods shown for Company and its Subsidiaries, subject to the uncertainty and approximation inherent in any projections. Company's fiscal year ends on December 31. 4.5 LITIGATION. As of the Closing Date, SCHEDULE 4.5 lists all Litigation that is pending, and to Company's best knowledge, threatened by written demand against Company or any of its Subsidiaries or any of their Properties or assets on the Closing Date in which an adverse determination with respect thereto could reasonably be expected to result in an uninsured liability of Company or any of its Subsidiaries in excess of $500,000. Except as set forth on SCHEDULE 4.5, there is no pending or, to Company's best knowledge, threatened Litigation against Company, any Subsidiary of Company or any of their respective Properties that could reasonably be expected to result in a Material Adverse Change. 4.6 COMPLIANCE WITH LAWS REGULATING THE INCURRENCE OF INDEBTEDNESS. No proceeds of any Advance will be used directly or indirectly to acquire any security in any transaction which is subject to Sections 13 and 14 of the Securities Exchange Act of 1934, as amended. Company is not, nor is any Subsidiary of Company, engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Following Company's intended use of the proceeds of each Advance, not more than 25% of the value of the assets of Company will be "MARGIN STOCK" within the meaning of Regulation U. Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as any of the preceding acts have been amended), or any other Law that the incurring of Indebtedness by Company would violate, including without limitation Laws relating to common or contract carriers or the sale of electricity, gas, steam, water, or other public utility services. -47- 4.7 AUTHORIZATIONS, TITLE TO PROPERTIES, AND RELATED MATTERS. Company and each Subsidiary of Company possess all material Authorizations necessary and appropriate to own and operate their businesses and are not in violation thereof in any material respect. All such Authorizations are in full force and effect, and no event has occurred that permits, or after notice or lapse of time could permit, the revocation, termination or material and adverse modification of any such Authorization, except those which in the aggregate could not reasonably be expected to cause a Material Adverse Change. Company and each Subsidiary of Company have the requisite corporate power (as applicable) and legal right to own and operate their respective Property and to conduct their respective business. Each has good and indefeasible title (fee or leasehold, as applicable) tits Property, subject to no Lien of any kind, except Permitted Liens and first Liens for the benefit of Company or any Subsidiary of Company. Neither Company nor any Subsidiary of Company is in violation of its respective certificates or articles of incorporation or bylaws. Neither Company nor any Subsidiary of Company is in violation of any Law, or material agreement or instrument binding on or affecting it or any of its Properties, the effect of which could reasonably be expected to cause a Material Adverse Change. No business or Properties of Company or any Subsidiary of Company is affected by any drought, storm, earthquake, embargo, act of God or public enemy, or other casualty, the effect of which could reasonably be expected to cause a Material Adverse Change. 4.8 OUTSTANDING DEBT AND LIENS. Company and its Subsidiaries have no outstanding Debt, Contingent Liabilities or Liens, except Permitted Liens, except as shown on SCHEDULE 4.8 hereto. No breach, default or event of default exists under any document, instrument or agreement evidencing or otherwise relating to any Indebtedness of Company or any of its Subsidiaries. All Intercompany Notes are subject to a Subordination Agreement. 4.9 TAXES. Company and each Subsidiary of Company has filed all federal, state, and other Tax returns (or extensions related thereto) which are required to be filed, and has paid all Taxes as shown on said returns, as well as all other Taxes, to the extent due and payable, except to the extent payment is contested in good faith and for which adequate reserves have been established therefor in accordance with GAAP. All Tax liabilities of Company and each Subsidiary of Company are adequately provided for on its books, including interest and penalties, and adequate reserves have been established therefor in accordance with GAAP. No income Tax liability of a material nature has been asserted by taxing authorities for Taxes in excess of those already paid, and no taxing authority has notified Company or any Subsidiary of Company of any deficiency in any Tax return. 4.10 ERISA. Each Plan of Company and each Subsidiary of Company has satisfied the minimum funding standards under all Laws applicable thereto, and no Plan has an accumulated funding deficiency thereunder. Company has not, and neither has any Subsidiary of Company incurred any material liability to the PBGC with respect to any Plan. No ERISA Event has occurred with respect to any Plan for which an Insufficiency in excess of $100,000 exists on the date of such occurrence. Neither Company nor any ERISA Affiliate has participated in any non-exempt Prohibited Transaction with respect to any Plan or trust created thereunder the result of which could be reasonably expected to have a Material Adverse Effect. Neither Company nor any ERISA Affiliate has incurred any -48- Withdrawal Liability to any Multiemployer Plan that has not been satisfied. Neither Company nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA. 4.11 ENVIRONMENTAL LAWS. Company and each Subsidiary of Company has obtained all material environmental, health and safety Authorizations required under all applicable Environmental Laws to carry on its business as being conducted, except where the failure to obtain such Authorizations could not reasonably be expected to have a Material Adverse Effect. On the Closing Date, there are no environmental liabilities of Company or any Subsidiary of Company (with respect to any fee owned Properties) which could reasonably be expected to have a Material Adverse Effect, except as disclosed and described in detail on SCHEDULE 4.11 hereto. Each of such Authorizations is in full force and effect and Company and each Subsidiary of Company is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent the failure to have such Authorizations or comply with any of the terms and conditions thereof could not reasonably be expected to have a Material Adverse Effect. In addition, no written notice, notification, demand, request for information, citation, summons or order has been issued, no written complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the best knowledge of Company, or any Subsidiary of Company, threatened, by any Tribunal or other entity with respect to any alleged failure by Company or any Subsidiary of Company to have any environmental, health or safety Authorization required under any applicable Environmental Law in connection with the conduct of the business of Company or any Subsidiary of Company or with respect to any generation, treatment, storage, recycling, transportation, discharge, disposal or release of any Hazardous Materials by Company or any Subsidiary of Company, the effect of which could reasonably be expected to have a Material Adverse Effect. There are no environmental liabilities of Company or any Subsidiary of Company which could reasonably be expected to cause a Material Adverse Change. Company and each Subsidiary of Company, where reasonably determined by Company or such Subsidiary to be in accordance with customary business practices, have contractually required that Mortgagors in respect of Funded Mortgages and Tenants under Leases (i) be prohibited from generating or producing Hazardous Materials at or in connection with the Properties of Company and its Subsidiaries and disposing of any Hazardous Materials on or to any Property of Company or any Subsidiary of Company, except in compliance with applicable Environmental Laws or (ii) be obligated to maintain and occupy the Properties of Company and its Subsidiaries in compliance with all applicable Laws. 4.12 DISCLOSURE. Neither Company nor any Subsidiary of Company has made a material misstatement of fact, or failed to disclose any fact necessary to make the facts disclosed not misleading, in light of the circumstances under which they were made, to Administrative Agent or any Lender during the course of application for and negotiation of any Loan Papers or otherwise in connection with any Advances. There is no fact known to Company or any Subsidiary of -49- Company that materially adversely affects any of Company's or any Subsidiary of Company's Properties or business, or that could constitute a Material Adverse Change, and that has not been set forth in the Loan Papers or in other documents furnished to Administrative Agent. 4.13 INVESTMENTS; SUBSIDIARIES. Company and its Subsidiaries have no Investments except as described on SCHEDULE 4.13 hereto and as permitted by SECTION 6.10 hereof. SCHEDULE 4.13 is a complete and accurate listing of Company and each Subsidiary of Company, showing (a) its complete name, (b) its jurisdiction of organization, (c) its capital structure, and (d) its street and mailing address, which is its principal place of business and executive office. 4.14 CERTAIN FEES. No broker's, finder's, management fee or other fee or commission will be payable by Company with respect to the making of Commitment or Advances hereunder (other than to Administrative Agent and Lenders hereunder), or the offering, issuance or sale of the Capital Stock of Company. Company and each Subsidiary of Company hereby agrees to indemnify and hold harmless Administrative Agent and each Lender from and against any claims, demand, liability, proceedings, costs or expenses asserted with respect to or arising in connection with any such fees or commissions. 4.15 INTELLECTUAL PROPERTY. Company and each Subsidiary of Company has obtained all patents, trademarks, service-marks, trade names, copyrights, licenses and other rights, free from material restrictions, which are necessary for the operation of their respective businesses as presently conducted and as proposed to be conducted. 4.16 INVESTMENT COMPANY ACT. Neither Company nor any of its Subsidiaries is an "investment company", "promoter", "principal under" or "controlled by" an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The making of the Advances by Lenders, the application of the proceeds and repayment thereof by Company and the consummation of the transactions contemplated by the Loan Papers will not violate any such Act or any rule, regulation or order thereunder issued by the Securities and Exchange Commission. 4.17 RESTRICTED PAYMENTS. Neither Company nor any of its Subsidiaries has made any Restricted Payment during the period from and including December 31, 1999 through and including the Closing Date. 4.18 STATUS AS A REAL ESTATE INVESTMENT TRUST. Company (i) has elected to be treated as and is qualified as a Real Estate Investment Trust, (ii) has not revoked its election to be a Real Estate Investment Trust, (iii) for each taxable year, has satisfied the requirements of Section 856(c)(4) of the Code and (iv) for its current "tax year" (as defined in the Code) is and for all prior tax years subsequent to its election as a Real Estate Investment Trust has been entitled to a dividends paid deduction which meets the requirements of Section 857 of the Code. 4.19 COMMON ENTERPRISE. Company and its Subsidiaries are engaged in the businesses set forth in SECTION 6.8 hereof. These operations require financing on a basis such that the credit supplied can be made available to Company and -50- its Subsidiaries, as required for the continued successful operation of the Company and its Subsidiaries, taken as a whole. Company and each of its Subsidiaries expects to derive benefit (and the Board of Directors of Company and each Subsidiary of Company has determined that such Subsidiary may reasonably be expected to derive benefit), directly or indirectly, from the credit extended by Lenders hereunder, both in its separate capacity and as a member of the group of companies, since the successful operation and condition of the Company and each of its Subsidiaries is dependent on the continued successful performance of the function of the group as a whole. 4.20 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All representations and warranties made under this Agreement shall be deemed to be made at and as of the Closing Date and at and as of the date of each Advance, and each shall be true and correct when made, except to the extent (a) previously fulfilled in accordance with the terms hereof, (b) subsequently inapplicable, or (c) previously waived in writing by Administrative Agent and Lenders with respect to any particular factual circumstance. The representations and warranties made under this Agreement shall be deemed applicable to each Subsidiary as of the formation or acquisition of such Subsidiary and at and as of each date the representations and warranties are remade pursuant to this provision. All representations and warranties made under this Agreement shall survive, and not be waived by, the execution hereof by Administrative Agent and Lenders, any investigation or inquiry by Administrative Agent or any Lender, or by the making of any Advance under this Agreement. 4.21 YEAR 2000 COMPLIANCE. Company has (a) completed a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by its suppliers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by Company or any of its Subsidiaries (or its suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (b) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (c) completed implementation of that plan in accordance with that timetable. The Year 2000 Problem has not resulted in, and Borrower reasonably believes that the Year 2000 problem will not result in, a Material Adverse Effect. ARTICLE V. AFFIRMATIVE COVENANTS So long as the Commitment, any Advance or any portion of the Obligations is outstanding, or Company or any of its Subsidiaries owes any other amount hereunder or under any other Loan Paper: 5.1 COMPLIANCE WITH LAWS AND PAYMENT OF DEBT. Company shall, and shall cause each Subsidiary of Company to, comply with all Applicable Laws, including without limitation compliance with ERISA and all applicable federal and state securities Laws. Company shall, and shall cause each of its Subsidiaries to, pay its Indebtedness as and when due (or within any applicable grace period). -51- 5.2 INSURANCE. Company (a) shall cause, and shall cause each Subsidiary of Company to cause, the Tenants under Leases and the Mortgagors under Funded Mortgages to keep the Properties of Company and its Subsidiaries adequately insured at all times by reputable insurers to such extent and against such risks, including fire and other risks insured against by extended coverage, as what is customary with companies similarly situated and in the same or similar businesses (except that Tenants and Mortgagors that Company or a Subsidiary of Company in good faith believes are financially responsible may establish or maintain self insurance), (b) shall, and shall cause each Subsidiary of Company to, maintain in full force and effect public liability (including liability insurance for all vehicles and other insurable Property) and worker's compensation insurance, in amounts customary for such similar companies to cover normal risks, by insurers satisfactory to Administrative Agent, and (c) Company shall, and shall cause each Subsidiary of Company to, maintain other insurance as may be required by Law or reasonably requested by Administrative Agent. Company shall from time to time deliver to Administrative Agent, upon demand, evidence of the maintenance of such insurance. 5.3 INSPECTION RIGHTS. Subject to Applicable Law and any restrictions in any Leases or Funded Mortgages, Company shall, and shall cause each Subsidiary of Company to, permit Administrative Agent or any Lender, upon reasonable notice (provided that no advance notice is required after the occurrence and during the continuance of an Event of Default), to examine and make copies of and abstracts from their records and books of account, to visit and inspect their Properties and to discuss their affairs, finances, and accounts with any of their directors, officers, employees, accountants, attorneys and other representatives, all as Administrative Agent or any Lender may reasonably request. 5.4 RECORDS AND BOOKS OF ACCOUNT; CHANGES IN GAAP. Company shall, and shall cause each of its Subsidiaries to keep adequate records and books of account in conformity with GAAP. Company shall make such valuations of its assets as may be required by the terms of Section 856(c)(5) of the Code. Company shall not, nor shall Company permit any of its Subsidiaries to change its Fiscal Year, nor change its method of financial accounting except in accordance with GAAP. In connection with any such change after the date hereof, Company and Lenders shall negotiate in good faith to make appropriate alterations to the covenants set forth in SECTION 6.1 hereof, reflecting such change. 5.5 REPORTING REQUIREMENTS. Company shall furnish to each Lender and Administrative Agent: (a) As soon as available and in any event within 45 days after the end of Company's fiscal quarters, consolidated balance sheets of Company and its Consolidated Subsidiaries as of the end of such quarter, and consolidated statements of income, and consolidated statements of changes in cash flow of Company and its Consolidated Subsidiaries for the portion of the fiscal year ending with such quarter, setting forth, in comparative form, figures for the -52- corresponding periods in the previous fiscal year, all in reasonable detail, and certified by an Authorized Officer as prepared in accordance with GAAP, and fairly presenting the financial condition and results of operations of Company and its Consolidated Subsidiaries (subject to normal, year-end audit adjustments); (b) As soon as available and in any event within 90 days after the end of each fiscal year, consolidated balance sheets of Company and its Consolidated Subsidiaries as of the end of such fiscal year, and consolidated statements of income and changes in cash flow of Company and its Consolidated Subsidiaries for such fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an unqualified opinion of the Auditor, which opinion shall state that such financial statements were prepared in accordance with GAAP, that the examination by the Auditor in connection with such financial statements was made in accordance with generally accepted auditing standards, and that such financial statements present fairly the financial condition and results of operations of Company and its Consolidated Subsidiaries; (c) Promptly upon receipt thereof, copies of all material reports or letters submitted to Company or any Subsidiary of Company by the Auditor or any other accountants in connection with any annual, interim, or special audit, including without limitation the comment letter submitted to management in connection with any such audit; (d) Together with each set of financial statements delivered pursuant to sub and (b) above, a Compliance Certificate executed by an Authorized Officer, which Compliance Certificate must (i) certify that there has occurred no Default or Event of Default, (ii) compute the Applicable Margin, (iii) set forth the detailed calculations with respect to the SECTIONS 6.1(a), ((c), (d), (e), 6.3, 6.6 and 6.7 hereof, (iv) certify that Company continues to qualify as a Real Estate Investment Trust under the Code, and (v) set forth the projected amount of Loan Sales to occur during the fiscal quarter immediately succeeding the fiscal quarter covered by such Compliance Certificate; (e) As soon as available and in any event not later than 30 days after the beginning of each fiscal year of Company, the annual operating budgets of Company and its Subsidiaries for such fiscal year; (f) Promptly upon knowledge by Company of the occurrence of any Default or Event of Default, a notice from an Authorized Officer, setting forth the details of such Default or Event of Default, and the action being taken or proposed to be taken with respect thereto; (g) As soon possible and in any event within five Business Days after knowledge thereof by Company or any of its Subsidiaries, notice of any Litigation pending or threatened by written demand against Company, any of its Subsidiaries or any of their respective Property which, if determined adversely, could reasonably be expected to result in a judgment, penalties, or uninsured liability or damages in excess of $1,000,000 together with a statement of an Authorized Officer describing the allegations of such Litigation, and the action being taken or proposed to be taken with respect thereto; -53- (h) Promptly following notice or knowledge thereof by Company or any of its Subsidiaries, notice of any actual or threatened (which threat is evidenced in writing) loss or termination of any Authorization of Company or any such Subsidiary which if lost or terminated could reasonably be expected to have a Material Adverse Effect, together with a statement of an Authorized Officer describing the circumstances surrounding the same, and the action being taken or proposed to be taken with respect thereto; (i) Promptly after filing or receipt thereof, copies of all reports and notices that Company or any of its Subsidiaries (i) files or receives in respect of any Plan with or from the Internal Revenue Service, the PBGC, or the United States Department of Labor, or (ii) furnishes to or receives from any holders of any Indebtedness or Contingent Liability, if in either case, any information or dispute referred to therein either causes a Default or Event of Default, or could reasonably be expected to cause or result in a Default or an Event of Default; (j) Within 120 days after the close of each fiscal year, a statement of the Insufficiencies of each Plan (but only if the aggregate amount of all Insufficiencies for all Plans exceeds $100,000), certified as correct by an actuary enrolled under ERISA; (k) As soon as possible and in any event within 10 days after Company or any of its Subsidiaries knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by an Authorized Officer, describing said Reportable Event and the action which the such Person proposes to take with respect thereto; (l) Promptly upon their becoming available, copies of all registration statements and regularly provided reports, if any, filed by Company with the Securities and Exchange Commission (of any governmental agency substituted therefor) or any national securities exchange; (m) Promptly upon the mailing thereof to the shareholders of Company generally, copies of all financial statements, reports and proxy statements so mailed; (n) As soon as possible and in any event within 5 days after Company's knowledge thereof, written notice of any change in the Index Debt Rating; and (o) From time to time, such other information regarding the business, affairs or financial condition of Company or any of its Subsidiaries as any Lender may reasonably request, including consolidating financial statements of Company and its Consolidated Subsidiaries pursuant to subsections (a) and (b) above. 5.6 USE OF PROCEEDS. The proceeds of the Advances shall be available (and Company and its Subsidiaries shall use such proceeds) to (a) refinance all Indebtedness of Company under the Existing Credit Agreement, (b) finance -54- acquisitions of Property, and making loans which are either secured by Property or which are unsecured and (c) use for other general working capital purposes; provided that no Lender shall have any responsibility as to use by Company or any of its Subsidiaries of any such proceeds. 5.7 MAINTENANCE OF EXISTENCE AND ASSETS. Except as provided by SECTION 6.5 of this Agreement, Company shall maintain, and shall cause each of its Subsidiaries to maintain, its corporate existence, authority to do business in the jurisdictions in which it is necessary for Company or such Subsidiary of Company to do so, and all Authorizations necessary for the operation of any of their businesses. Company shall maintain, and shall cause each of its Subsidiaries to maintain, the assets necessary for use in their respective businesses in good repair, working order and condition, and make all such repairs, renewals and replacements thereof as may be reasonably required by Company and its Subsidiaries. 5.8 PAYMENT OF TAXES. Company will and will cause each of its Subsidiaries to, promptly pay and discharge all lawful Taxes imposed upon it or upon its income or profit or upon any Property belonging to it, unless such Tax shall not at the time be due and payable, or if the validity thereof shall currently be contested on a timely basis in good faith by appropriate proceedings (provided that the enforcement of any Liens arising out of any such nonpayment shall be stayed or bonded during the proceedings) and adequate reserves with respect to such Tax shall have been established in accordance with GAAP. 5.9 INDEMNITY. (a) COMPANY AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS ADMINISTRATIVE AGENT AND EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION, THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO OR SUCH PROCEEDING SHALL HAVE ACTUALLY BEEN INSTITUTED), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR OTHERWISE), ARISING FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE OPERATIONS OF COMPANY, ANY SUBSIDIARY OF COMPANY, ANY AFFILIATE OF COMPANY OR ANY PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL CONDITION OF PROPERTY OF COMPANY, ANY SUBSIDIARY OF COMPANY, ANY AFFILIATE OF COMPANY OR ANY PREDECESSORS IN INTEREST, IN EACH CASE RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE LOAN PAPERS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR TRANSACTION RELATING OR ATTENDANT THERETO AND THE MANAGEMENT OF -55- THE ADVANCES BY ADMINISTRATIVE AGENT, EXPRESSLY INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF THE ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE AGENT OR ANY LENDER, OR THE USE OR INTENDED USE OF THE PROCEEDS OF THE ADVANCES HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING ANY CLAIM OR LIABILITY TO THE EXTENT IT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION (COLLECTIVELY, "INDEMNIFIED MATTERS"). (b) IN ADDITION, COMPANY SHALL PERIODICALLY, UPON REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL REASONABLE EXPENSES (INCLUDING THE COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED M IF FOR ANY REASON THE FOREGOING INDEMNIFICATION IS UNAVAILABLE TO ANY INDEMNITEE OR INSUFFICIENT TO HOLD ANY INDEMNITEE HARMLESS WITH RESPECT TO INDEMNIFIED MATTERS, THEN COMPANY SHALL CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY SUCH INDEMNITEE AS A RESULT OF SUCH LOSS, CLAIM, DAMAGE OR LIABILITY IN SUCH PROPORTION AS IS APPROPRIATE TO REFLECT NOT ONLY THE RELATIVE BENEFITS RECEIVED BY COMPANY AND THE HOLDERS OF THE CAPITAL STOCK OF COMPANY ON THE ONE HAND AND SUCH INDEMNITEE ON THE OTHER HAND BUT ALSO THE RELATIVE FAULT OF COMPANY AND SUCH INDEMNITEE, AS WELL AS ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS. THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH COMPANY MAY OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF COMPANY, ADMINISTRATIVE AGENT, LENDERS AND ALL OTHER INDEMNITEES. THE OBLIGATIONS OF COMPANY UNDER THIS SECTION 5.9 SHALL SURVIVE (i) THE EXECUTION OF THIS AGREEMENT AND (ii) ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS. 5.10 AUTHORIZATIONS AND MATERIAL AGREEMENTS. Company shall, and shall cause its Subsidiaries to, obtain, maintain and comply in all material respects with all Authorizations and agreements necessary or appropriate for any of them to own, maintain, or operate any of their businesses or Properties. 5.11 INTERCOMPANY NOTES. Any portion of any Advance under the Facility which is loaned by Company to any Subsidiary of Company shall be evidenced by Intercompany Notes in form and substance acceptable to Administrative Agent, and there shall be no prohibition on the ability of the Company to pledge to Administrative Agent each such Intercompany Note. Company shall cause all Intercompany Notes to be subject to a Subordination Agreement. 5.12 FURTHER ASSURANCES. Company and each Subsidiary of Company will execute all such additional agreements and take any and all such other action, as Administrative Agent may, from time to time, deem reasonably necessary or proper in connection with the obligations of Company and each Subsidiary of Company under any of the Loan Papers. 5.13 SUBSIDIARIES AND OTHER OBLIGORS. Company shall cause each of its Subsidiaries to comply with each provision of this ARTICLE V. -56- 5.14 INTEREST HEDGE AGREEMENTS. Company shall maintain an Interest Hedge Agreement or Agreements such that, after giving effect to such Interest Hedge Agreements, at least 50% of the aggregate Indebtedness of the Company and its Subsidiaries outstanding at any time is subject to a fixed interest rate per annum for a term of at least two years. 5.15 YEAR 2000 COMPLIANCE. Company will promptly notify the Administrative Agent in the event Company discovers or determines that the Year 2000 Problem has resulted in, or is reasonably expected to result in, a Material Adverse Effect. ARTICLE VI. NEGATIVE COVENANTS So long as the Commitment, any Advance or any portion of the Obligations is outstanding, or Company or any of its Subsidiaries owes any other amount hereunder or under any other Loan Paper: 6.1 FINANCIAL COVENANTS. Company and its Consolidated Subsidiaries shall comply with the following covenants: (a) MINIMUM NET WORTH. At all times during the term hereof, Net Worth shall not bless than the sum of (i) $750,000,000, PLUS (ii) an amount equal to 75% of the aggregate Net Cash Proceeds received by Company and its Consolidated Subsidiaries after the Closing Date from the offering, sale or other disposition of Capital Stock of Company or any Subsidiary of Company, PLUS (iii) an amount equal to the net worth of any Person that becomes a direct or indirect Subsidiary of Company or is merged into or consolidated with Company or any Subsidiary of Company or substantially all of the assets of which are acquired by Company or any Subsidiary of Company to the extent the purchase price paid therefor is paid in Capital Stock of Company or any of its Subsidiaries. (b) TOTAL INDEBTEDNESS TO ADJUSTED NET WORTH. At all times during the term hereof, the ratio of Total Indebtedness to Adjusted Net Worth shall not be greater than 1.20 to 1. (c) FIXED CHARGE COVERAGE RATIO. At all times during the term hereof, the Fixed Charge Coverage Ratio shall not be less than 2.00 to 1. (d) MAXIMUM TOTAL SECURED INDEBTEDNESS. At all times during the term hereof, the aggregate amount of Total Secured Indebtedness shall not exceed 10% of Total Assets. -57- (e) TOTAL UNENCUMBERED ASSETS TO TOTAL UNSECURED INDEBTEDNESS. At all times during the term hereof, the ratio of Total Unencumbered Assets to Total Unsecured Indebtedness shall not be less than 1.75 to 1. 6.2 INDEBTEDNESS. Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, become or be liable in any manner in respect of, or suffer to exist, any Indebtedness, except (a) Indebtedness under the Loan Papers, (b) Indebtedness in existence on the date hereof, as shown on SCHEDULE 4.8 hereto, (c) Indebtedness of a Subsidiary of Company to Company or to another Subsidiary of Company in compliance with Section 6.17 hereof evidenced by Intercompany Notes evidencing loans made by Company or such Subsidiary with the proceeds of Advances, and (d) other Indebtedness, provided that (i) immediately prior thereto and after the occurrence thereof there shall be no Default or Event of Default and (ii) the covenants, terms and provisions with respect to such Indebtedness are no more restrictive than the terms of this Agreement and the other Loan Papers. 6.3 CONTINGENT LIABILITIES. Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, become or be liable in any manner in respect of, or suffer to exist, any Contingent Liabilities, except (a) Contingent Liabilities under or relating to the Loan Papers (as defined in this Agreement) and the Loan Papers (as defined in the 364-Day Credit Agreement), (b) Contingent Liabilities in existence on the Closing Date, as shown on SCHEDULE 4.8 hereto, (c) Contingent Liabilities resulting from the endorsement of negotiable instruments for collection in the ordinary course of business, (d) Contingent Liabilities in respect of Interest Hedge Agreements of Company or any of its Subsidiaries, and (e) other Contingent Liabilities not to exceed $5,000,000 in aggregate principal amount. 6.4 LIENS. Company shall not, and shall not permit any of its Subsidiaries to, create or suffer to exist any Lien upon any of its Properties, except Permitted Liens. In case any Property shall be subject to a Lien in violation of this SECTION 6.4, the Company or its Subsidiary, as the case may be, shall immediately make or cause to be made provision whereby the Notes will be secured equally and ratably with all other obligations secured thereby pursuant to such agreements and instruments as shall be approved by Majority Lenders, and in such case the Notes shall have the benefit, to the full extent that, and with such priority as, Lenders may be entitled under Applicable Law, of an equitable Lien on such Property securing the Notes. Such violation of SECTION 6.4 shall constitute an Event of Default hereunder, whether or not such provision is made pursuant to the immediately preceding sentence. 6.5 PROHIBITION OF FUNDAMENTAL CHANGES. Company will not, and will not cause or permit any of its Subsidiaries to, enter into any transaction of sale, transfer, merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself, or suffer any liquidation or dissolution, except (a) for sales in the ordinary course of business (which shall include Asset Sales in respect of Asset Securitizations and Loan Sales), (b) for the Maryland Merger (provided Franchise Finance Corporation of America, a Maryland corporation, simultaneously with the Maryland Merger shall have executed a debt assumption agreement and such other documents as are reasonably required by Administrative Agent), (c) -58- for the liquidation or dissolution of any Subsidiary, Asset Securitization Affiliate or Loan Sale Affiliate, and (d) a Subsidiary of Company may merge into, or consolidate with, Company (provided Company is the survivor) or another Subsidiary of Company. Company will not, and will not cause or permit any of its Subsidiaries to, acquire any business or assets from, or capital stock of, or be a party to any acquisition of, any Person except for purchases of assets to be sold or used in the ordinary course of business (which shall include Asset Sales in respect of Asset Securitizations and Loan Sales). Company will not transfer any of the issued and outstanding Capital Stock of any Subsidiary which is a qualified REIT Subsidiary within the meaning of Section 865(i) of the Code and will not permit the issuance of any additional shares of such Capital Stock if the issuance thereof would cause such Subsidiary to fail to be characterized as a qualified REIT Subsidiary. 6.6 DISPOSITIONS OF ASSETS. Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, assign, or otherwise dispose of any assets of Company or any of its Subsidiaries in an Asset Sale, or otherwise consummate any Asset Sale, except so long as there exists no Default or Event of Default, and no Default or Event of Default would be caused thereby, Company and its Subsidiaries may consummate Asset Sales for fair market value in an aggregate amount not to exceed during any period of four consecutive fiscal quarters 25% of Total Assets (calculated as an amount equal to the result of (a) the sum of Total Assets as of the first day of each fiscal quarter during such four quarter period (b) divided by four), provided that the Asset Sale Proceeds in excess of $3,000,000 of each Asset Sale (excluding any Loan Sale) are applied as provided in SECTION 2.5(b) hereof; provided that, notwithstanding anything herein to the contrary, (i) Company will not dispose of any assets at any time in an amount that could impair or jeopardize the status of Company as a Real Estate Investment Trust and (ii) the market value of any assets sold in an Asset Securitization or a Loan Sale shall be excluded from the calculation of assets disposed of in Asset Sales for purposes of the 25% limitation set forth in this SECTION 6.6. On the day of any Asset Sale (excluding any Loan Sale) by Company or its Subsidiaries in which the Asset Sales Proceeds thereof exceed $3,000,000, Company shall deliver to Administrative Agent a certificate of an Authorized Officer certifying as to the amount of gross proceeds thereof and costs and expenses payable thereof which were deducted in determining the Asset Sale Proceeds. 6.7 DISTRIBUTIONS AND RESTRICTED PAYMENTS. Company shall not, and shall not permit any Subsidiary to, make any Restricted Payments, except that, notwithstanding the immediately preceding subsection, Company may (a) pay Permitted Distributions unless a Default or Event of Default shall exist or would be caused thereby, in which case Company may only pay such Distributions as may be required to maintain the status of Company as a Real Estate Investment Trust under the Code and (b) establish a stock option plan for employees and directors of Company and, provided no Default or Event of Default shall exist or would be caused thereby, Company may repurchase Capital Stock of Company for the purpose of matching employee stock purchases in connection with Company's retirement plans. -59- 6.8 BUSINESS. Company shall not, and shall not permit any of its Subsidiaries to, engage to any substantial extent in any line or lines of business activity other than the lines of business activity engaged in by Company and its Subsidiaries as of the Closing Date. 6.9 TRANSACTIONS WITH AFFILIATES. Company shall not, and shall not permit any of its Subsidiaries to, enter into or be party to a transaction with any Affiliate, including, but not limited to, (a) dispositions of such assets in an Affiliate, (b) a loan or advance to an Affiliate, unless such Investment is evidenced by an Intercompany Note, and (c) mergers into, consolidations with, or purchases or acquisitions of assets from, any Affiliate; provided, (i) that Company may enter into such transactions if the value of the consideration for all such transactions (other than Asset Securitizations and Loan Sales) entered into after April 15, 1997 does not exceed $10,000,000 in aggregate amount; (ii) that an Affiliate who is an individual may serve as a director, officer or employee of Company, and (iii) that Company and its Subsidiaries may (A) enter into Asset Securitizations with Asset Securitization Affiliates and Loan Sales with the Company, its Subsidiaries and Loan Sale Affiliates, subject to the restrictions in SECTION 6.6 hereof and the requirements of SECTION 2.5(b) hereof, and (B) purchase or acquire Retained Securities. 6.10 LOANS AND INVESTMENTS. Company shall not, and shall not permit any of its Subsidiaries to, make any Investment to, or make or have any Investment in, any Person, or many commitment to make any such Investment, or make any acquisition, except (a) Investments existing on the date hereof as shown on SECTION 4.13 hereto, (b) Investments in Cash Equivalents, (c) Investments in travel advances in the ordinary course of business to officers and employees, (d) Investments in accounts receivable arising in the ordinary course of business, (e) Investments in Subsidiaries of Company in compliance with SECTION 6.17 hereof, (f) Investments in the form of subordinated investment securities and other similar instruments obtained by Company or any of its Subsidiaries in connection with an Asset Securitization; provided that the aggregate amount of such Investments pursuant to clause (f) (including the Secured Franchise Loan Pass-Through Certificates shown on SCHEDULE 4.13 hereto) shall not exceed 20% of Total Assets at any time, and (g) Investments in Loan Sale Affiliates not to exceed $5,000,000 in aggregate principal amount. 6.11 FISCAL YEAR AND ACCOUNTING METHOD. Company shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or method of accounting, except as may be required by GAAP. 6.12 AMENDMENT OF CORPORATE DOCUMENTS. Except with respect to the Maryland Merger (provided Franchise Finance Corporation of America, a Maryland corporation, simultaneously with the Maryland Merger shall have executed a debt assumption agreement and such other documents as are reasonably required by Administrative Agent), Company shall not amend its articles of organization or bylaws and Company shall not permit any of its Subsidiaries to amend its articles of organization, bylaws or partnership agreement in any manner which could reasonably be expected to be materially adverse to the interests of the Lenders. -60- 6.13 COMPLIANCE WITH ERISA. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, or permit any member of such Person's Controlled Group to directly or indirectly, (a) terminate any Plan so as to result in any material (in the opinion of Administrative Agent) liability to Company, any Subsidiary of Company or any member of its Controlled Group, (b) permit to exist any ERISA Event, or any other event or condition, which presents the risk of any material (in the opinion of Administrative Agent) liability of Company, any Subsidiary of Company or any member of its Controlled Group, (c) make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any material (in the opinion of Administrative Agent) liability to Company, any Subsidiary of Company or any member of its Controlled Group, (d) enter into any new Plan or modify any existing Plan so as to increase its obligations thereunder (except in the ordinary course of business consistent with past practice) which could result in any material (in the opinion of Administrative Agent) liability to Company, any Subsidiary of Company or any member of its Controlled Group, or (e) permit the present value of all benefit liabilities, as defined in Title IV of ERISA, under each Plan of Company and each Subsidiary of Company or any member of its Controlled Group (using the actuarial assumptions utilized by the PBGC upon termination of a Plan) to materially (in the opinion of Administrative Agent) exceed the fair market value of Plan assets allocable to such benefits all determined as of the most recent valuation date for each such Plan. 6.14 SUBSIDIARIES AND OTHER OBLIGORS. Company shall not permit any of its Subsidiaries to violate any provision of this ARTICLE VI. 6.15 AMENDMENTS TO MATERIAL AGREEMENTS. Company shall not, nor shall Company permit any of its Subsidiaries to, amend or change any Loan Paper other than with the prior written consent of Lenders pursuant to SECTION 9.1 hereof, nor shall Company or any of its Subsidiaries change or amend (or take any action or fail to take any action the result of which is an effective amendment or change), or accept any waiver or consent with respect to, any Intercompany Note other than with the prior written consent of Lenders pursuant to SECTION 9,1 hereof. 6.16 PROHIBITED TRANSACTIONS. Company shall not, and shall not permit any Subsidiary to, sell or otherwise transfer any Property in a transaction which constitutes a prohibited transaction within the meaning of Section 857(b)(6) of the Code if such prohibited transaction would cause Company or such Subsidiary to fail to satisfy any of the requirements of Section 856 of the Code. 6.17 NO NEW SUBSIDIARIES. Company shall not, and shall not permit any of its Subsidiaries to, acquire, incorporate or otherwise organize any Subsidiary which was not in existence on the Closing Date unless such Subsidiary (a) executes a Guaranty Agreement, a Subordination Agreement and an Intercompany Note and (b) delivers to Administrative Agent (i) the executed Guaranty Agreement, Subordination Agreement and an Officer's Certificate containing Articles of Incorporation, Bylaws, corporate resolutions, and incumbency of officers, all in form and substance reasonably satisfactory to Administrative Agent, and (ii) an opinion of legal counsel of such Subsidiary in form and substance reasonably satisfactory to Administrative Agent. -61- 6.18 ASSET SECURITIZATION AND LOAN SALE AFFILIATES. Company will not permit any Asset Securitization Affiliate or Loan Sale Affiliate to conduct any active trade or business other than directly in respect of an Asset Securitization or a Loan Sale, as the case may be. Without limiting the generality of the foregoing, Company shall not permit any Asset Securitization Affiliate or Loan Sale Affiliate to directly or indirectly, other than in conjunction with an Asset Securitization or a Loan Sale, as the case may be, (a) incur, assume, guaranty or otherwise create or become liable in respect of any Indebtedness, (b) make, or permit to remain outstanding, an Investment in any Person, (c) create or suffer to be created or exist a Lien upon any part of its property or upon any income, revenues, issues and profits thereof, (d) sell, transfer, exchange or otherwise dispose of any part of its property, (e) create, organize or establish any Person, including, without limitation, any Subsidiary, or (f) maintain, contribute to or assume any liability with respect to any Person. ARTICLE VII. EVENTS OF DEFAULT 7.1 EVENTS OF DEFAULT. Any one or more of the following shall be an "EVENT OF DEFAULT" hereunder, if the same shall occur for any reason whatsoever, whether voluntary or involuntary, by operation of Law, or otherwise: (a) Company shall fail to pay any (i) principal under any Loan Paper when due or (ii interest, fees, or other amounts under any Loan Paper within two Business Days when due; (b) Any representation or warranty made or deemed made by Company or any Subsidiary of Company (or any of its officers or representatives) under or in connection with any Loan Papers shall prove to have been incorrect or misleading in any material respect when made or deemed made; (c) Company or any Subsidiary of Company shall fail to perform or observe any term or condition contained in ARTICLE V (other than SECTION 5.12 hereof) and such failure shall not be remedied within fifteen days after written notice thereof shall have been given to Company by Administrative Agent; (d) Company or any Subsidiary of Company shall fail to perform or observe SECTION 5.12 hereof or any term or covenant contained in ARTICLE VI; (e) Company or any Subsidiary of Company shall fail to perform or observe any other term or covenant contained in any Loan Paper, other than those described in SECTIONS 7.1(a), (b), (c) and (d), and such failure shall not be remedied within fifteen days after written notice thereof shall have been given to Company by Administrative Agent; (f) Any material provision of any Loan Paper shall, for any reason, not be valid and binding on Company or any Subsidiary of Company, or not be in full force and effect, or shall be declared to be null and void; the validity or -62- enforceability of any Loan Paper shall be contested by Company or any Subsidiary of Company; Company or any Subsidiary of Company shall deny that it has any or further liability or obligation under its respective Loan Papers; (g) Any of the following shall occur: (i) Company or any Subsidiary of Company shall make an assignment for the benefit of creditors or be unable to pay its debts generally as they become due; (ii) Company or any Subsidiary of Company shall petition or apply to any Tribunal for the appointment of a trustee, receiver, or liquidator of it, or of any substantial part of its assets, or shall commence any proceedings relating to Company or any Subsidiary of Company under any Debtor Relief Law, whether now or hereafter in effect; (iii) any such petition or application shall be filed, or any such proceedings shall be commenced, against Company or any Subsidiary of Company, or an order, judgment or decree shall be entered appointing any such trustee, receiver, or liquidator, or approving the petition in any such proceedings; (iv) any final order, judgment, or decree shall be entered in any proceedings against Company or any Subsidiary of Company decreeing its dissolution; (v) any final order, judgment, or decree shall be entered in any proceedings against Company or any Subsidiary of Company decreeing its split-up which requires the divestiture of a substantial part of its assets; or (vi) Company or any Subsidiary of Company shall petition or apply to any Tribunal for the appointment of a trustee, receiver, or liquidator of it, or of any substantial part of its assets, or shall commence any proceedings relating to Company or any Subsidiary of Company under any Debtor Relief Law, whether now or hereafter in effect; (h) Company or any Subsidiary of Company shall fail to pay any Indebtedness or Contingent Liability in an aggregate amount of $1,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness or Contingent Liability; or Company or any Subsidiary of Company shall fail to perform or observe any term or covenant contained in any agreement or instrument relating to any such Indebtedness or Contingent Liability, when required to be performed or observed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument and can result in acceleration of the maturity of such Indebtedness or Contingent Liability; or any such Indebtedness or Contingent Liability shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), repurchased or redeemed, prior to the stated maturity thereof; (i) Company or any Subsidiary of Company shall have any final judgment(s) outstanding against it for the payment of $500,000 or more, and such judgment(s) shall remain unstayed, in effect, and unpaid for a period of 60 days; (j) A Change of Control shall occur; (k) Company, any Subsidiary of Company, or any ERISA Affiliate shall have committed a failure described in Section 302(f)(l) of ERISA, and the amount determined under Section 3 of ERISA is equal to or greater than $100,000; -63- (l) Company, any Subsidiary, or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result thereof the aggregate annual contributions to all Multiemployer Plans in reorganization or being terminated is increased over the amounts contributed to such Plans for the preceding Plan year by an amount exceeding $50,000; (m) Company or any Subsidiary of Company shall be required under any Environmental Law to implement any remedial, neutralization, or stabilization process or program, the cost of which could constitute a Material Adverse Change; (n) Company shall fail or cause to qualify, or be unable to certify to Lenders its continuing status, as a Real Estate Investment Trust pursuant to Sections 856 through 860 of the Code; or any Subsidiary which is a qualified REIT subsidiary within the meaning of Section 856(i) of the Code shall fail to qualify as a qualified REIT subsidiary within the meaning of Section 856(i) of the Code; or (o) An Event of Default (as defined in the 364-Day Credit Agreement) shall occur and be continuing under the 364-Day Credit Agreement. 7.2 REMEDIES UPON DEFAULT. If an Event of Default described in SECTION 7.1(g) shall occur, the Commitment shall be immediately terminated and the aggregate unpaid principal balance of and accrued interest on all Advances shall, to the extent permitted by applicable Law, thereupon become due and payable concurrently therewith, without any action by Administrative Agent or any Lender, and without diligence, presentment, demand, protest, notice of protest or intent to accelerate, or notice of any other kind, all of which are hereby expressly waived. Subject to the foregoing sentence, if any Event of Default shall occur and be continuing, Administrative Agent may at its election (provided (i) Administrative Agent has sent notice to all Lenders of its intention to do any one ore more of the following and within five Business Days of such notice Majority Lenders have not notified Administrative Agent not to take such action or (ii) Administrative Agent in good faith determines that immediate action is necessary to be taken to protect the Rights of the Lenders), and shall at the discretion of Majority Lenders, do any one or more of the following: (a) Declare the entire unpaid balance of all Advances immediately due and payable, whereupon it shall be due and payable without diligence, presentment, demand, protest, notice of protest or intent to accelerate, or notice of any other kind (except notices specifically provided for under SECTION 7.1), all of which are hereby expressly waived (except to the extent waiver of the foregoing is not permitted by applicable Law); (b) Terminate the Commitment; (c) Reduce any claim of Administrative Agent and Lenders to judgment; -64- (d) If any Letter of Credit shall be then outstanding, Administrative Agent may demand upon Company to, and forthwith upon such demand (but in the case of an Event of Default specified in SECTION 7.1(g) hereof, without any demand or taking of any other action by Administrative Agent or any Lender), Company shall, pay to Administrative Agent in same day funds at the office of Administrative Agent in such demand for deposit in the L/C Cash Collateral Account, an amount equal to the maximum amount available to be drawn under the Letters of Credit then outstanding. (e) Exercise any Rights afforded under any Loan Papers, by Law, including but not limited to the UCC, at equity, or otherwise. 7.3 CUMULATIVE RIGHTS. All Rights available to Administrative Agent and Lenders under the Loan Papers shall be cumulative of and in addition to all other Rights granted thereto at Law or in equity, whether or not amounts owing thereunder shall be due and payable, and whether or not Administrative Agent or any Lender shall have instituted any suit for collection or other action in connection with the Loan Papers. Nothing contained herein or in any other Loan Papers shall limit the Right of any Lender to collect its Note upon acceleration of the Obligations pursuant to the terms of this Agreement. 7.4 WAIVERS. The acceptance by Administrative Agent or any Lender at any time and from time to time of partial payment of any amount owing under any Loan Papers shall not be deemded to be a waiver of any Default or Event of Default then existing. No waiver by Administrative Agent or any Lender of any Default or Event of Default shall be deemed to be a waiver of any Default or Event of Default other than such Default or Event of Default. No delay or omission by Administrative Agent or any Lender in exercising any Right under the Loan Papers shall impair such Right or be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise of any such Right preclude other or further exercise thereof, or the exercise of any other Right under the Loan Papers or otherwise. 7.5 PERFORMANCE BY ADMINISTRATIVE AGENT OR ANY LENDER. Should any covenant of Company or any Subsidiary of Company fail to be performed in accordance with the terms of the Loan Papers, Administrative Agent may, at its option, perform or attempt to perform such covenant on behalf of Company or such Subsidiary. Notwithstanding the foregoing, it is expressly understood that neither Administrative Agent nor any Lender assumes, and shall not ever have, except by express written consent of Administrative Agent or such Lender, (a) any liability or responsibility for the performance of any duties or covenants of Company or any Subsidiary of Company or (b) any implied or fiduciary duties whatsoever to Company or any Subsidiary of Company. 7.6 EXPENDITURES. Company shall reimburse Administrative Agent and each Lender for any reasonable sums spent by it in connection with the exercise of any Right provided herein. Such sums shall bear interest at the lesser of (a) the Base Rate in effect from time to time, plus 3.0% and (b) the Highest Lawful Rate, from the date spent until the date of repayment by Company. -65- 7.7 CONTROL. None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Administrative Agent or any Lender any Rights to exercise control over the affairs and/or management of Company or any Subsidiary of Company, the power of Administrative Agent and each Lender being limited to the Rights to exercise the remedies provided in this Article. ARTICLE VIII. ADMINISTRATIVE AGENT 8.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under this Agreement and the other Loan Papers as are delegated to Administrative Agent by the terms of the Loan Papers, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement and the other Loan Papers (including without limitation enforcement or collection of the Notes), Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Majority Lenders (or all Lenders, if required under SECTION 9.1), and such instructions shall be binding upon all Lenders; PROVIDED, HOWEVER, that Administrative Agent shall not be required to take any action which exposes Administrative Agent to personal liability or which is contrary to any Loan Papers or applicable Law. Administrative Agent agrees to distribute promptly to each Lender copies of any notices, requests and other information received from Company pursuant to the terms of this Agreement, and to distribute to each applicable Lender in like funds all amounts delivered to Administrative Agent by Company for the Ratable or individual account of any Lender, with such funds to be distributed on the date of receipt by Administrative Agent provided such funds are received by the time prescribed in SECTION 2.12(a), or the immediately following Business Day if such funds are received after such time (any funds not so distributed by Administrative Agent shall bear interest payable by Administrative Agent at a rate per annum equal to the Federal Funds Rate to but not including the date of receipt by such Lender). Functions of Administrative Agent are administerial in nature and in no event shall Administrative Agent have a fiduciary or trustee relationship in respect to any Lender by reason of this Agreement or any other Loan Paper. 8.2 ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither Administrative Agent, nor any of its directors, officers, agents, employees, Affiliates, or representatives shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Paper, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, Administrative Agent (a) may treat the payee of any Note as the holder thereof until Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to Administrative Agent; (b) may consult with legal counsel (including counsel for Company or any of its Subsidiaries), independent public accountants, and other experts selected by it, and shall not be liable for any action taken or omitted to be taken in good faith by it in -66- accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with this Agreement or any other Loan Papers; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants, or conditions of this Agreement or any other Loan Papers on the part of Company or its Subsidiaries or to inspect the Property (including the books and records) of Company or its Subsidiaries; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement, any other Loan Papers, or any other instrument or document furnished pursuant hereto; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Papers by acting upon any notice, consent, certificate, or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. 8.3 BANK OF AMERICA, N.A. AND AFFILIATES. With respect to its Commitment, its Advances, and any Loan Papers, Bank of America, N.A. has the same Rights under this Agreement as any other Lender and may exercise the same as though it were not Administrative Agent. Bank of America, N.A. and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Company or any Subsidiary of Company, any Affiliate thereof, and any Person who may do business therewith, all as if Bank of America, N.A. were not Administrative Agent and without any duty to account therefor to any Lender. 8.4 LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon Administrative Agent or any other Lender, and based on the financial statements referred to in SECTION 4.4 hereof and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Papers. 8.5 INDEMNIFICATION BY LENDERS. LENDERS SHALL INDEMNIFY ADMINISTRATIVE APRO RATA, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN PAPERS OR ANY ACTION TAKEN OR OMITTED BY ADMINISTRATIVE AGENT THEREUNDER, INCLUDING MERE OR ORDINARY NEGLIGENCE OF ADMINISTRATIVE AGENT; PROVIDED, HOWEVER, THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, LENDERS SHALL REIMBURSE ADMINISTRATIVE AGENT, PRO RATA, PROMPTLY UPON DEMAND FOR ANY OUT-OF-POCKET EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) INCURRED BY ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATION, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL AND OTHER ADVICE IN -67- RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN PAPERS. THE INDEMNITY PROVIDED IN THIS SECTION 8.5 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT. ANY AMOUNTS SO PAID BY LENDERS TO ADMINISTRATIVE AGENT SHALL BE RETURNED BY ADMINISTRATIVE AGENT PRO RATA TO EACH PAYING LENDER TO THE EXTENT LATER PAID BY COMPANY OR ANY OTHER PERSON ON COMPANY'S BEHALF TO ADMINISTRATIVE AGENT. 8.6 SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign at any time by giving written notice thereof to Lenders and Company, and may be removed at any time with cause by the Majority Lenders or without cause by action of all Lenders (other than Administrative Agent, if it is a Lender); PROVIDED, HOWEVER, so long as (a) Bank of America, N.A. is a Lender and (b) no Default or Event of Default has occurred and is continuing, Bank of America, N.A. shall not have the right to resign as Administrative Agent. If Administrative Agent also then serves in the capacity of Swing Line Lender or Issuing Bank, such resignation or removal shall constitute resignation or removal of Swing Line Lender and Issuing Bank and the successor Administrative Agent shall serve in the capacity of Swing Line Lender and Issuing Bank. Upon any such resignation, Majority Lenders shall have the right, with the consent of Company (which consent shall not be unreasonably withheld), to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed and shall have accepted such appointment within thirty days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of Lenders, with the consent of Company (which consent shall not be unreasonably withheld), appoint a successor Administrative Agent, which shall be a commercial bank organized under the Laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the Rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Papers, provided that (a) if the retiring or removed Administrative Agent is unable to appoint a successor Administrative Agent and (b) a Default or Event of Default shall have occurred and be continuing, Administrative Agent shall, after the expiration of a sixty day period from the date of notice, be relieved of all obligations as Administrative Agent hereunder. Notwithstanding any Administrative Agent's resignation or removal hereunder, the provisions of this Article shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 8.7 NOTICE OF DEFAULT. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default (other than an Event of Default under SECTION 7.1(a) hereof) unless Administrative Agent has received notice from a Lender or Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that Administrative Agent receives any such notice, Administrative Agent shall promptly give notice thereof to Lenders. -68- ARTICLE IX. MISCELLANEOUS 9.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Papers, nor consent to any departure by Company or any Subsidiary of Company therefrom, shall be effective unless the same shall be in writing and signed by Administrative Agent with the consent of Majority Lenders, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver, or consent shall (and the result of action or failure to take action shall not) unless in writing and signed by all of Lenders and Administrative Agent, (a) increase the Commitment, (b) reduce any principal, interest, fees, or other amounts payable hereunder, or waive or result in the waiver of any Event of Default under SECTION 7.1(a), (c) extend the Maturity Date or otherwise postpone any date fixed for any payment of principal, interest, fees, or other amounts payable hereunder, (d) release any Guaranties securing the Obligations, other than releases contemplated hereby and by the Loan Papers, (e) change the definition of Specified Percentage or the number of Lenders required to take any action hereunder, (f) amend SECTION 6.1(e) or the definitions of any defined term set forth therein, (g) amend this SECTION 9.1, or (h) release or amend any Subordination Agreement. No amendment, waiver, or consent shall affect the Rights or duties of Administrative Agent under any Loan Papers, unless it is in writing and signed by Administrative Agent in addition to the requisite number of Lenders. No amendment, waiver or consent shall affect the Rights or duties of Issuing Bank under any Loan Papers, unless it is in writing and signed by Issuing Bank in addition to the requisite number of Lenders. No amendment, waiver or consent shall affect the Rights or duties of Swing Line Lender under any Loan Papers, unless it is in writing and signed by Swing Line Lender in addition to the requisite number of Lenders. 9.2 NOTICES. (a) MANNER OF DELIVERY. All notices communications and other materials to be given or delivered under the Loan Papers shall, except in those cases where giving notice by telephone is expressly permitted, be given or delivered in writing. All written notices, communications and materials shall be sent by registered or certified mail, postage prepaid, return receipt requested, by telecopier, or delivered by hand. In the event of a discrepancy between any telephonic notice and any written confirmation thereof, such written confirmation shall be deemed the effective notice except to the extent Administrative Agent, any Lender or Company has acted in reliance on such telephonic notice. (b) ADDRESSES. All notices, communications and materials to be given or delivered pursuant to this Agreement shall be given or delivered at the following respective addresses and telecopier and telephone numbers and to the attention of the following individuals or departments: -69- If to Company: Franchise Finance Corporation of America The Perimeter Center 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone No.: (480) 585-4500 Facsimile No.: (480) 585-2225 Attention: John R. Barravecchia Executive Vice President and Chief Financial Officer With a copy to: Franchise Finance Corporation of America The Perimeter Center 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone No.: (480) 585-4500 Facsimile No.: (480) 585-2225 Attention: Dennis L. Ruben, Esq. Executive Vice President, General Counsel and Secretary -70- If to Administrative Agent: Bank of America, N.A. 100 North Tryon Street, NC1-007-17-11 Charlotte, North Carolina 28255 Telephone No.: (704) 386-9015 Facsimile No.: (704) 386-3271 Attention: Richard L. Nichols Managing Director With a copy to: Bank of America, N.A. 901 Main Street, 14th Floor Dallas, Texas 75202 Telephone No.: (214) 209-2138 Facsimile No.: (214) 209-2515 Attention: Tonya Parker (c) If to any Lender, to its address set forth below opposite its signature or on any Assignment and Acceptance or amendment to this Agreement; or at such other address or, telecopier or telephone number or to the attention of such other individual or department as the party to which such information pertains may hereafter specify for the purpose in a notice to the other specifically captioned "Notice of Change of Address". (d) EFFECTIVENESS. Each notice, communication and any material to be given or delivered to any party pursuant to this Agreement shall be effective or deemed delivered or furnished (i) if sent by mail, on the fifth day after such notice, communication or material is deposited in the mail, addressed as above provided, (ii) if sent by telecopier, when such notice, communication or material is transmitted to the appropriate number determined as above provided in this SECTION 9.2 and the appropriate receipt is received or otherwise acknowledged, (iii) if sent by hand delivery or overnight courier, when left at the address of the addressee addressed as above provided, and (iv) if given by telephone, when communicated to the individual or any member of the department specified as the individual or department to whose attention notices, communications and materials are to be given or delivered except that notices of a change of address, telecopier or telephone number or individual or department to whose attention notices, communications and materials are to be given or delivered shall not be effective until received; PROVIDED, HOWEVER, that notices to Administrative Agent pursuant to ARTICLE II shall be effective when received. Company agrees that Administrative Agent shall have no duty or obligation to verify or otherwise confirm telephonic notices given pursuant to AR, and agrees to indemnify and hold harmless Administrative Agent and Lenders for any and all -71- liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, and expenses resulting, directly or indirectly, from acting upon any such notice. 9.3 PARTIES IN INTEREST. All covenants and agreements contained in this Agreement and all other Loan Papers shall bind and inure to the benefit of the respective successors and assigns of the parties hereto. Each Lender may from time to time assign or transfer its interests hereunder pursuant to SECTION 9.4 hereof. Neither Company nor any Subsidiary of Company may assign or transfer its Rights or obligations under any Loan Paper without the prior written consent of Administrative Agent. 9.4 ASSIGNMENTS AND PARTICIPATIONS. (a) Subject to the following sentence, each Lender (an "ASSIGNOR") may assign its Rights and obligations as a Lender under the Loan Papers to one or more Eligible Assignees pursuant to an Assignment and Acceptance, so long as (i) each assignment shall be of a constant, and not a varying percentage of all Rights and obligations thereunder, (ii) each Assignor shall in each case pay a $3,500 processing fee to Administrative Agent, (iii) no such assignment shall be made unless a pro rata assignment is made under the 364-Day Credit Agreement and no such assignment (including the amount of the simultaneous assignment pursuant to the 364-Day Credit Agreement) shall be in an amount less than $10,000,000, and (iv) so long as no Default or Event of Default has occurred and is continuing, Bank of America, N.A. shall retain an amount of the Commitment not less than the lesser of (A) 10% of the Commitment or (B) $30,000,000. Within five Business Days after Administrative Agent receives notice of any such assignment, Company shall execute and deliver to Administrative Agent, in exchange for the Notes issued to Assignor, new Notes to the order of such Assignor and its assignee in amounts equal to their respective Specified Percentages of the Commitment, if the Commitment is outstanding. Such new Notes shall be dated the effective date of the assignment. It is specifically acknowledged and agreed that on and after the effective date of each assignment, the assignee shall be a party hereto and shall have the Rights and obligations of a Lender under the Loan Papers. (b) Each Lender may sell participations to one or more Persons in all or any of its Rights and obligations under the Loan Papers; PROVIDED, HOWEVER, that (i) such Lender's obligations under the Loan Papers shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of its Notes for all purposes of the Loan Papers, (iv) the participant shall be granted the Right to vote on or consent to only those matters described in SECTIONS 9.1(a), (b), (c) and (d), (v) Company and each Subsidiary of Company, Administrative Agent, and other Lenders shall continue to deal solely and directly with such Lender in connection with its Rights and obligations under the Loan Papers, and (vi) no such participation is for an amount less than $5,000,000. (c) Any Lender may, in connection with any assignment or participation, or proposed assignment or participation, disclose to the assignee or participant, or proposed assignee or participant, any information relating to Company or any Subsidiary of Company furnished to such Lender by or on behalf of Company or any -72- Subsidiary of Company, provided such Person executes a Confidentiality Agreement. (d) Notwithstanding any other provision set forth in this Agreement, each Lender mat any time create a security interest in all or any portion of its Rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. 9.5 SHARING OF PAYMENTS. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any Right of set-off, or otherwise) on account of its Advances in excess of its pro rata share of payments made by Company, such Lender shall forthwith purchase participations in Advances made by the other Lenders as shall be necessary to share the excess payment pro rata with each of them; PROVIDED, HOWEVER, that if any of such excess payment is thereafter recovered from the purchasing Lender, its purchase from each Lender shall be rescinded and each Lender shall repay the purchase price to the extent of such recovery together with a pro rata share of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Company agrees that any Lender so purchasing a participation from another Lender pursuant to this SECTION 9.5 may, to the fullest extent permitted by Law, exercise all its Rights of payment (including the Right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Company in the amount of such participation. 9.6 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of Company against any and all of the obligations of Company now or hereafter existing under this Agreement and the other Loan Papers, whether or not Administrative Agent or any Lender shall have made any demand under this Agreement or the other Loan Papers, and even if such obligations are unmatured. Each Lender shall promptly notify Company after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The Rights of each Lender under this SECTION 9.6 are in addition to other Rights (including, without limitation, other Rights of set-off) which such Lender may have. 9.7 COSTS, EXPENSES, AND TAXES. (a) Company agrees to pay on demand (i) all reasonable costs and expenses of Administrative Agent and its Affiliates in connection with the preparation and negotiation of all Loan Papers, including without limitation the reasonable fees and out-of-pocket expenses of Special Counsel, and the reasonable costs and expenses of Administrative Agent and its Affiliates in connection with the syndication of the Commitment and (ii) all costs and expenses (including reasonable attorneys' fees and expenses) of Administrative Agent and each Lender in connection with administration, interpretation, modification, amendment, waiver, or release of any Loan Papers and any restructuring, work-out, or -73- collection of any portion of the Obligations or the enforcement of any Loan Papers. (b) In addition, Company shall pay any and all stamp, debt, and other Taxes payable or determined to be payable in connection with any payment hereunder (other than Taxes on the overall net income of Administrative Agent or any Lender or franchise Taxes or Taxes on capital or capital receipts of Administrative Agent or any Lender), or the execution, delivery, or recordation of any Loan Papers, and agrees to save Administrative Agent and each Lender harmless from and against any and all liabilities with respect to, or resulting from any delay in paying or omission to pay any Taxes in accordance with this SECTION 9.7, including any penalty, interest, and expenses relating thereto. All payments by Company or any Subsidiary of Company under any Loan Papers shall be made free and clear of and without deduction for any present or future Taxes (other than Taxes on the overall net income of Administrative Agent or any Lender of any nature now or hereafter existing, levied, or withheld, or franchise Taxes or Taxes on capital or capital receipts of Administrative Agent or any Lender), including all interest, penalties, or similar liabilities relating thereto. If Company shall be required by Law to deduct or to withhold any Taxes from or in respect of any amount payable hereunder, (i) the amount so payable shall be increased to the extent necessary so that, after making all required deductions and withholdings (including Taxes on amounts payable to Administrative Agent or any Lender pursuant to this sentence), Administrative Agent or any Lender receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) Company shall make such deductions or withholdings, and (iii) Company shall pay the full amount deducted or withheld to the relevant taxing authority in accordance with applicable Law. Without prejudice to the survival of any other agreement of Company hereunder, the agreements and obligations of Company contained in this SECTION 9.7 shall survive the execution of this Agreement, termination of the Commitment, repayment of the Obligations, satisfaction of each agreement securing or assuring the Obligations and termination of this Agreement and each other Loan Paper. (c) Within 30 days after the date of any payment of Taxes, Company will furnish to Administrative Agent the original or a certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment hereunder, Company will furnish to Administrative Agent a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to Administrative Agent, in either case stating that such payment is exempt from or not subject to Taxes, PROVIDED, HOWEVER, that such certificate or opinion need only be given if: (i) Company makes any payment from any account located outside the United States, or (ii) the payment is made by a payor that is not a United States Person. For purposes of this SECTION 9.7 the terms "United States" and "United States Person" shall have the meanings set forth in Section 7701 of the Code. (d) Each Lender which is not a United States Person (as defined in Section 7701 of the Code) hereby agrees that: (i) it shall, no later than the Closing Date (or, in the case of a Lender which becomes a party hereto pursuant to SECTION 9.4 after the Closing Date, the date upon which such Lender becomes a party hereto) -74- deliver to Company through Administrative Agent, with a copy to Administrative Agent: (A) if any lending office is located in the United States of America, two (2) accurate and complete signed originals of Internal Revenue Service Form 4224 or any successor thereto ("Form 4224"), (B) if any lending office is located outside the United States of America, two (2) accurate and complete signed originals of Internal Revenue Service Form 1001 or any successor thereto ("Form 1001"). in each case indicating that such Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such lending office or lending offices under this Agreement free from withholding of United States Federal income tax; (ii) if at any time such Lender changes its lending office or lending offices or selects an additional lending office it shall, at the same time or reasonably promptly thereafter but only to the extent the forms previously delivered by it hereunder are no longer effective, deliver to Company through Administrative Agent, with a copy to Administrative Agent, in replacement for the forms previously delivered by it hereunder: (A) if such changed or additional lending office is located in the United States of America, two (2) accurate and complete signed originals of Form 4224; or (B) otherwise, two (2) accurate and complete signed originals of Form 1001, in each case indicating that such Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such changed or additional lending office under this Agreement free from withholding of United States Federal income tax; (iii) it shall, before or promptly after the occurrence of any event (including the passing of time but excluding any event mentioned in clause (ii) above) requiring a change in the most recent Form 4224 or Form 1001 previously delivered by such Lender and if the delivery of the same be lawful, deliver to Company through Administrative Agent with a copy to Administrative Agent, two (2) accurate and complete original signed copies of Form or Form 1001 in replacement for the forms previously delivered by such Lender; (iv) it shall, promptly upon the request of Company to that effect, deliver to Company such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Lender's tax status for withholding purposes; and -75- (v) it shall notify Company within 30 days after any event (including an amendment to, or a change in any applicable law or regulation or in the written interpretation thereof by any regulatory authority or any judicial authority, or by ruling applicable to such Lender of any governmental authority charged with the interpretation or administration oany law) shall occur that results in such Lender no longer being capable of receiving payments without any deduction or withholding of United States federal income tax. 9.8 RATE PROVISION. It is not the intention of any party to any Loan Papers to make an agreement violative of the Laws of any applicable jurisdiction relating to usury. In no event shall Company or any other Person be obligated to pay any amount in excess of the Maximum Amount. If Administrative Agent or any Lender ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and if principal is paid in full, any remaining excess shall be paid to Company or the other Person entitled thereto. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Maximum Amount, Company, each Subsidiary of Company, Administrative Agent and each Lender shall, to the maximum extent permitted under Applicable Law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Obligations so that the interest rate is uniform throughout the entire term of the Obligations; PROVIDED that if the Obligations are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Amount, Administrative Agent or Lenders, as appropriate, shall refund to Company the amount of such excess or credit the amount of such excess against the total principal amount owing, and, in such event, neither Administrative Agent nor any Lender shall be subject to any penalties provided by any Laws for contracting for, charging or receiving interest in excess of the Maximum Amount. This SECTION 9.8 shall control every other provision of all agreements among the parties to the Loan Papers pertaining to the transactions contemplated by or contained in the Loan Papers. 9.9 CONFIDENTIALITY. Each Lender and Administrative Agent agrees (on behalf of itself and each of its Affiliates, directors, officers, employees and representatives) to (a) keep confidential any non-public information supplied to it by Company pursuant to this Agreement which is identified by Company as being confidential at the time the same is delivered to Lenders or Administrative Agent, including, without limitation, written information and information transferred visually or electronically, together with all notes, analyses, compilations, studies or other documents that contain all or a portion of such information (collectively, "CONFIDENTIAL INFORMATION") and (b) use the Confidential Information solely in connection with the Loan Papers and the evaluation of Company and its Subsidiaries, provided that nothing herein shall limit the disclosure of any Confidential Information (a) to the extent required by Law or judicial process, (b) to counsel for any Lender or Administrative Agent, (c) to bank examiners, auditors or accountants of any Lender, (d) to Administrative Agent or any other Lender, (e) in connection with any Litigation to which any one or more of Lenders is a party, provided, further, that, unless specifically prohibited by applicable Law or court order, each Lender shall, -76- prior to disclosure thereof, give prompt notification to Company of any request for disclosure of any such non-public information (i) by any governmental agency or representative thereof (other than any such request in connection with an examination of such Lender's financial condition by such governmental agency) or (ii) pursuant to legal process, or (to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) executes a Confidentiality Agreement. With respect to any disclosure of any Confidential Information set forth in subclause (i) or (ii) of clause (e) above, each Lender agrees, to the extent not prohibited by applicable law or court order, to (a) cooperate with Company so that Company may seek a protective order or other appropriate remedy and (b) use its best efforts to obtain an order or reasonable assurance that confidential treatment will be afforded such Confidential Information. At the earlier of such time as (a) a Person is no longer a Lender or participant under this Agreement, or (b) all Advances under this Agreement are paid in full and the Commitment is terminated, upon written request by Company and subject to any restrictions or regulations of any Tribunal having supervisory authority over Lenders, such Lender or participant shall return to Company the Confidential Information which is in tangible form, including any copies which such Lender or participant or any Persons to whom such Lender or participant transmitted the Confidential Information may have made, and such Lender or participant or such Person will destroy all abstracts, summaries thereof or references thereto in such Lender's or participant's or such Person's documents, and after written request by Company, shall promptly provide Company reasonable assurance in writing that such Lender or participant or such Person have complied with this paragraph. Each Lender acknowledges that Company is in the business of financing commercial real estate, equipment and enterprises and from time to time such Lender and Company may be in direct competition with each other for business. This Agreement does not constitute a license for any Lender to use, employ or exploit the Confidential Information to gain any advantage in the marketplace against Company; it being expressly understood and agreed that any use, employment or exploitation of the Confidential Information for a purpose not expressly permitted herein is strictly prohibited. 9.10 SEVERABILITY. If any provision of any Loan Papers is held to be illegal, invalid, or unenforceable under present or future Laws during the term thereof, such provision shall be fully severable, the appropriate Loan Paper shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of such Loan Paper a legal, valid, and enforceable provision as similar in terms to the illegal, invalid, or unenforceable provision as may be possible. 9.11 EXCEPTIONS TO COVENANTS. Neither Company nor any of its Subsidiaries shall be deemed to be permitted to take any action or to fail to take any action that is permitted as an exception to any covenant in any Loan Papers, or that is within the permissible limits of any covenant, if such action or omission would result in a violation of any other covenant in any Loan Papers. -77- 9.12 COUNTERPARTS. This Agreement and the other Loan Papers may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. 9.13 NO LIABILITY OF ISSUING BANK. Company assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither Issuing Bank nor any Lender nor any of their respective officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit, except for any payment made upon Issuing Bank's gross negligence or willful misconduct; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that Company shall have a claim against Issuing Bank, and Issuing Bank shall be liable to Company, to the extent of any direct, but not consequential, damages suffered by Company that Company proves were caused by (i) Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. 9.14 NO DUTIES OF DOCUMENTATION AGENT, SYNDICATION AGENT, MANAGING AGENT OR CO-AGENTS. Company and Lenders acknowledge that the Documentation Agent, the Syndication Agent, the Managing Agent and the Co-Agents shall have no duties, responsibilities or liabilities in their capacities as Syndication Agent, Documentation Agent, Managing Agent and Co-Agents. 9.15 GOVERNING LAW; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE CONTRACTS MADE AND PERFORMABLE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO CONFLICT OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, COMPANY AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM EXTENT PERMITTED BY LAW, COMPANY HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A -78- CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. (b) COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT. COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO COMPANY AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION 9.13 SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 9.16 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK -79- IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first set forth above. COMPANY: FRANCHISE FINANCE CORPORATION OF AMERICA By: /s/ John R. Barravecchia ------------------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer -80- LENDERS: BANK OF AMERICA, N.A., individually, as Administrative Agent, as Issuing Bank, and as Swing Line Lender Specified Percentage: 25.8936170213% By: /s/ Richard L. Nichols ------------------------------------- Richard L. Nichols Managing Director Address: 100 North Tryon Street, NC1-007-17-11 Charlotte, North Carolina 28255 Facsimile: (704) 386-3271 Attention: Richard L. Nichols Telephone: (704) 386-9015 -81- WELLS FARGO BANK, NATIONAL ASSOCIATION, individually, and as Documentation Agent Specified Percentage: 14.2553191489% By: /s/ John R. Randall ------------------------------------- John R. Randall Vice President Address: 100 West Washington, 25th Floor Phoenix, Arizona 85038 Facsimile: (602) 378-2350 Attention: Greg Stava Telephone: (602) 378-4445 -82- COMMERZBANK AKTIENGESELLSCHAFT, New York Branch, as Syndication Agent, and COMMERZBANK AKTIENGESELLSCHAFT, New York Branch and Grand Cayman Branch, individually Specified Percentage: 14.2553191489% By: /s/ Steven F. Larsen ------------------------------------- Steven F. Larsen Vice President By: /s/ Oliver Welsch-Lehmann ------------------------------------- Oliver Welsch-Lehmann Assistant Vice President Address: 633 West 5th Street, Suite 6600 Los Angeles, California 90071 Facsimile: (213) 623-0039 Attention: Steven F. Larsen Telephone: (213) 623-5412 -83- COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, individually and as Managing Agent Specified Percentage: 8.5531914894% By: /s/ W. Jeffrey Vollack ------------------------------------- W. Jeffrey Vollack Senior Credit Officer Senior Vice President By: /s/ Bradford F. Scott ------------------------------------- Bradford F. Scott Executive Director Address: 245 Park Avenue, 36th Floor New York, New York 10167 Facsimile: (212) 916-7880 Attention: Marla J. Lerner Telephone: (212) 916-3743 -84- BANK ONE, ARIZONA, N.A., individually and as a Co-Agent Specified Percentage: 7.1276595745% By: /s/ Michael V. McCann ------------------------------------- Michael V. McCann Vice President Address: 201 North Central Avenue, 21st Floor Phoenix, Arizona 85004 Facsimile: (602) 221-1259 Attention: Mike McCann Telephone: (602) 221-2630 -85- UNION BANK OF CALIFORNIA, N.A., individually and as a Co-Agent Specified Percentage: 7.1276595745% By: /s/ Donald H. Rubin ------------------------------------- Donald H. Rubin Vice President Address: 350 California Street San Francisco, California 94104 Facsimile: (415) 705-7037 Attention: Don Rubin Telephone: (415) 705-7060 -86- WASHINGTON MUTUAL D/B/A WESTERN BANK, individually and as a Co-Agent Specified Percentage: 7.1276595745% By: /s/ Bruce Kendrex ------------------------------------- Bruce Kendrex Vice President Address: 1201 Third Avenue, Suite 1000 Seattle, Washington 98101 Facsimile: (206) 377-2575 Attention: Bruce Kendrex Telephone: (206) 490-4465 -87- BANK HAPOALIM B.M. Specified Percentage: 5.7021276596% By: /s/ Shlomo Braun ------------------------------------- Shlomo Braun Senior Vice President By: /s/ Lewroy Hackett ------------------------------------- Lewroy Hackett Vice President Address: 250 Montgomery Street, Suite 700 San Francisco, California 94104 Facsimile: (415) 989-9948 Attention: Chris J. Hillard Telephone: (415) 989-9940, ext. 124 -88- THE INDUSTRIAL BANK OF JAPAN, LIMITED Specified Percentage: 5.7021276596% By: /s/ Takeshi Kubo ------------------------------------- Takeshi Kubo Vice President Address: 350 South Grande Avenue, Suite 1500 Los Angeles, California 90071 Facsimile: (213) 488-9840 Attention: Takeshi Kubo Telephone: (213) 893-6447 -89- WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH Specified Percentage: 4.2553191489% By: /s/ Raymond K. Miller ------------------------------------- Raymond K. Miller Director By: /s/ Leo Kapakos ------------------------------------- Leo Kapakos Associate Director Address: 1211 Avenue of the Americas New York City, New York 10036 Facsimile: (212) 852-6148 Attention: Leo Kapakos Telephone: (212) 852-6310 -90- EXHIBIT A PROMISSORY NOTE $______________ Dallas, Texas _________ FOR VALUE RECEIVED, the undersigned, FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of ("Lender"), payable at such times, and in such amounts, as are specified in the Credit Agreement as hereinafter defined. The books and records of Administrative Agent shall be prima facie evidence of all sums due Lender. Borrower promises to pay interest on the unpaid principal amount of the Advances from the date made until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to Administrative Agent (as defined in the Credit Agreement) (for the account of Lender) at its principal banking house at Bank of America Plaza, 901 Main Street, Dallas, Texas 75202, or such other place as Administrative Agent may direct, in immediately available funds. This Note is one of the Notes evidencing Obligations under the Revolving Loans referred to in, and is entitled to the benefits of, the Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000, among Borrower, Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, Lender and certain other lenders (as from time to time amended, modified or supplemented, the "Credit Agreement"). The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of an Event of Default (as defined in the Credit Agreement) and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. Borrower and each guarantor, surety and endorser waives demand, presentment, notice of dishonor, protest and diligence in collecting sums due hereunder; agrees to application of any debt of Lender to the payment hereof; agrees that extensions and renewals without limit as to number, acceptance of any number of partial payments, releases of any party liable hereon, and releases or substitutions of collateral, before or after maturity, shall not release or discharge its obligation under this Note; and agrees to pay in addition to all other sums due hereunder reasonable attorney's fees if this Note is placed in the hands of an attorney for collection or if it is collected through bankruptcy or other judicial proceeding. This Note shall be governed by and construed in accordance with the laws of the State of Texas (without giving effect to conflict of laws) and the United States of America. FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By: /s/ John R. Barravecchia ------------------------------------ John R. Barravecchia Executive Vice President and Chief Financial Officer -2- EXHIBIT B GUARANTY AGREEMENT THIS GUARANTY AGREEMENT, dated as of September 15, 2000 (this "GUARANTY"), is made by FFCA Acquisition Corporation, a Delaware corporation, FFCA Institutional Advisors, Inc., a Delaware corporation, FFCA Capital Holding Corporation, a Delaware corporation, FFCA Residual Interest Corporation, a Delaware corporation, and FFCA Funding Corporation, a Delaware corporation (collectively, the "GUARANTORS"), of the obligations of Franchise Finance Corporation of America, a Delaware corporation ("COMPANY"), under the Credit Agreement (defined below) among the Company, Bank of America, N.A. as Administrative Agent ("ADMINISTRATIVE AGENT"), Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and the lenders parties to the Credit Agreement (singly, a "LENDER" and collectively, the "LENDERS"). BACKGROUND 1. The Company, the Administrative Agent, the Documentation Agent, the Syndication Agent, the Managing Agent, the Co-Agents and the Lenders have entered into a Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000 (said Third Amended and Restated Credit Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "CREDIT AGREEMENT"). The capitalized terms not otherwise defined herein have the meanings specified in the Credit Agreement. 2. Pursuant to the Credit Agreement, the Company may, subject to the terms of the Credit Agreement and the other Loan Papers, request that the Lenders make Advances. 3. It is a condition precedent to the obligation of the Lenders to make such Advances that each Guarantor guarantee repayment thereof upon the terms and conditions set forth herein. 4. Each of the Guarantors is a Subsidiary of the Company, and the Company and each of the Guarantors are members of the same consolidated group of companies and are engaged in related businesses. 5. The Board of Directors of each Guarantor has determined that (i) the execution, delivery, and performance of this Guaranty is necessary and convenient to the conduct, promotion, and attainment of each Guarantor's business and (ii) the Advances may reasonably be expected to benefit, directly or indirectly, each Guarantor. 6. The Guarantors desire to induce the Lenders to make such Advances. NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make Advances under the Credit Agreement, the Guarantors hereby agree as follows: 1. GUARANTY. (a) Each Guarantor, jointly and severally, hereby unconditionally guarantees the full and punctual payment of, and promises to pay, when due, whether at stated maturity, by mandatory prepayment, by acceleration or otherwise, the Obligations, and agrees to pay any and all reasonable expenses (including reasonable counsel fees and expenses) incurred in enforcement or collection of all or any part thereof, whether such obligations, indebtedness and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several, and any rights under this Guaranty. (b) Anything contained in this Guaranty to the contrary notwithstanding, the obligations of each Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "FRAUDULENT TRANSFER LAWS"), in each case after giving effect to all other liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Guarantor in respect of intercompany indebtedness to the Company or other Affiliates of the Company to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder) and treating as assets, subject to Paragraph 4(a) hereof, to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of such Guarantor pursuant to (i) Applicable Law or (ii) any agreement providing for an equitable allocation among such Guarantor and other Affiliates of the Company of obligations arising under guaranties by such parties. 2. GUARANTY ABSOLUTE. The Guarantors guarantee that the Obligations will be paid strictly in accordance with the terms of the Credit Agreement, the Notes, and the other Loan Papers, regardless of any Applicable Law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto; provided, however, nothing contained in this Guaranty shall require the Guarantors to make any payment under this Guaranty in violation of any Applicable Law, regulation or order now or hereafter in effect. The obligations and liabilities of each Guarantor hereunder are independent of the obligations of the Company under the Credit Agreement and any Applicable Law. This Guaranty is an absolute guaranty of payment and performance and not a guaranty of collection, meaning that it is not necessary for the Administrative Agent or the Lenders, in order to enforce payment by any Guarantor, first or contemporaneously to accelerate payment of any of the Obligations, to institute suit or exhaust any rights against the Company or any other Person, or to enforce any Rights against any collateral. The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of: -2- (a) the taking or accepting of any other security or guaranty for any or all of the Obligations, including any reduction or termination of the Commitment; (b) any increase, reduction or payment in full at any time or from time to time of any part of the Obligations; (c) any lack of validity or enforceability of the Credit Agreement, the Notes, or any other Loan Paper or other agreement or instrument relating thereto, including but not limited by the unenforceability of all or any part of the Obligations by reason of the fact that (i) the Obligations, and/or the interest paid or payable with respect thereto, exceeds the amount permitted by Applicable Law, (ii) the act of creating the Obligations, or any part thereof, is ULTRA VIRES, (iii) the officers creating same acted in excess of their authority, or (iv) for any other reason; (d) any lack of corporate or other legal power of the Company or any other Person at any time liable for the payment of any or all of the Obligations; (e) any Debtor Relief Laws involving the Company, any Guarantor or any other Person obligated on any of the Obligations; (f) any renewal, compromise, extension, acceleration or other change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations; any adjustment, indulgence, forbearance, or compromise that may be granted or given by any Lender or the Administrative Agent to the Company, any Guarantor, or any Person at any time liable for the payment of any or all of the Obligations; or any other modification, amendment, or waiver of or any consent to departure from the Credit Agreement, the Notes, or any other Loan Paper and other agreement or instrument relating thereto without notification of any Guarantor (the right to such notification being herein specifically waived by Guarantors); (g) any exchange, release, sale, subordination, or non-perfection of any collateral or Lien therein or any lack of validity or enforceability or change in priority, destruction, reduction, or loss or impairment of value of any collateral or Lien therein; (h) any release or amendment or waiver of or consent to departure from any other guaranty for all or any of the Obligations; (i) the failure by any Lender or the Administrative Agent to make any demand upon or to bring any legal, equitable, or other action against the Company or any other Person (including without limitation any other Guarantor), or the failure or delay by any Lender or the Administrative -3- Agent to, or the manner in which any Lender or the Administrative Agent shall, proceed to exhaust rights against any direct or indirect security for the Obligations; (j) the existence of any claim, defense, set-off, or other rights which the Company or any Guarantor may have at any time against the Company, the Lenders, or any Guarantor, or any other Person, whether in connection with this Guaranty, the other Loan Papers, the transactions contemplated thereby, or any other transaction; (k) any failure of any Lender or the Administrative Agent to notify any Guarantor of any renewal, extension, or assignment of the Obligations or any part thereof, or the release of any security, or of any other action taken or refrained from being taken by any Lender or the Administrative Agent, it being understood that the Lenders and the Administrative Agent shall not be required to give any Guarantor any notice of any kind under any circumstances whatsoever with respect to or in connection with the Obligations; (l) any payment by the Company to the Lenders or the Administrative Agent is held to constitute a preference under any Debtor Relief Law or if for any other reason the Lenders or the Administrative Agent are required to refund such payment or pay the amount thereof to another Person; or (m) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Company, any Guarantor, any other guarantor or other Person liable on the Obligations, including without limitation any defense by reason of any disability or other defense of the Company, or the cessation from any cause whatsoever of the liability of the Company, or any claim that the Guarantors' obligations hereunder exceed or are more burdensome than those of the Company. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by any Lender or any other Person upon the insolvency, bankruptcy or reorganization of the Company, any Guarantor or otherwise, all as though such payment had not been made. 3. WAIVER. To the extent not prohibited by Applicable Law, each Guarantor hereby waives: (a) promptness, protests, diligence, presentments, acceptance, performance, demands for performance, notices of nonperformance, notices of protests, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation or incurrence of new or additional indebtedness, and any of the events described in SECTION 2 and of any other occurrence or matter with respect to any of the Obligations, this Guaranty or any of the other Loan Papers; (b) any requirement that the Administrative Agent or any Lender protect, secure, perfect, or insure any Lien or security interest or any property subject thereto or exhaust any right or take any action against the Company or any other Person or any collateral or pursue any other remedy in the Administrative Agent's or any Lender's power whatsoever; (c) any right to assert against the Administrative Agent or any Lender as a counterclaim, set-off or cross-claim, -4- any counterclaim, set-off or claim which it may now or hereafter have against the Company or other Person liable on the Obligations; (d) any right to seek or enforce any remedy or right that the Administrative Agent or any Lender now has or may hereafter have against the Company (to the extent permitted by Applicable Law); (e) any right to participate in any collateral or any right benefiting the Administrative Agent or the Lenders in respect of the Obligations; and (f) any right by which it might be entitled to require suit on an accrued right of action in respect of any of the Obligations or require suit against the Company or any other Person, whether arising pursuant to Section 34.02 of the Texas Business and Commerce Code, as amended, Section 17.001 of the Texas Civil Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil Procedure, as amended, or otherwise. 4. SUBROGATION AND SUBORDINATION. Notwithstanding any reference to subrogation contained herein to the contrary, each Guarantor hereby irrevocably waives any claim or other rights which it may have or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, any right to participate in any claim or remedy of any Lender against the Company or any collateral which any Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statutes or common law, including without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Obligations shall not have been paid in full, such amount shall be deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Lenders, and shall forthwith be paid to the Administrative Agent to be credited and applied upon the Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waiver set forth in this Paragraph 4 is knowingly made in contemplation of such benefits. 5. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents and warrants that all representations and warranties as they apply to such Guarantor only set forth in Article IV of the Credit Agreement (each of which is hereby incorporated by reference) are true and correct. 6. COVENANTS. Each Guarantor hereby expressly assumes, confirms, and agrees to perform, observe, and be bound by all conditions and covenants set forth in the Credit Agreement, to the extent applicable to it, as if it were a signatory thereto. Each Guarantor further covenants and agrees (a) punctually and properly to perform all of such Guarantor's covenants and duties under any other Loan Papers; (b) from time to time promptly to furnish the Administrative Agent with any information or writings which the Administrative Agent may reasonably request concerning this Guaranty; and (c) promptly to notify the Administrative Agent of any claim, action, or proceeding affecting this Guaranty. -5- 7. AMENDMENTS, ETC. No amendment or waiver of any provision of this Guaranty nor consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the Lenders as required pursuant to Section 9.1 of the Credit Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 8. ADDRESSES FOR NOTICES. Unless otherwise provided herein, all notices, requests, consents and demands shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy to the respective addresses specified herein or in the Credit Agreement and to the attention of the individuals listed thereunder, or, as to any party, to such other addresses as may be designated by it in written notice to all other parties. All notices, requests, consents and demands hereunder shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy, or if mailed, effective on the earlier of actual receipt or three (3) days after being mailed by certified mail, return receipt requested, postage prepaid, addressed as aforesaid. 9. NO WAIVER; REMEDIES. No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder or under any of the other Loan Papers shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder or under any of the other Loan Papers preclude any other or further exercise thereof or the exercise of any other right. Neither the Administrative Agent nor any Lender shall be required to (a) prosecute collection or seek to enforce or resort to any remedies against the Company or any other Person liable on any of the Obligations, (b) join the Company or any other Person liable on any of the Obligations in any action in which Lender prosecutes collection or seeks to enforce or resort to any remedies against the Company or other Person liable on any of the Obligations, or (c) seek to enforce or resort to any remedies with respect to any Liens granted to (or benefiting, directly or indirectly) the Administrative Agent or any Lender by the Company or any other Person liable on any of the Obligations. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure or insure any of the Liens or the properties or interests in properties subject thereto. The remedies herein provided are cumulative and not exclusive of any remedies provided by Applicable Law. 10. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Guarantor against any and all of the obligations of any Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not such Lender shall have made any demand under this Guaranty. Each Lender agrees promptly to notify such Guarantor after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this SECTION 10 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. -6- 11. CONTINUING GUARANTY; TRANSFER OF NOTES. This Guaranty is an irrevocable continuing guaranty of payment (and not of collection) and shall (a) remain in full force and effect until termination of the Commitment and final payment in full (after the Maturity Date) of the Obligations and all other amounts payable under this Guaranty, (b) be binding upon each Guarantor, its successors and assigns, and (c) inure to the benefit of and be enforceable by each Lender and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), to the extent permitted by Section 9.4 of the Credit Agreement, each Lender may assign or otherwise transfer its rights under the Credit Agreement, the Notes or any of the other Loan Papers or any interest therein to any other Person, and such other Person shall thereupon become vested with all the rights or any interest therein, as appropriate, in respect thereof granted to the Lender herein or otherwise. 12. INFORMATION. Each Guarantor acknowledges and agrees that it shall have the sole responsibility for obtaining from the Company such information concerning the Company's financial condition or business operations as such Guarantor may require, and that neither the Administrative Agent nor any Lender has any duty at any time to disclose to any Guarantor any information relating to the business operations or financial conditions of the Company. 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, EACH GUARANTOR AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. 14. WAIVER OF JURY TRIAL. EACH GUARANTOR, THE ADMINISTRATIVE AGENT, AND THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE LOAN PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THE CREDIT AGREEMENT. 15. RATABLE BENEFIT. This Guaranty is for the ratable benefit of the Lenders, each of which shall share any proceeds of this Guaranty pursuant to the terms of the Credit Agreement. 16. GUARANTOR INSOLVENCY. Should any Guarantor become insolvent, fail to pay its debts generally as they become due, voluntarily seek, consent to, or acquiesce in the benefits of any Debtor Relief Law or become a party to or be made the subject of any proceeding provided for by any Debtor Relief Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the rights of any Lender granted hereunder, then, the obligations of such Guarantor under this Guaranty shall be, as between such Guarantor and such -7- Lender, a fully-matured, due, and payable obligation of such Guarantor to such Lender (without regard to whether there is a Default or Event of Default under the Credit Agreement or whether any part of the Obligations is then due and owing by the Company to such Lender), payable in full by such Guarantor to such Lender upon demand, which shall be the estimated amount owing in respect of the contingent claim created hereunder. 17. ENTIRE AGREEMENT. THIS GUARANTY, TOGETHER WITH THE OTHER LOAN PAPERS, REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK -8- IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. FFCA ACQUISITION CORPORATION Address for each Guarantor: c/o Franchise Finance Corporation of America The Perimeter Center By: /s/ John R. Barravecchia 17207 North Perimeter Drive ----------------------------- Scottsdale, Arizona 85255 John R. Barravecchia Telephone No.: (480) 585-4500 Executive Vice President and Facsimile No.: (480) 585-2225 Chief Financial Officer Attention: John R. Barravecchia Executive Vice President and Chief Financial Officer FFCA INSTITUTIONAL ADVISORS, INC. with a copy to: Franchise Finance Corporation of America The Perimeter Center By: /s/ John R. Barravecchia 17207 North Perimeter Drive ----------------------------- Scottsdale, Arizona 85255 John R. Barravecchia Telephone No.: (480) 585-2234 Executive Vice President and Facsimile No. (480) 585-2230 Chief Financial Officer Attention: Dennis L. Ruben, Esq. Executive Vice President and General Counsel FFCA CAPITAL HOLDING CORPORATION By: /s/ John R. Barravecchia ----------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer -9- FFCA RESIDUAL INTEREST CORPORATION By: /s/ John R. Barravecchia ----------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer FFCA FUNDING CORPORATION By: /s/ John R. Barravecchia ----------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer -10- EXHIBIT C QUARTERLY COMPLIANCE CERTIFICATE The undersigned hereby certifies that he/she is a duly elected Authorized Officer of Franchise Finance Corporation of America, a Delaware corporation ("BORROWER"), and that he/she is authorized to execute this Certificate on behalf of Borrower in connection with that certain Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000 (as amended, modified and supplemented from time to time, the "CREDIT AGREEMENT"), among Borrower, Bank of America, N.A., individually and as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and each Lender a party thereto. All terms used but not defined herein shall have the meanings set forth in the Credit Agreement. This Certificate is submitted concurrently with quarterly financial statements of Borrower for the period ended ____________, ____. The undersigned hereby further certifies to the following as of the date set forth below: 1. The representations and warranties of Borrower under the Credit Agreement are true and complete in all material respects, before and after giving effect to any Advances. 2. No event has occurred which constitutes a Default or Event of Default. 3. Borrower continues to qualify as a Real Estate Investment Trust under the Code. 4. The following calculations are true, accurate and complete, and are made in accordance with the terms and provisions of the Credit Agreement: 1. APPLICABLE MARGIN. The Index Debt Rating is ______________. The Applicable Margin with respect to Base Rate Advances is _____%. The Applicable Margin with respect to LIBOR Advances is _____%. 2. Section 6.1(a). MINIMUM NET WORTH. (a) Minimum Net Worth (i) $750,000,000 $750,000,000 (ii) 75% of aggregate Net Cash $___________ Proceeds received by Borrower and its Consolidated Subsidiaries after Closing Date from disposition of Capital Stock (iii) amount equal to Net Worth of $___________ any Person acquired (via asset or stock purchase) by Borrower or any Subsidiary to the extent purchase price is paid for in Capital Stock of Borrower or such Subsidiary (iv) Minimum Net Worth [(i)+(ii)+(iii)] $___________ (b) Actual Net Worth (determined in accordance $___________ with GAAP) 3. Section 6.1(b). TOTAL INDEBTEDNESS TO ADJUSTED NET WORTH RATIO. (a) Maximum Ratio 1.20 to 1 (b) Actual Ratio (i) Indebtedness of Company and Consolidated Subsidiaries a. Debt for Borrowed Money $___________ b. Capital Lease obligations $___________ c. Reimbursement obligations $___________ relating to letters of credit d. Contingent Liabilities $___________ relating to (a), (b) and (c) above e. Withdrawal Liability $___________ f. indebtedness associated with $___________ Interest Hedge Agreements g. payments due for the deferred $___________ purchase price of property and services (excluding trade payables less than 90 days old) h. obligations (contingent or $___________ otherwise to purchase, retire or redeem any Capital Stock) i. [a. + b. + c. + d. + e. + f. $___________ + g. + h.] (ii) Indebtedness evidenced by Intercompany $___________ Notes and which is subject to a Subordination Agreement (iii) Total Indebtedness [(i) - (ii)] $___________ (iv) Adjusted Net Worth -2- a. Actual Net Worth (determined $___________ in accordance with GAAP) b. Accumulated Depreciation $___________ (determined in accordance with GAAP) c. Adjusted Net Worth [a. + b.] $___________ (v) Total Indebtedness to Adjusted Net Worth _____ to 1 [(iii)/(iv)] 4. Section 6.1(c). FIXED CHARGE COVERAGE RATIO. (a) Minimum Ratio 2.00 to 1 (b) Actual Ratio (i) Cash Flow From Operations for $___________ twelve-calendar month period ending on or most recently ended prior to date of determination (ii) cash interest payable on all $___________ Indebtedness (including interest on Capitalized Leases) (iii) [(i) + (ii)] $___________ (iv) cash interest payable on all $___________ Indebtedness (including interest on Capitalized Leases) (v) regularly scheduled principal $___________ amounts on Indebtedness (including rentals under Lease Obligations but excluding any payment which pays Indebtedness in full to the extent such payment exceeds the immediately preceding scheduled principal payment) (vi) principal amounts of all $___________ Indebtedness (including under Lease Obligations) required to be prepaid or purchased during such period (vii) [(iv) + (v) + (vi)] $___________ (viii) Fixed Charge Coverage Ratio _____ to 1 [(iii)/(vii)] 5. Section 6.1(d). MAXIMUM TOTAL SECURED INDEBTEDNESS. (a) Maximum Total Secured Indebtedness (10% of $___________ Total Assets) -3- (b) Actual Total Secured Indebtedness Indebtedness of Borrower and its Consolidated $___________ Subsidiaries (from Section 3(b)(i) above that is secured by a Consensual Lien) 6. Section 6.1(e). RATIO OF TOTAL UNENCUMBERED ASSETS TO TOTAL UNSECURED INDEBTEDNESS. (a) Minimum Ratio 1.75 to 1 (b) Actual Ratio (i) Total Assets not subject to a Lien $___________ other than Liens of the type described in clause (a) through (g) of the definition of Permitted Liens (ii) Aggregate amount of Indebtedness $___________ of Company and its Consolidated Subsidiaries that is not secured by a Lien other than Liens of the type described in clause (a) through (g) of the definition of Permitted Liens (iii) [(i)/(ii)] _____ to 1 7. Section 6.3. CONTINGENT LIABILITIES. (a) Maximum $ 5,000,000 (b) Actual $___________ 8. Section 6.6. DISPOSITION OF ASSETS. (a) Maximum during any four consecutive fiscal quarters (i) Total Assets as of the first day $___________ of preceding four consecutive fiscal quarters divided by four (ii) 25% times 8(a)(i) above $___________ (b) Actual (excluding Assets disposed of in $___________ an Asset Securitization and a Loan Sale) 9. Section 6.7. PERMITTED DISTRIBUTIONS. (a) Maximum (i) Cash Flow From Operations (from $___________ Section 4(b)(i) above) (ii) 95% times 9(a)(i) above for fiscal $___________ year 1999 -4- (iii) 90% times 9(a)(i) above for each $___________ fiscal year thereafter (b) Actual $___________ 10. Section 6.10(f) ASSET SECURITIZATION INVESTMENTS. (a) Maximum - 20% of Total Assets $___________ (b) Actual $___________ 11. Section 6.10(g) LOAN SALE AFFILIATE INVESTMENTS. (a) Maximum $ 5,000,000 (b) Actual $___________ 12. PROJECTED LOAN SALES. Aggregate amount of Loan Sales projected for $___________ fiscal quarter for fiscal quarter immediately succeeding this Certificate -5- IN WITNESS WHEREOF, I have executed this Certificate as of the _____ day of _____________, _______. FRANCHISE FINANCE CORPORATION OF AMERICA By: ------------------------------------ Name: ------------------------------- Title: ------------------------------- -6- EXHIBIT D CONVERSION/CONTINUANCE NOTICE [Date] Bank of America, N.A. Administrative Agent Bank of America Plaza 901 Main Street, 14th Floor Dallas, Texas 75202 Attention: Tonya Parker Ladies and Gentlemen: The undersigned refers to the Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000 (as amended, modified or supplemented from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined) among Franchise Finance Corporation of America, Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and each Lender party thereto, and hereby gives you notice pursuant to Section 2.9 of the Credit Agreement that the undersigned hereby requests Borrowing[s] [a continuation/conversion of an existing Advance] [continuations/conversions of existing Advances] under the Credit Agreement, and in that connection sets forth below the information relating to [each] such Advance as required by Section 2.9 of the Credit Agreement: (i) The principal amount of existing [LIBOR Advances] [Base Rate Advances] to be [converted] [continued] is $_________. (ii) The Business Day of such [continuation] [conversion] is _________________, 199__. (iii) The Type of Advance[s] comprising such [continuation] [conversion] of Revolving Loans is [are] [Base Rate Advance [to the extent of an aggregate amount of $ ]] [LIBOR Advance [to the extent of an aggregate amount of $________________]]. (iv) The Type of Advance[s] comprising such [continuation] [conversion] of Term Loans is [are] [Base Rate Advance [to the extent of an aggregate amount of $_______]] [LIBOR Advance [to the extent of an aggregate amount of $__________________]]. (v) The initial Interest Period for each LIBOR Advance made as part of such [continuation] [conversion] is _______ months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the [continuation] [conversion], before and after giving effect thereto and to the application of the proceeds therefrom: (A) the conditions precedent specified in Article III of the Credit Agreement have been satisfied with respect to the [continuation] [conversion] and will remain satisfied on the date of such [continuation] [conversion]; (B) the representations and warranties specified in Article IV of the Credit Agreement are true and correct in all material respects as though made on and as of such date; and (C) no event has occurred and is continuing or would result from such [continuation] [conversion], which constitutes a Default or Event of Default. Very truly yours, FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- -2- EXHIBIT E BORROWING NOTICE [Date] Bank of America, N.A., Administrative Agent Bank of America Plaza 901 Main Street, 14th Floor Dallas, Texas 75202 Attention: Tonya Parker Ladies and Gentlemen: The undersigned refers to the Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000 (as amended, modified and supplemented from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined) among Franchise Finance Corporation of America, Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and each Lender, and hereby gives you notice pursuant to Section 2.2 of the Credit Agreement that the undersigned hereby requests Borrowing[s] under the Credit Agreement, and in that connection sets forth below the information relating to [each] such Advance (a "Proposed Borrowing") as required by Section 2.2 of the Credit Agreement: Proposed Borrowing: (i) The Business Day of such Proposed Borrowing is ______________, 19___. (ii) The Type of Advance[s] comprising such Proposed Borrowing of Revolving Loans is [are] [Base Advance [to the extent of an aggregate amount of $ ]] [LIBOR Advance [to the extent of an aggregate amount of $________________]]. (iii) The Type of Advance[s] comprising such Proposed Borrowing of Term Loans is [are] [Base Advance [to the extent of an aggregate amount of $_______]] [LIBOR Advance [to the extent of an aggregate amount of $__________________]]. (iv) The aggregate amount of such Proposed Borrowing is $___________. [(v) The initial Interest Period for each LIBOR Advance made as part of such Proposed Borrowing is _______ months.] The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (A) the conditions precedent specified in Article III of the Credit Agreement have been satisfied with respect to the Proposed Borrowing and will remain satisfied on the date of such Proposed Borrowing; (B) the representations and warranties specified in Article IV of the Credit Agreement are true and correct in all material respects as though made on and as of such date; and (C) no event has occurred and is continuing or would result from such Proposed Borrowing, which constitutes a Default or Event of Default. Very truly yours, FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- -2- EXHIBIT F ASSIGNMENT AND ACCEPTANCE AGREEMENT THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT ("Assignment and Acceptance") is dated ________________, _____, among ________________________ ("Assignor") and _____________________ ("Assignee") and Bank of America, N.A., as Administrative Agent ("Administrative Agent"). BACKGROUND. A. Reference is made to the Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000 (as it may hereafter be amended or otherwise modified from time to time, being referred to as the "Credit Agreement") among Franchise Finance Corporation of America (the "Company"), the financial institutions parties thereto as Lenders thereunder, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and Administrative Agent for Lenders under the Credit Agreement. Unless otherwise defined, terms are used herein as defined in the Credit Agreement. B. This Assignment and Acceptance is made with reference to the following facts: (i) Assignor is a Lender under and as defined in the Credit Agreement and, as such, presently holds a percentage of the rights and obligations of Lenders under the Credit Agreement. (ii) As of the date hereof, the Commitment is $_______________, and Assignor's Specified Percentage is ___%. (iii) On the terms and conditions set forth below, Assignor desires to sell and assign to Assignee, and Assignee desires to purchase and assume from Assignor, as of the Transfer Date (as defined below), a portion of Assignor's Specified Percentage of the Commitment equal to ______% [express as a percentage of Commitment] (the "Assigned Percentage"). AGREEMENT. NOW, THEREFORE, Assignor and Assignee hereby agree as follows: 2. Assignor hereby sells and assigns to Assignee, without recourse and, except as provided in paragraph 2 of this Assignment and Acceptance, without representation and warranty, and Assignee hereby purchases and assumes from Assignor, Assignor's rights and obligations under the Credit Agreement, to the extent of the Assigned Percentage (including without limitation, (a) the Assigned Percentage of the Commitment as in effect as of the Transfer Date and (b) _____% of each of the Advances owing to Assignor on the Transfer Date). 3. Assignor (a) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement, any other Loan Paper or any other instrument or document furnished pursuant thereto, or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other Loan Paper or any other instrument or document furnished pursuant thereto or any collateral; and (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any Person the performance or observance by the Company or any Person of any of its obligations under the Loan Papers or any other instrument or document furnished pursuant thereto. 4. Assignee (a) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered to Assignor pursuant to Section 5.5 of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (b) agrees that it will, independently and without reliance upon the Administrative Agent, Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Loan Papers; (c) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Papers as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (d) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Loan Papers are required to be performed by it as a Lender; (e) specifies, as its address for notice and Lending Office, the office set forth beneath its name on the signature pages hereof; (f) confirms that it is an Eligible Assignee[; AND (G) ATTACHES THE FORMS PRESCRIBED BY THE IRS CERTIFYING AS TO ASSIGNEE'S STATUS FOR PURPOSES OF DETERMINING EXEMPTION FROM UNITED STATES WITHHOLDING TAXES WITH RESPECT TO ALL PAYMENTS TO BE MADE TO ASSIGNEE UNDER THE CREDIT AGREEMENT, THE OTHER LOAN PAPERS AND THIS ASSIGNMENT OR ACCEPTANCE OR SUCH OTHER DOCUMENTS AS ARE NECESSARY TO INDICATE THAT ALL SUCH PAYMENTS ARE SUBJECT TO TAXES AT A RATE REDUCED BY APPLICABLE TREATY]. 5. The effective date for this Assignment and Acceptance (the "Transfer Date") shall be the date following execution by the parties hereto on which Assignor receives from Assignee an amount in same day funds equal to _____% of the aggregate principal amount of Advances owing to Assignor on such date, together with the $3,500 processing fee required under Section 9.4 of the Credit Agreement, and Administrative Agent and the Company receive notice thereof and -2- an executed copy of this Assignment and Acceptance. The Company acknowledges its obligations under the Credit Agreement, and agrees, within five Business Days after receiving an executed copy of this Assignment and Acceptance to execute and deliver to Administrative Agent, in exchange for the Note originally delivered to Assignor, new Notes to the order of Assignor and Assignee in amounts equal to their respective Specified Percentages of the Commitment. 6. As of the Transfer Date, (a) Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder, (b) Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement and other Loan Papers, and (c) Assignor's Specified Percentage shall be %, and Assignee's Specified Percentage shall be ________%. 7. From and after the Transfer Date, Administrative Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and fees with respect thereto) to Assignee. Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Transfer Date directly between themselves. 8. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the state of Texas, without reference to principles of conflict of laws. ASSIGNOR: By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- -3- Address: ASSIGNEE: Attn: By: ------------------------------ --------------------------------- Telephone No.: ( ) ___-____ Name: ------------------------------- Telecopier No.: ( ) ___-____ Title: ------------------------------ LIBOR Lending Office: Attn: ------------------------------ Telephone No.: ( ) ___-____ Telecopier No.: ( ) ___-____ ADMINISTRATIVE AGENT BANK OF AMERICA, N.A., Administrative Agent By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Accepted and approved this _____ day of ___________, _____: FRANCHISE FINANCE CORPORATION OF AMERICA By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- -4- EXHIBIT G SUBORDINATION AGREEMENT SUBORDINATION AGREEMENT, dated as of ____________________, _____ (as amended, supplemented, or otherwise modified from time to time, this "Agreement") made by ______________________, a _____________ (the "Company"), Franchise Finance Corporation of America, a Delaware corporation ("FFCA"), __________________, a ______________, and __________________, a _______________ (collectively, the "Subordinated Creditors") for the benefit of the Lenders (each a "Lender") party to the Credit Agreement (as defined below), Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, and Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and Bank of America, N.A., as the Administrative Agent (the "Administrative Agent") for itself and the Lenders. BACKGROUND: (1) The Lenders, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and the Administrative Agent have entered into a Credit Agreement (Facility A), dated as of September 15, 2000, with FFCA (as amended, supplemented, or otherwise modified from time to time, the "Credit Agreement"). Unless otherwise defined herein, defined terms used herein shall have the meanings ascribed to them in the Credit Agreement. (2) The Company is or may be indebted to one or more of the Subordinated Creditors in the aggregate principal amount of $235,000,000 or such lesser amount as shall equal the aggregate unpaid principal amount of Intercompany Loans made by one or more of the Subordinated Creditors to the Company evidenced by the promissory note of even date herewith in such principal amount (as the same may hereafter be amended, supplemented, or otherwise modified from time to time, the "Debt Agreement"). All such obligations of the Company now or hereafter existing under the Debt Agreement, whether for principal, interest (including, without limitation, interest accruing after the filing of a petition initiating any Proceeding (as defined below), whether or not such interest accrues after the filing of such petition for purposes of the Bankruptcy Code of 1978, 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code") or is an allowed claim in such Proceeding), fees, expenses or otherwise are hereinafter referred to as "Subordinated Debt". For purposes of this Agreement, "Proceeding" means any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or other similar case or proceeding under any federal or state bankruptcy or similar law or an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of a Person. (3) It is a condition precedent to the making of Advances by the Lenders under the Credit Agreement that the Subordinated Creditors shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises, the Company and the Subordinated Creditors hereby agree as follows: 1. Agreement to Subordinate. Each of the Subordinated Creditors and the Company agrees that the Subordinated Debt is and shall be subordinate, to the extent and in the manner hereinafter set forth, to the prior payment in full of all obligations of the Company now or hereafter existing under the Credit Agreement and the other Loan Papers, whether for principal, interest (including, without limitation, interest, as provided in the Notes, accruing after the filing of a petition initiating any Proceeding, whether or not such interest accrues after the filing of such petition for purposes of the Bankruptcy Code or is an allowed claim in such Proceeding), fees, expenses or otherwise (such obligations and all Obligations, as defined in the Credit Agreement, being herein collectively called the "Obligations"). For the purposes of this Agreement, the Obligations shall not be deemed to have been paid in full until (a) all maturity dates therefor shall have elapsed, (b) the Commitment shall have been terminated, and (c) the Lenders shall have received indefeasible payment of the Obligations in full in cash (such date that the conditions described in (a), (b), and (c) herein are satisfied shall be the "Credit Agreement Termination Date"). 2. Events of Subordination. a. In the event of any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of the Company or any Subsidiary of the Company or any of their respective debts, whether voluntary or involuntary, in any Proceeding of the Company or any Subsidiary of the Company or otherwise, the Lenders shall be entitled to receive indefeasible payment in full in cash of the Obligations before the Subordinated Creditors are entitled to receive any payment of all or any of the Subordinated Debt, and any payment or distribution of any kind (whether in cash, property or securities) that otherwise would be payable or deliverable upon or with respect to the Subordinated Debt in any such Proceeding (including any payment that may be payable by reason of any other indebtedness of the Company being subordinated to payment of the Subordinated Debt) shall, subject to the following sentence, be paid or delivered directly to the Administrative Agent for the account of the Lenders for application (in the case of cash) to, or as collateral (in the case of non-cash property or securities) for, the payment or prepayment of the Obligations until the Obligations shall have been paid indefeasibly in full in cash and the Credit Agreement Termination Date to have occurred. b. Upon the occurrence of a Default or Event of Default and during the continuance thereof, no payment (including any payment that may be payable by reason of any other indebtedness of the Company being subordinated to payment of the Subordinated Debt) shall be made by the Company for or on account of any Subordinated Debt, and the Subordinated Creditors shall not take or receive from the Company or any Subsidiary of the Company, directly or indirectly, in cash or -2- other property or by set-off or in any other manner, including, without limitation, from or by way of collateral, any payment of all or any of the Subordinated Debt, unless and until the Obligations shall have been paid indefeasibly in full in cash and the Credit Agreement Termination Date has occurred. c. During the continuance of a Default or Event of Default, the Lenders shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Obligations before the Subordinated Creditors are entitled to receive any payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Subordinated Debt) by the Company on account of the Subordinated Debt. 3. In Furtherance of Subordination. Each of the Subordinated Creditors agrees as follows: a. All payments or distributions upon or with respect to the Subordinated Debt which are received by such Subordinated Creditor contrary to the provisions of this Agreement shall be received in trust for the benefit of the Lenders, shall be segregated from other funds and property held by such Subordinated Creditor and shall be forthwith paid over to the Administrative Agent for the account of the Lenders in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to, or held as collateral (in the case of non-cash property or securities) for, the payment or prepayment of the Obligations in accordance with the terms of the Credit Agreement. b. Each of the Subordinated Creditors hereby waives and agrees not to assert against Administrative Agent or any Lender any rights which a guarantor or surety with respect to any indebtedness of the Company or any obligor could exercise. The Subordinated Creditors shall not assert, enforce, or otherwise exercise (a) any right of subrogation to any of the rights or Liens of Administrative Agent or any Lender or any other Person against the Company or any of its Subsidiaries or any other obligor on all or any part of the Obligations or any collateral or other security, or (b) any right of recourse, reimbursement, contribution, indemnification, or similar right against the Company or any of its Subsidiaries or any other obligor on all or any part of the Obligations or any collateral or any security, and the Subordinated Creditors hereby waive any and all of the foregoing rights and the benefit of, and any right to participate in, any collateral or other security given to Administrative Agent or any Lender or any other Person to secure payment of the Obligations, however any such Rights arise, whether hereunder or any other Loan Paper or by operation of Law until after the Credit Agreement Termination Date has occurred. c. Each of the Subordinated Creditor hereby irrevocably appoints Administrative Agent, such Subordinated Creditor's attorney-in-fact, with full authority in the place and stead of such Subordinated Creditor and in the name of such Subordinated Creditor or otherwise to, after the occurrence of a Default or Event of Default and during the continuance thereof, (a) file any claims, proofs of claim, or other instruments of similar character necessary to enforce the obligations of the Company and its Subsidiaries with respect to the Subordinated Debt and (b) collect and receive any and all payments or -3- distributions which may be payable or deliverable upon or with respect to the Subordinated Debt. Such power of attorney is coupled with an interest and is irrevocable prior to final indefeasible payment in full of the Obligations. d. The Administrative Agent is hereby authorized to demand specific performance of this Agreement, whether or not the Company shall have complied with any of the provisions hereof applicable to it, at any time when any of the Subordinated Creditors shall have failed to comply with any of the provisions of this Agreement applicable to it. Each of the Subordinated Creditors hereby irrevocably waives any defense based on the adequacy of a remedy at law, which might be asserted as a bar to such remedy of specific performance. e. No assets or Properties of the Company or its Subsidiaries shall secure the Subordinated Debt, except to the extent of Liens which are assigned to the Administrative Agent on behalf of the Lenders. 4. Remedies of the Subordinated Creditor. Each of the Subordinated Creditor agrees that, so long as the Obligations shall not have been paid indefeasibly in full in cash and the Credit Agreement Termination Date has occurred, such Subordinated Creditor will not take, sue for, ask or demand from the Company or its Subsidiaries, payment of all or any of the Subordinated Debt, or exercise any remedy against the Company or its Subsidiaries available contractually, by law or otherwise, or commence in its capacity as a creditor, or join with any creditor in commencing, or directly or indirectly cause in its capacity as creditor to the Company or its Subsidiaries to commence, or assist the Company or its Subsidiaries in commencing, any Proceeding or any other remedy against the Company or its Subsidiaries. 5. Agreements in Respect of Subordinated Debt. a. No Subordinated Creditor will: i. Sell, assign, pledge, encumber or otherwise dispose of any of the Subordinated Debt; or ii. Permit any of the terms of any of the Subordinated Debt to be changed or amended (or issue any consent, waiver or approval which has the effect of resulting in any change or amendment) in any manner which could reasonably be expected to be materially adverse to the interests of the Lenders. b. The Subordinated Creditors shall immediately notify the Administrative Agent of the occurrence of any breach or default under the Subordinated Debt beyond any grace period provided with respect thereto. -4- 6. Agreement by the Company. The Company agrees that it will not make any payment of any of the Subordinated Debt (or take any other action) in contravention of the provisions of this Agreement. 7. Obligations Hereunder Not Affected. All rights and interests of the Administrative Agent and the Lenders hereunder, and all agreements and obligations of the Subordinated Creditors and the Company under this Agreement, shall remain in full force and effect irrespective of: i. any lack of validity or enforceability of the Credit Agreement, the Notes, the Loan Papers or any other agreement or instrument relating thereto; ii. any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, the Loan Papers or the Notes, including, without limitation, any increase in the Obligations resulting from the extension of additional credit to the Company or otherwise; iii. any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or iv. any change, restructuring or termination of the corporate structure or existence of the Company or its Subsidiaries. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. 8. Waiver. Each of the Subordinated Creditors and the Company hereby waive promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any requirement that the Administrative Agent or any Lender or exhaust any right or take any action against the Company, its Subsidiaries or any other Person or entity. 9. Representations and Warranties. Each Subordinated Creditor and the Company each hereby represent and warrant as follows: a. The Subordinated Debt now outstanding, true and complete copies of instruments evidencing which have been furnished to the Administrative Agent, has been duly authorized, issued and delivered by the Company, and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. There exists no default in respect of the Subordinated Debt. -5- b. Such Subordinated Creditor has, independently and without reliance upon the Administrative Agent or any Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. 10. Amendments to this Agreement. No amendment or waiver of any provision of this Agreement, and no consent to any departure by any of the Subordinated Creditors or the Company herefrom, shall in any event be effective unless the same shall be in writing and signed as provided in the Credit Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 11. Expenses. Each of the Subordinated Creditors and the Company agree, jointly and severally, upon demand to pay to the Administrative Agent the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel and of any experts or agents, which the Administrative Agent or any Lender may incur in connection with the (a) the administration of this Agreement, (b) the exercise or enforcement of any of the rights of the Administrative Agent or the Lenders hereunder or (c) the failure by any Subordinated Creditor to perform or observe any of the provisions hereof. 12. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered to it, if to the Subordinated Creditors, at its respective address specified in the Credit Agreement or the Guaranty Agreement, and if to the Administrative Agent or any Lender, at its address specified in the Credit Agreement, or as to each party, at such other address as shall be designated by such party in a written notice to each other party. All such notices and other communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective as provided in the Credit Agreement. 13. No Waiver; Remedies. No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by Law. 14. Continuing Agreement; Assignments Under the Credit Agreement. This Agreement is a continuing agreement and shall (a) remain in full force and effect until the indefeasible payment in full in cash of the Obligations and until the Commitment has terminated, (b) be binding upon each Subordinated Creditor and its successors and assigns, and (c) inure to the benefit of, and be enforceable by, the Administrative Agent, the Lenders and their respective permitted successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender may assign or otherwise transfer all or any portion of its rights and obligations under, and in accordance with the terms of, the Credit Agreement to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Lender herein or otherwise. Notwithstanding any other provision of this Agreement, this Agreement shall continue to be effective or be reinstated, as -6- the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy or reorganization of the Company or its Subsidiaries or otherwise, all as though such payment had not been made. In any such event, all payments and distributions upon or with respect to the Subordinated Debt which have been theretofore received by any Subordinated Creditor shall be deemed to have been received in trust for the benefit of the Lenders, shall be segregated from other funds and property held by such Subordinated Creditor and shall be forthwith paid over to the Administrative Agent for the account of the Lenders in the same form as so received (with any necessary indorsement) to be applied (in the case of cash) to, or held as collateral (in the case of non-cash property or securities) for, the payment or prepayment of the Obligations in accordance with the terms of the Credit Agreement. 15. GOVERNING LAW. A. THIS AGREEMENT AND ALL OTHER LOAN PAPERS RELATED HERETO SHALL BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE EXTENT FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF ALL OR ANY PART OF THIS AGREEMENT AND ALL LOAN PAPERS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, EACH SUBORDINATED CREDITOR AGREES THAT THE COURTS OF TEXAS WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. B. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT. IN ADDITION, THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE COMPANY AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON RECEIPT BY THE COMPANY. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 16. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. -7- 17. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS RELATED HERETO REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 18. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -8- IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. FRANCHISE FINANCE CORPORATION OF AMERICA By: ------------------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer (OTHER SUBORDINATED CREDITOR) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- (OTHER SUBORDINATED CREDITOR) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- (THE COMPANY) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- -9- EXHIBIT H [Form of Confidentiality Agreement] CONFIDENTIALITY AGREEMENT [Date] [Insert Name and Address of Prospective Participant or Assignee] Re: Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000, among Franchise Finance Corporation of America ("FFCA"), the lenders named therein (the "Lenders"), Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, and Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents Dear ______________: As a Lender under the above-referenced Credit Agreement (the "Credit Agreement"), we have agreed with FFCA pursuant to Section 9.9 of the Credit Agreement to use reasonable precautions to keep confidential, except as otherwise provided therein, all non-public information identified by FFCA as being confidential at the time the same is delivered to us pursuant to the Credit Agreement, including, without limitation, written information and information transferred visually or electronically, together with all notes, analyses, compilations, studies or other documents that contain all or a portion of such information (collectively, "Confidential Information"). As provided in said Section 9.9, we are permitted to provide you, as a prospective [participant] [assignee Lender], with certain Confidential Information subject to the execution and delivery by you, prior to receiving Confidential Information, of a Confidentiality Agreement in this form. No Confidential Information will be made available to you until your execution and return to us of this Confidentiality Agreement. Accordingly, in consideration of the foregoing, you agree (on behalf of yourself and each of your affiliates, directors, officers, employees, agents and representatives) that (A) the Confidential Information will not be used by you except in connection with the proposed [participation] [assignment] mentioned above and (B) you shall keep all Confidential Information confidential, provided that nothing herein shall limit the disclosure of any Confidential Information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to your counsel or to counsel for any of the other Lenders or the - ---------,--- Page 2 Administrative Agent, (iii) to your bank examiners, auditors or accountants, (iv) to the Administrative Agent or any other Lender, (v) in connection with any litigation to which you or any one or more of the Lenders are a party; provided, further, that, unless specifically prohibited by applicable law or court order, you agree, prior to disclosure thereof, to give prompt notification to FFCA of any request for disclosure of any Confidential Information (x) by any governmental agency or representative thereof (other than any such request in connection with an examination of your financial condition by such governmental agency) or (y) pursuant to legal process. With respect to any disclosure of any Confidential Information set forth in subclause (x) or (y) of clause (v) above, you agree, to the extent not prohibited by applicable law or court order, to (i) cooperate with FFCA so that FFCA may seek a protective order or other appropriate remedy and (ii) use its best efforts to obtain an order or reasonable assurance that confidential treatment will be afforded such information. At the earlier of such time as (i) you are no longer a Lender, an assignee or participant under the Credit Agreement, or (ii) all Advances (as defined in the Credit Agreement) under the Credit Agreement are paid in full and the Commitment (as defined in the Credit Agreement) is terminated, upon written request by FFCA and subject to any restrictions or regulations of any Tribunal having supervisory authority over you, you shall return to FFCA the Confidential Information which is in tangible form, including any copies which you or any persons to whom you transmitted the Confidential Information may have made, and you and they will destroy all abstracts, summaries thereof or references thereto in your and their documents, and after written request by FFCA, shall promptly provide FFCA reasonable assurance in writing that you have destroyed such documents. It is acknowledged that FFCA is in the business of financing commercial real estate, equipment and enterprises and from time to time you and FFCA may be in direct competition with each other for business. This Confidentiality Agreement does not constitute a license for you to use, employ or exploit the Confidential Information to gain any advantage in the marketplace against FFCA; it being expressly understood and agreed that any use, employment or exploitation of the Confidential Information for a purpose not expressly permitted herein is strictly prohibited. This Confidentiality Agreement contains the entire understanding of the parties to this Confidentiality Agreement with respect to the matters addressed in this Confidentiality Agreement and may be amended, modified, supplemented or altered only by a writing duly executed by you and us which is consented in writing to by FFCA and any prior agreements or understandings, whether oral or written, are entirely superseded by this Confidentiality Agreement. The covenants, conditions and agreements contained in this Confidentiality Agreement shall bind you and use and inure to the benefit of you, us and FFCA and their respective parent corporations, affiliated companies, subsidiaries, officers, employees, partners, agents and successors and assigns. - ---------,--- Page 3 Would you please indicate your agreement to the foregoing by signing at the place provided below the enclosed copy of this Confidentiality Agreement. Very truly yours, By: ------------------------------------- Title: ---------------------------------- THE FOREGOING IS AGREED TO AS OF THE DATE OF THIS LETTER. By: ------------------------------- Title: ---------------------------- EXHIBIT I SWING LINE NOTE $25,000,000 Dallas, Texas ___________, 2000 FOR VALUE RECEIVED, the undersigned, FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of BANK OF AMERICA, N.A. ("Lender") the lesser of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) and the unpaid principal amount of the Swing Line Loans (as defined in the Credit Agreement hereinafter defined) made by Lender to Borrower, pursuant to the Credit Agreement, payable at such times, and in such amounts, as are agreed to by Lender and Borrower pursuant to Sections 2.2(h) and 2.7(d) of the Credit Agreement. The books and records of Administrative Agent shall be prima facie evidence of all sums due Lender. Borrower promises to pay interest on the unpaid principal amount of the Swing Line Loans from the date made until such principal amount is paid in full, at such interest rates, and payable at such times, as are agreed to by Lender and Borrower pursuant to Sections 2.2(h) and 2.7(d) of the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to Administrative Agent (as defined in the Credit Agreement) (for the account of Lender) at its principal banking house at Bank of America Plaza, 901 Main Street, Dallas, Texas 75202, or such other place as Administrative Agent may direct, in immediately available funds. This Swing Line Note is one of the Swing Line Notes evidencing Swing Line Loans referred to in, and is entitled to the benefits of, the Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000, among Borrower, Bank of America, N.A., as Administrative Agent, Lender, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and certain other lenders (as from time to time amended, modified or supplemented, the "Credit Agreement"). The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of an Event of Default (as defined in the Credit Agreement) and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. Borrower and each guarantor, surety and endorser waives demand, presentment, notice of dishonor, protest and diligence in collecting sums due hereunder; agrees to application of any debt of Lender to the payment hereof; agrees that extensions and renewals without limit as to number, acceptance of any number of partial payments, releases of any party liable hereon, and releases or substitutions of collateral, before or after maturity, shall not release or discharge its obligation under this Swing Line Note; and agrees to pay in addition to all other sums due hereunder reasonable attorney's fees if this Swing Line Note is placed in the hands of an attorney for collection or if it is collected through bankruptcy or other judicial proceeding. This Swing Line Note shall be governed by and construed in accordance with the laws of the State of Texas (without giving effect to conflict of laws) and the United States of America. FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By: /s/ John R. Barravecchia ------------------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer -2- EX-99.02 6 0006.txt CREDIT AGREEMENT - FACILITY B ================================================================================ CREDIT AGREEMENT (FACILITY B) Dated as of September 15, 2000 AMONG FRANCHISE FINANCE CORPORATION OF AMERICA, CERTAIN LENDERS and BANK OF AMERICA, N.A. as Administrative Agent and WELLS FARGO BANK, NATIONAL ASSOCIATION as Documentation Agent COMMERZBANK AKTIENGESELLSCHAFT, New York Branch as Syndication Agent COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH as Managing Agent BANK ONE, ARIZONA, N.A. UNION BANK OF CALIFORNIA, N.A. WASHINGTON MUTUAL BANK (d/b/a Western Bank) as Co-Agents ================================================================================ BANC OF AMERICA SECURITIES LLC, AS SOLE LEAD ARRANGER AND BOOK MANAGER TABLE OF CONTENTS ARTICLE I. DEFINITIONS 1.1 Definitions.............................................................1 1.2 Accounting and Other Terms.............................................23 ARTICLE II. AMOUNTS AND TERMS OF ADVANCES 2.1 Advances Under the Loan................................................24 2.2 Making Advances........................................................24 2.3 Evidence of Indebtedness...............................................26 2.4 Reduction of Commitment................................................26 2.5 Prepayments............................................................27 2.6 Repayment..............................................................28 2.7 Interest...............................................................28 2.8 Default Interest.......................................................29 2.9 Continuation and Conversion Elections..................................29 2.10 Fees...................................................................31 2.11 Funding Losses.........................................................31 2.12 Computations and Manner of Payments....................................31 2.13 Yield Protection.......................................................33 2.14 Extension Option and Conversion Option Relating to the Loan............35 ARTICLE III. CONDITIONS PRECEDENT 3.1 Conditions Precedent to the Initial Advance............................36 3.2 Conditions Precedent to All Advances...................................38 ARTICLE IV. REPRESENTATIONS AND WARRANTIES 4.1 Organization and Qualification.........................................39 4.2 Due Authorization; Validity............................................39 4.3 Conflicting Agreements and Other Matters...............................40 4.4 Financial Statements...................................................40 4.5 Litigation.............................................................40 4.6 Compliance With Laws Regulating the Incurrence of Indebtedness.........40 4.7 Authorizations, Title to Properties, and Related Matters...............41 4.8 Outstanding Debt and Liens.............................................41 4.9 Taxes..................................................................41 4.10 ERISA..................................................................42 4.11 Environmental Laws.....................................................42 4.12 Disclosure.............................................................43 4.13 Investments; Subsidiaries..............................................43 4.14 Certain Fees...........................................................43 4.15 Intellectual Property..................................................43 4.16 Investment Company Act.................................................43 4.17 Restricted Payments....................................................43 4.18 Status as a Real Estate Investment Trust...............................44 4.19 Common Enterprise......................................................44 4.20 Survival of Representations and Warranties, etc........................44 4.21 Year 2000 Compliance...................................................44 ARTICLE V. AFFIRMATIVE COVENANTS 5.1 Compliance with Laws and Payment of Debt...............................45 5.2 Insurance..............................................................45 5.3 Inspection Rights......................................................45 5.4 Records and Books of Account; Changes in GAAP..........................45 5.5 Reporting Requirements.................................................46 5.6 Use of Proceeds........................................................48 5.7 Maintenance of Existence and Assets....................................48 5.8 Payment of Taxes.......................................................48 5.9 INDEMNITY..............................................................48 5.10 Authorizations and Material Agreements.................................49 5.11 Intercompany Notes.....................................................49 5.12 Further Assurances.....................................................50 5.13 Subsidiaries and Other Obligors........................................50 5.14 Interest Hedge Agreements..............................................50 5.15 Year 2000 Compliance...................................................50 -ii- ARTICLE VI. NEGATIVE COVENANTS 6.1 Financial Covenants....................................................50 6.2 Indebtedness...........................................................51 6.3 Contingent Liabilities.................................................51 6.4 Liens..................................................................51 6.5 Prohibition of Fundamental Changes.....................................52 6.6 Dispositions of Assets.................................................52 6.7 Distributions and Restricted Payments..................................52 6.8 Business...............................................................53 6.9 Transactions with Affiliates...........................................53 6.10 Loans and Investments..................................................53 6.11 Fiscal Year and Accounting Method......................................53 6.12 Amendment of Corporate Documents.......................................53 6.13 Compliance with ERISA..................................................54 6.14 Subsidiaries and Other Obligors........................................54 6.15 Amendments to Material Agreements......................................54 6.16 Prohibited Transactions................................................54 6.17 No New Subsidiaries....................................................54 6.18 Asset Securitization and Loan Sale Affiliates..........................55 6.19 Repayment of Advances under the Amended and Restated Credit Agreement..55 ARTICLE VII. EVENTS OF DEFAULT 7.1 Events of Default......................................................55 7.2 Remedies Upon Default..................................................57 7.3 Cumulative Rights......................................................58 7.4 Waivers................................................................58 7.5 Performance by Administrative Agent or any Lender......................58 7.6 Expenditures...........................................................58 7.7 Control................................................................59 ARTICLE VIII. ADMINISTRATIVE AGENT 8.1 Authorization and Action...............................................59 -iii- 8.2 Administrative Agent's Reliance, Etc...................................59 8.3 Bank of America, N.A. and Affiliates...................................60 8.4 Lender Credit Decision.................................................60 8.5 INDEMNIFICATION BY LENDERS.............................................60 8.6 Successor Administrative Agent.........................................61 8.7 Notice of Default......................................................61 ARTICLE IX. MISCELLANEOUS 9.1 Amendments and Waivers.................................................62 9.2 Notices................................................................62 9.3 Parties in Interest....................................................64 9.4 Assignments and Participations.........................................65 9.5 Sharing of Payments....................................................65 9.6 Right of Set-off.......................................................66 9.7 Costs, Expenses, and Taxes.............................................66 9.8 Rate Provision.........................................................68 9.9 Confidentiality........................................................69 9.10 Severability...........................................................70 9.11 Exceptions to Covenants................................................70 9.12 Counterparts...........................................................70 9.13 No Duties of Documentation Agent, Syndication Agent, Managing Agent, or Co-Agents...........................................................70 9.14 GOVERNING LAW; WAIVER OF JURY TRIAL....................................71 9.15 ENTIRE AGREEMENT.......................................................71 - iv - TABLE OF SCHEDULES AND EXHIBITS SCHEDULES Schedule 4.1 Organization and Qualification Schedule 4.5 Litigation Schedule 4.8 Debt, Contingent Liabilities and Liens of Company and each Subsidiary Entity in Existence on the Closing Date Schedule 4.11 Environmental Liabilities of Company and each Subsidiary on the Closing Date Schedule 4.13 Investments EXHIBITS Exhibit A Note (Evidencing Loan) Exhibit B Guaranty Agreement Exhibit C Compliance Certificate Exhibit D Conversion/Continuation Notice Exhibit E Borrowing Notice Exhibit F Assignment and Acceptance Exhibit G Subordination Agreement Exhibit H Confidentiality Agreement -v- FRANCHISE FINANCE CORPORATION OF AMERICA CREDIT AGREEMENT (FACILITY B) THIS CREDIT AGREEMENT (FACILITY B) (this "AGREEMENT") is dated as of September 15, 2000, among FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("COMPANY"), Lenders from time to time party hereto or to an Assignment and Acceptance, BANK OF AMERICA, N.A., a national banking association, as Administrative Agent (in such capacity, "ADMINISTRATIVE AGENT"), WELLS FARGO BANK, NATIONAL ASSOCIATION (in such capacity, "DOCUMENTATION AGENT"), COMMERZBANK AKTIENGESELLSCHAFT, New York Branch (in such capacity, "SYNDICATION AGENT"), COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH (in such capacity, "MANAGING AGENT"), and BANK ONE, ARIZONA, N.A., UNION BANK OF CALIFORNIA, N.A. and WASHINGTON MUTUAL BANK (d/b/a Western Bank), as Co-Agents (in such capacity, collectively, "CO-AGENTS"). BACKGROUND Lenders have been requested to provide funds in an aggregate principal amount not to exceed $115,000,000 to finance the ongoing working capital and general corporate requirements of Company, including acquisitions to the extent permitted hereunder. Lenders have agreed to provide such financing, subject to the terms and conditions set forth below. AGREEMENT NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS 1.1 DEFINITIONS. As used in this Agreement, the following terms have the respective meanings indicated below (such meanings to be applicable equally to both the singular and plural forms of such terms): "ACCUMULATED DEPRECIATION" means, as of any date of determination, the accumulated depreciation and amortization of prepaid expenses of Company and its Consolidated Subsidiaries determined in accordance with GAAP as of such date of determination. -1- "ADJUSTED NET WORTH" means, as of any date of determination, for Company and its Consolidated Subsidiaries determined in accordance with GAAP, the sum of (a) Net Worth, plus (b) Accumulated Depreciation. "ADJUSTMENT DATE" means, for purposes of the determination of the Applicable Margin and the Commitment Fee, the effective date of any issuance of, or change in, the Index Debt Rating which results in a change in the Applicable Margin and the Commitment Fee. "ADMINISTRATIVE AGENT" means Bank of America, N.A., in its capacity as Administrative Agent hereunder, or any successor Administrative Agent appointed pursuant to SECTION 8.6 hereof. "ADVANCE" means an advance made by a Lender to Company pursuant to SECTION 2.1 hereof. "AFFILIATE" means a Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled By or is Under Common Control with another Person. "AGREEMENT" means this Credit Agreement, as hereafter amended, modified, or supplemented from time to time. "AMENDED AND RESTATED CREDIT AGREEMENT" means that certain Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000, among Company, certain lenders and co-agents, and Administrative Agent, as amended, modified, supplemented or restated from time to time. "APPLICABLE LAW" means (a) in respect of any Person, all provisions of Laws applicable to such Person, and all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party and (b) in respect of contracts made or performed in the State of Texas, "Applicable Law" shall also mean the laws of the United States of America, including, without limiting the foregoing, 12 USC Sections 85 and 86, as amended to the date hereof and as the same may be amended at any time and from time to time hereafter, and any other statute of the United States of America now or at any time hereafter prescribing the maximum rates of interest on loans and extensions of credit, and the laws of the State of Texas, including, without limitation, Chapter 303 of the Texas Finance Code, as amended, and any other statute of the State of Texas now or at any time hereafter prescribing maximum rates of interest on loans and extensions of credit; provided, that the parties agree that the provisions of Chapter 346 of the Texas Finance Code, as amended, shall not apply to the Advances, this Agreement, the Notes or any other Loan Papers. "APPLICABLE MARGIN" means the following per annum percentages, applicable in the following situations: -2- APPLICABILITY BASE RATE LIBOR ------------- --------- ----- CATEGORY 1 - There is no Index Debt Rating or the 0.25 1.75 Index Debt Rating is the following: below BBB- by S&P and below Baa3 by Moody's CATEGORY 2 - The Index Debt Rating is the following: 0.00 1.35 BBB- by S&P and Baa3 by Moody's CATEGORY 3 - The Index Debt Rating is the following: 0.00 1.25 BBB by S&P and Baa2 by Moody's CATEGORY 4 - The Index Debt Rating is the following: 0.00 1.15 BBB+ by S&P and Baa1 by Moody's CATEGORY 5 - The Index Debt Rating is the following: 0.00 0.95 A- or better by S&P and A3 or better by Moody's The Applicable Margin payable by Company on the Advances outstanding hereunder shall be adjusted on each Adjustment Date according to the most recent determination of the Index Debt Rating; PROVIDED, that if (i) there exists a Default or (ii) Company does not have an Index Debt Rating, the Applicable Margin shall be (A) 0.25% per annum with respect to Base Rate Advances and (B) 1.75% per annum with respect to LIBOR Advances. For purposes of the foregoing, if the Index Debt Rating established by S&P or Moody's shall fall within a different category, the Applicable Margin shall be determined by reference to whichever Index Debt Rating shall fall within the superior (or numerically higher) category, unless the superior (or numerically higher) category is greater than one level above the other category, in which case the Applicable Margin shall be determined using the category immediately below the superior (or numerically higher) category. If the rating system of Moody's or S&P shall change prior to the Maturity Date, Company and Lenders shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system. "ASSET SALE" means any sale or other disposition, or series of sales or other dispositions (including, without limitation, by merger or consolidation, and whether by operation of law or otherwise, but excluding the Maryland Merger), made on or after the Closing Date by Company or any of its Subsidiaries to any Person (other than Company or any of its Subsidiaries) of (a) all or substantially all of the outstanding Capital Stock of any of its Subsidiaries, (b) all or substantially all of its assets or the assets of any division of Company or any of its Subsidiaries or (c) any other asset or assets of Company or any of its Subsidiaries, including the sale of notes in connection with an Asset Securitization (but excluding any Retained Securities in connection with such Asset Securitization) or any Loan Sale; PROVIDED, HOWEVER, that the following shall not be considered an Asset Sale hereunder: (i) the sale or other disposition by Company or any of its Subsidiaries of worn out or obsolete tools, property or equipment; (ii) the sale of debt or equity investment securities in the ordinary course of business; and (iii) sales resulting from the exercise by Tenants under Leases with respect to Property owned by Company and its Subsidiaries as of the Closing Date of purchase options granted by Company and its Subsidiaries to such Tenants. -3- "ASSET SALE PROCEEDS" means cash payments received by Company or any of its Subsidiaries (including, without limitation, any cash payments received by way of deferred payment of principal pursuant to a note or receivable or otherwise, but only as and when received) from any Asset Sale (after repayment of any Indebtedness due by reason of such Asset Sale or to effect the release of any Lien on the property or assets being sold), in each case net of the amount of (a) reasonable brokers', underwriters' and advisors' fees and commissions payable in connection with such Asset Sale, (b) all Taxes reasonably estimated to be payable as a direct consequence of such Asset Sale, (c) the reasonable fees and expenses (including, without limitation, severance payments) attributable to such Asset Sale, and (d) to the extent not included in clauses (a) through (c), any amount required to be paid to any Person (other than Company and any of its Subsidiaries) owning a beneficial interest in the property or assets sold. For purposes of this definition, Asset Sale Proceeds shall be deemed to include, without limitation, any award of compensation for any asset or property or group thereof taken by condemnation or eminent domain and insurance proceeds for the loss of or damage to any asset or property if such award or proceeds equals or exceeds $50,000 (per occurrence) and within 90 days after the receipt thereof replacement or repair of such asset or property has not commenced, except that in the event that at any time such replacement or repair is abandoned or is otherwise discontinued or is not diligently pursued, the remaining award or proceeds, as the case may be, shall constitute Asset Sale Proceeds at such time. "ASSET SECURITIZATION" means the sale, disposition, transfer or assignment by Company or any of its Subsidiaries to a special purpose corporation, trust or other entity, of notes evidencing obligations to repay secured or unsecured loans owned by Company or any such Subsidiary, which notes are subsequently sold, transferred or assigned to one or more Asset Securitization Affiliates, and, as a result of such sale, transfer or assignment, bonds, certificates or other evidences of ownership representing interests in pools of such loans are issued, either simultaneously or subsequently. "ASSET SECURITIZATION AFFILIATE" means an Affiliate of Company or any of its Subsidiaries which owns no assets (other than initial capitalization of each Affiliate not to exceed $100,000) and transacts no business other than as a depositor, conduit or grantor in an Asset Securitization, including, without limitation, any real estate mortgage investment conduit or special purpose corporation, trust or other entity whose sole purpose is to effect an Asset Securitization or a warehousing of loans in anticipation of an Asset Securitization. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by Administrative Agent, in the form of EXHIBIT F hereto, as each such agreement may be amended, modified, extended, restated, renewed, substituted or replaced from time to time. -4- "AUDITOR" means Arthur Andersen LLP, or other independent certified public accountants selected by Company and acceptable to Administrative Agent. "AUTHORIZATIONS" means all filings, recordings and registrations with, and all validations or exemptions, consents and Licenses from, any Tribunal. "AUTHORIZED OFFICER" means the chief executive officer, an executive vice president or senior vice president of Company or any other executive officer of Company authorized by Company from time to time of which Administrative Agent has been notified in writing. "BANK AFFILIATE" means the holding company of any Lender, or any wholly-owned direct or indirect subsidiary of such holding company or of such Lender. "BASE RATE ADVANCE" means an Advance bearing interest at the Base Rate. "BASE RATE" means a fluctuating rate per annum as shall be in effect from time to time equal to the lesser of (a) the higher of (i) the sum of the Applicable Margin plus the rate of interest as then in effect announced publicly by Bank of America, N.A. from time to time as its U.S. dollar prime commercial lending rate (such rate may or may not be the lowest rate of interest charged by Bank of America, N.A. from time to time) or (ii) the sum of the Applicable Margin, plus 0.50%, plus the Federal Funds Rate, and (b) the Highest Lawful Rate. The Base Rate shall be adjusted automatically without notice as of the opening of business on the effective date of each change in the prime rate or Federal Funds Rate, as applicable, to account for such change. "BORROWING" means a borrowing under the Facility of the same Type made on the same day. "BORROWING NOTICE" has the meaning set forth in SECTION 2.2(A) hereof. "BUSINESS DAY" means a day on which commercial banks are open (a) for the transaction of commercial banking business in Dallas, Texas and Phoenix, Arizona and (b) with respect to any LIBOR Advance for the transaction of international business (including dealings in Dollar deposits) in London, England. "CAPITAL LEASES" means capital leases and subleases, as defined in accordance with GAAP. "CAPITAL STOCK" means, as to any Person, the equity interests in such Person, including, without limitation, the shares of each class of capital stock of any Person that is a corporation and each class of partnership interests (including, without limitation, general, limited and preference units) in any Person that is a partnership. "CASH EQUIVALENTS" means investments (directly or through a money market fund) in (a) certificates of deposit and other interest bearing deposits or accounts with United States commercial banks having a combined capital and surplus of at least $300,000,000, which certificates, deposits, and accounts -5- mature within one year from the date of investment and are fully insured as to principal by the Federal Deposit Insurance Corporation or any successor agency, (b) obligations issued or unconditionally guaranteed by the United States government, or issued by an agency thereof and backed by the full faith and credit of the United States government, which obligations mature within one year from the date of investment, (c) direct obligations issued by any state or political subdivision of the United States, which mature within one year from the date of investment and have the highest rating obtainable from S&P or Moody's on the date of investment, and (d) commercial paper which has one of the three highest ratings obtainable from S&P or Moody's. "CASH FLOW FROM OPERATIONS" means, for any period of determination, for Company and its Consolidated Subsidiaries on a consolidated basis, net income PLUS depreciation and amortization, all as determined in accordance with GAAP; PROVIDED that there shall not be included in such calculation (a) any proceeds of any insurance policy other than rental guaranty insurance or business interruption insurance received by such Person, (b) any gain or loss which is classified as "extraordinary" in accordance with GAAP, (c) any capital gains and taxes on capital gains or (d) any gains or losses from sales of Properties. "CHANGE OF CONTROL" means (a) a transaction or series of transactions whereby any Person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "1934 ACT")) shall acquire beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of Company (or other securities convertible into such securities) representing 35% of the combined voting power of all securities of Company entitled to vote in the election of directors (for purposes of this definition, a "Controlling Person") or (b) at any time a majority of Company's directors are persons who were not (i) in office on the Closing Date or (ii) initially nominated by directors who were in office on the Closing Date or by successor directors elected or appointed upon the initial nomination of such directors or successors directors. In connection with clause (a) above, a Person or group shall not be a "Controlling Person" if such Person or group holds voting power in good faith and not for the purpose of circumventing the effect of the occurrence of a Change of Control as an agent, bank, broker, nominee, trustee or holder of revocable proxies given in response to a solicitation pursuant to the 1934 Act, for one or more beneficial owners who do not individually, or, if they are a group acting in concert, as a group, have the voting power specified in the previous sentence. "CLOSING DATE" means the date of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, and the rules and regulations issued thereunder, as from time to time in effect. "COMMITMENT" means, with respect to the Loan prior to the Conversion Date, $115,000,000 or as such amount may be reduced from time to time in accordance with the terms of SECTION 2.4 hereof, provided that (a) on the Option Date, if Company and Lenders have not agreed to an Extension Option or Company has not -6- exercised its Conversion Option, in each case in accordance with the terms of SECTION 2.14 hereof, the Commitment shall mean $0.00 and (b) on or after the Final Maturity, the Commitment shall mean $0.00. "COMMITMENT FEE" means the fee described in SECTION 2.10 hereof. "COMPANY" means (a) prior to the Maryland Merger, Franchise Finance Corporation of America, a Delaware corporation, and (b) subsequent to the Maryland Merger, Franchise Finance Corporation of America, a Maryland corporation. "COMPLIANCE CERTIFICATE" means a certificate of an Authorized Officer of Company acceptable to Administrative Agent, in the form of EXHIBIT C hereto, (a) certifying that such individual has no knowledge that a Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action being taken or proposed to be taken with respect thereto, and (b) setting forth detailed calculations with respect to each of the covenants described in SECTION 6.1 hereof. "CONFIDENTIAL INFORMATION" has the meaning specified in SECTION 9.9 hereof. "CONFIDENTIALITY AGREEMENT" means a Confidentiality Agreement in substantially the form of EXHIBIT H hereto, as such agreement may be amended, modified or supplemented from time to time. "CONSENSUAL LIEN" means any Lien of the type described in clauses (h) and (i) of the definition of Permitted Liens. "CONSEQUENTIAL LOSS," with respect to (a) Company's payment of all or any portion of the then-outstanding principal amount of a LIBOR Advance on a day other than the last day of the related Interest Period, including, without limitation, payments made as a result of the acceleration of the maturity of a Note, (b) (subject to Administrative Agent's prior consent), a LIBOR Advance made on a date other than the date on which the Advance is to be made according to SECTION 2.2(A) hereof or SECTION 2.9 hereof, or (c) any of the circumstances specified in SECTION 2.4 hereof and SECTION 2.5 hereof on which a Consequential Loss may be incurred, means any loss, cost or expense incurred by any Lender as a result of the timing of the payment or Advance or in liquidating, redepositing, redeploying or reinvesting the principal amount so paid or affected by the timing of the Advance or the circumstances described in SECTION 2.4 hereof and SECTION 2.5 hereof, which amount shall be the sum of (i) the interest that, but for the payment or timing of Advance, such Lender would have earned in respect of that principal amount, reduced, if such Lender is able to redeposit, redeploy, or reinvest the principal amount, by the interest earned by such Lender as a result of redepositing, redeploying or reinvesting the principal amount plus (ii) any expense or penalty incurred by such Lender by reason of liquidating, redepositing, redeploying or reinvesting the principal amount. Each determination by each Lender of any Consequential Loss is, in the absence of demonstrable error, conclusive and binding. -7- "CONSOLIDATED SUBSIDIARY" means, as to any Person, each Subsidiary of such Person (whether then existing or thereafter created or acquired) the financial statements of which are (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. "CONTINGENT LIABILITY" means, as to any Person, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or obligation of any other Person in any manner, whether directly or indirectly, including without limitation any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase Property or services for the purpose of assuring the owner of such Indebtedness of its payment, or (c) to maintain the solvency, working capital, equity, cash flow, fixed charge or other coverage ratio, or any other financial condition of the primary obligor so as to enable the primary obligor to pay any Indebtedness or to comply with any agreement relating to any Indebtedness or obligation, and shall, in any event, include any contingent obligation under any letter of credit, application for any letter of credit or other related documentation; PROVIDED, HOWEVER, that liabilities resulting from indemnities or other similar agreements of the Company, any of its Subsidiaries, any Asset Securitization Affiliate or Loan Sale Affiliate made in the ordinary course of business in connection with Asset Securitizations or Loan Sales shall not be considered a Contingent Liability. "CONTINUE," "CONTINUATION" and "CONTINUED" each refer to the continuation pursuant to SECTION 2.9 hereof of a LIBOR Advance from one Interest Period to the next Interest Period. "CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" mean possession, direct or indirect, of power to direct or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise); provided that, in any event (a) it shall include any director (or Person holding the equivalent position) or executive officer (or Person holding the equivalent position) of such Person or of any Affiliate of such Person, (b) any Person which beneficially owns 5% or more (in number of votes) of the securities having ordinary voting power for the election of directors of a corporation shall be conclusively presumed to control such corporation, (c) any general partner of any partnership shall be conclusively presumed to control such partnership, (d) any other Person who is a member of the immediate family (including parents, spouse, siblings and children) of any general partner of a partnership, and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust, or is the executor, administrator or other personal representative of such Person, shall be conclusively presumed to control such Person, and (e) no Person shall be deemed to be an Affiliate of a corporation solely by reason of his being an officer or director of such corporation. "CONTROLLED GROUP" means, as to any Person, all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) which are under common control with such Person and which, together with such Person, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. -8- "CONVERSION OR CONTINUANCE NOTICE" has the meaning set forth in SECTION 2.9(B) hereof. "CONVERSION DATE" means the date upon which the Loan converts from a revolving loan to a term loan, in accordance with the terms of SECTION 2.14(B) hereof. "CONVERSION FEE" means the fee described in SECTION 2.14(B) hereof. "CONVERSION OPTION" means that option to be exercised by Company on the Option Date or the Final Maturity in accordance with the terms of SECTION 2.14(B) hereof to convert the Loan to a term loan. "DEBT FOR BORROWED MONEY" means, as to any Person, at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, letters of credit (or applications for letters of credit) or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (d) all obligations of such Person secured by a Lien on any assets or property of any Person and (e) Intercompany Notes. "DEBTOR RELIEF LAWS" means applicable bankruptcy, reorganization, insolvency, receivership, liquidation, arrangement, conservatorship, moratorium, or similar Laws, or principles of equity affecting the enforcement of creditors' rights generally. "DEFAULT" means any event specified in SECTION 7.1 hereof, whether or not any requirement in connection with such event for the giving of notice, lapse of time, or happening of any further condition has been satisfied. "DISTRIBUTION" means, as to any Person, (a) any declaration or payment of any distribution or dividend (other than a stock dividend) on, or the making of any pro rata distribution, loan, advance, or investment to or in any holder (in its capacity as a partner, shareholder or other equity holder) of, any partnership interest or shares of Capital Stock or other equity interest of such Person, or (b) any purchase, redemption, or other acquisition or retirement for value of any shares of partnership interest or Capital Stock or other equity interest of such Person. "DOLLARS" and "$" means the lawful currency of the United States of America. "ELIGIBLE ASSIGNEE" means (a) a Lender, (b) an Affiliate of a Lender, and (c) any other Person approved by both Administrative Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with SECTION 9.4(A) hereof, Company, such approval not to be unreasonably withheld or delayed by Company or Administrative Agent and such approval to be deemed given by Company if no objection is received by assigning Lender and Administrative Agent from Company within two Business Days after notice of such proposed assignment has been provided by assigning Lender to Company; PROVIDED, HOWEVER, that neither Company nor any of its Affiliates shall qualify as an Eligible Assignee. -9- "ENVIRONMENTAL CLAIM" means any written notice by any Tribunal alleging potential liability for damage to the environment, or by any Person alleging potential liability for personal injury (including sickness, disease or death), resulting from or based upon (a) the presence or release (including sudden or non-sudden, accidental or non-accidental, leaks or spills) of any Hazardous Material at, in or from property, whether or not owned by Company or any of its Subsidiaries, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.ss.9601 ET SEQ.) ("CERCLA"), the Hazardous Material Transportation Act (49 U.S.C.ss.1801 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.Css.6901 ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C.ss.1251 ET SEQ.), the Clean Air Act (42 U.S.C.ss.7401 ET SEQ.), the Toxic Substances Control Act (15 U.S.C.ss.2601 ET SEQ.), and the Occupational Safety and Health Act (29 U.S.C.ss.651 ET SEQ.) ("OSHA"), as such laws have been or hereafter may be amended or supplemented, and any and all similar present or future federal, state and local Laws. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rulings and regulations issued thereunder, as from time to time in effect. "ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of Company or any of its Subsidiaries, or is under common control with Company or any of its Subsidiaries, within the meaning of Section 414(c) of the Code. "ERISA EVENT" means (a) a Reportable Event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC, (b) the issuance by the administrator of any Plan of a notice of intent to terminate such Plan in a distress situation, pursuant to Section 4041(a)(2) and 4041(c) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA), (c) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA, (d) the withdrawal by Company, any Subsidiary of Company, or an ERISA Affiliate from a Multiple Employer Plan during a Plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, (e) the failure by Company, any Subsidiary of Company, or any ERISA Affiliate to make a payment to a Plan required under Section 302 of ERISA, (f) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA, or (g) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. -10- "EVENT OF DEFAULT" means any of the events specified in SECTION 7.1 hereof, provided there has been satisfied any requirement in connection therewith for the giving of notice, lapse of time, or happening of any further condition. "EXTENSION OPTION" means that option to be exercised by Company and agreed to by Lenders in accordance with the terms of SECTION 2.14(A) hereof to extend the Loan for an additional 364 day period beyond the Option Date. "FACILITY" means the Loan evidenced by this Agreement and the other Loan Papers. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Dallas, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such date on such transactions received by Administrative Agent from three federal funds brokers of recognized standing selected by it. "FFCA FUNDING" means FFCA Funding Corporation, a Delaware corporation and Subsidiary of Company. "FINAL MATURITY" means, in the event that Company and Lenders have agreed to an Extension Option or Company has exercised its Conversion Option, that date which is 364 days after the Option Date, but in no event later than the stated maturity date of the Amended and Restated Credit Agreement. "FIXED CHARGE COVERAGE RATIO" means, as of any date of determination, for Company and its Consolidated Subsidiaries determined in accordance with GAAP, the ratio of (a) the sum of (i) Cash Flow From Operations for the twelve calendar month period ending on or most recently ended prior to such date of determination PLUS (ii) cash interest payable on all Indebtedness (including interest in respect of Capital Leases) of Company and its Consolidated Subsidiaries during such period to (b) the sum of (i) cash interest payable on all Indebtedness (including interest in respect of Capitalized Leases) of Company and its Consolidated Subsidiaries during such period PLUS (ii) regularly scheduled principal amounts of all Indebtedness of Company and its Consolidated Subsidiaries (including the principal portion of rentals payable under Lease Obligations) payable during such period, excluding, however, any regularly scheduled principal payment on Indebtedness of Company and its Consolidated Subsidiaries which pays such Indebtedness in full, but only to the extent that the amount of such final payment is greater than the scheduled principal payment immediately preceding such final payment, plus (iii) without duplication, the principal amounts of all Indebtedness of Company and its Subsidiaries (including the principal portion of rentals payable under Lease Obligations) required to be prepaid or purchased during such period. -11- "FUNDED MORTGAGES" means promissory notes secured by duly recorded first priority mortgages, deeds of trust, deeds to secure debt, assignments of rents, security agreements, fixture filings and similar instruments executed by a purchaser or owner of a Property in favor of Company or any Subsidiary of Company, or a trustee acting for the benefit of Company or any Subsidiary of Company, relating to loans made by Company or any Subsidiary of Company to unaffiliated third parties secured by such Property, the principal amount of which was or will be funded from proceeds of Advances or Intercompany Loans. "GAAP" means generally accepted accounting principles applied on a consistent basis. Application on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period, except for new developments or statements promulgated by the Financial Accounting Standards Board. "GUARANTY" of a Person means any agreement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes liable upon, the obligation of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor or such other Person against loss, including, without limitation, any agreement which assures any creditor or such other Person payment or performance of any obligation, or any take-or-pay contract and shall include without limitation, the contingent liability of such Person in connection with any application for a letter of credit (without duplication of any amount already included in Indebtedness). "GUARANTY AGREEMENT" means a Guaranty Agreement, duly executed by each Guarantor, in substantially the form of EXHIBIT B hereto, appropriately completed, as such agreement may be amended, modified, extended, renewed, restated, substituted or replaced from time to time. "GUARANTORS" means each Subsidiary of Company and each other Person from time to time guaranteeing payment of the Obligations to Administrative Agent and Lenders. "HAZARDOUS MATERIALS" means all materials subject to any Environmental Law, including, without limitation, materials listed in 49 C.F.R. ss. 172.101, Hazardous Substances, explosive or radioactive materials, hazardous or toxic wastes or substances, petroleum or petroleum distillates, asbestos, or material containing asbestos. "HAZARDOUS SUBSTANCES" means hazardous waste as defined in the Clean Water Act, 33 U.S.C. ss. 1251 ET SEQ., the Comprehensive Environmental Response Compensation and Liability Act as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.ss. 9601 ET SEQ., the Resource Conservation Recovery Act, 42 U.S.C.ss. 6901 ET SEQ., and the Toxic Substances Control Act, 15 U.S.C.ss. 2601 ET SEQ. "HIGHEST LAWFUL RATE" means at the particular time in question the maximum rate of interest which, under Applicable Law, Lenders are then permitted to charge on the Obligations. If the maximum rate of interest which, under Applicable Law, Lenders are permitted to charge on the Obligations shall change -12- after the date hereof, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Highest Lawful Rate without notice to Company. For purposes of determining the Highest Lawful Rate under the Applicable Law of the State of Texas, the applicable rate ceiling shall be (a) the weekly rate ceiling described in and computed in accordance with the provisions of Chapter 303.301 of the Texas Finance Code, or (b) if the parties subsequently contract as allowed by Applicable Law, the quarterly ceiling or the annualized ceiling computed pursuant to Chapter 303.302 of the Texas Finance Code; provided, however, that at any time the weekly rate ceiling, the quarterly ceiling or the annualized ceiling shall be less than 18% per annum or more than 24% per annum, the provisions of Sections 303.304 and 303.305 of the Texas Finance Code shall control for purposes of such determination, as applicable. "INCREASED ADVANCE COSTS" has the meaning specified in SECTION 2.13(E) hereof. "INCREASED ADVANCE COSTS RETROACTIVE EFFECTIVE DATE" has the meaning specified in SECTION 2.13(E) hereof. "INCREASED ADVANCE COSTS SET DATE" has the meaning specified in SECTION 2.13(E) hereof. "INDEBTEDNESS" means, without duplication, with respect to any Person, all obligations of such Person, determined on a consolidated basis and measured in accordance with GAAP that is required to be classified on the balance sheet as liabilities, and in any event shall include (without duplication) (a) Debt for Borrowed Money, (b) Capital Lease obligations, (c) reimbursement obligations relating to letters of credit, (d) Contingent Liabilities relating to any of the foregoing, (e) Withdrawal Liability, (f) indebtedness, if any, associated with Interest Hedge Agreements with other Persons, (g) payments due for the deferred purchase price of property and services (but excluding trade payables that are less than 90 days old and (h) obligations (contingent or otherwise) to purchase, retire or redeem any Capital Stock of such Person. "INDEMNITEES" has the meaning ascribed thereto in SECTION 5.9 hereof. "INDEX DEBT RATING" means the rating applicable to Company's senior, unsecured, non-credit enhanced long term indebtedness for borrowed money. "INITIAL ADVANCE" means the initial Advance made in accordance with the terms hereof, which shall only be after Company has satisfied each of the conditions set forth in SECTION 3.1 and SECTION 3.2 hereof (or any such condition shall have been waived by each Lender). "INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of ERISA. "INTERCOMPANY LOANS" means all loans made by Company to its Subsidiaries or by its Subsidiaries to other Subsidiaries. -13- "INTERCOMPANY NOTES" means all promissory notes payable to Company or to its Subsidiaries by any Subsidiary of Company evidencing the obligation to repay Intercompany Loans, as such notes may be amended, modified, extended, renewed, substituted or replaced from time to time. "INTEREST HEDGE AGREEMENTS" means any interest rate swap agreements, interest cap agreements, interest rate collar agreements, or any similar agreements or arrangements designed to hedge the risk of variable interest rate volatility, or foreign currency hedge, exchange or similar agreements, on terms and conditions reasonably acceptable to Administrative Agent (evidenced by Administrative Agent's consent in writing), as such agreements or arrangements may be modified, supplemented, and in effect from time to time. "INTEREST PERIOD" means the period beginning on the date an Advance is made or continued as or converted into a LIBOR Advance and ending one, two, three or six months thereafter (as Company, in its sole discretion, shall select) PROVIDED, HOWEVER, that: (a) Company may not select any Interest Period that ends after any principal repayment date unless, after giving effect to such selection, the aggregate principal amount of LIBOR Advances having Interest Periods that end on or prior to such principal repayment date, shall be at least equal to the principal amount of Advances due and payable on and prior to such date; (b) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, PROVIDED, HOWEVER, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (c) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "INVESTMENT" means any acquisition of all or substantially all assets of any Person, or any direct or indirect purchase or other acquisition of, or a beneficial interest in, capital stock or other securities of any other Person, or any direct or indirect loan, extension of credit, advance (other than advances to employees for moving and travel expenses, drawing accounts, and similar expenditures in the ordinary course of business), or capital contribution to or investment in any other Person, including without limitation the incurrence or sufferance of Debt or accounts receivable of any other Person that are not current assets or do not arise from sales to that other Person in the ordinary course of business. -14- "LAW" means any constitution, statute, law, ordinance, regulation, rule, order, writ, injunction, or decree of any Tribunal. "LEASE" means any lease, sublease, license, franchise, concession or other agreement, whether written or oral, permitting any other Person to use, occupy or possess any Property. "LEASE OBLIGATIONS" means the obligations of Company and its Consolidated Subsidiaries to pay rent or other amounts under a Capital Lease or any Operating Lease. "LENDERS" means the lenders listed on the signature pages of this Agreement, and each Eligible Assignee which hereafter becomes a party to this Agreement pursuant to SECTION 9.4 hereof, for so long as any such Person is owed any portion of the Obligations or obligated to make any Advances under the Loan. "LENDING OFFICE" means, with respect to each Lender, its branch or affiliate, (a) initially, the office of such Lender, branch or affiliate identified as such on the signature pages hereof, and (b) subsequently, such other office of such Lender, branch or affiliate as such Lender may designate in writing to Company and Administrative Agent as the office from which the Advances of such Lender will be made and maintained and for the account of which all payments of principal and interest on the Advances and the Commitment Fee will thereafter be made. Lenders may have more than one Lending Office for the purpose of making Base Rate Advances and LIBOR Advances. "LIBOR ADVANCE" means an Advance bearing interest at the LIBOR Rate. "LIBOR RATE" means a simple per annum interest rate equal to the lesser of (a) the Highest Lawful Rate, and (b) the sum of the LIBOR Rate plus the Applicable Margin. The LIBOR Rate shall, with respect to LIBOR Advances subject to reserve or deposit requirements, be subject to premiums assessed therefor by each Lender, which are payable directly to each Lender. "LIBOR RATE BASIS" means, for any LIBOR Advance for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of one percent) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "LIBOR Rate Basis" shall mean, for any LIBOR Advance for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, 1/100th of one percent) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. -15- "LICENSE" means, as to any Person, any license, permit, certificate of need, authorization, orders, certification, accreditation, franchise, approval, or grant of rights by any Tribunal or third person necessary or appropriate for such Person to own, maintain, or operate its business or Property, unless the failure to obtain, retain, or comply with same would not constitute a Material Adverse Change. "LIEN" means any mortgage, pledge, security interest, encumbrance, lien, or charge of any kind, including without limitation any agreement to give or not to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or other similar form of public notice under any Laws (except for the filing of a financing statement or notice in connection with an Operating Lease). "LITIGATION" means any proceeding, claim, lawsuit, arbitration, and/or investigation conducted or threatened by or before any Tribunal, including without limitation proceedings, claims, lawsuits, and/or investigations under or pursuant to any environmental, occupational, safety and health, antitrust, unfair competition, securities, Tax, or other Law, or under or pursuant to any contract, agreement, or other instrument. "LOAN" means that certain loan made to Company on the Closing Date in accordance with SECTION 2.1(A) hereof. "LOAN PAPERS" means this Agreement; the Notes; any Interest Rate Hedge Agreements executed between Company and any Lender or Bank Affiliate; all Guaranty Agreements; each Assignment and Acceptance; all promissory notes evidencing any portion of the Obligations; and all other documents, instruments, agreements or certificates executed or delivered by Company or any of its Subsidiaries, as security for Company's obligations hereunder, in connection with the loans to Company or otherwise; as each such document shall, with the consent of Lenders pursuant to the terms hereof, be amended, revised, renewed, extended, substituted or replaced from time to time. "LOAN SALE" means the sale, disposition or assignment by Company or any of its Subsidiaries, directly or indirectly through a Loan Sale Affiliate, of notes evidencing obligations to repay secured or unsecured loans initially owned by Company or any such Subsidiary. "LOAN SALE AFFILIATE" means an Affiliate of Company or any of its Subsidiaries which is organized primarily to engage in the simultaneous origination and sale of loans for Loan Sales to a Person or Persons not Affiliated with the Company or any of its Subsidiaries; PROVIDED, HOWEVER, FFCA Funding shall not be a Loan Sale Affiliate. "MAJORITY LENDERS" means any combination of Lenders having at least 66.67% of the Advances under the Loan; provided, however, (a) that if no Advances under the Loan are outstanding under this Agreement, such term means any combination of Lenders having a Specified Percentage equal to at least 66.67% of the Commitment and (b) there shall be excluded from the calculation hereunder the Advances owed to and portion of the Commitment held by any Lender which is in default of its obligations hereunder. -16- "MANAGEMENT FEES" means all fees from time to time directly or indirectly paid or payable by Company or any Subsidiary of Company to any Person for management services for managing any portion of any Property. "MARYLAND MERGER" means the merger of Company with and into FFCA Maryland Corp., a Maryland corporation, which surviving Maryland corporation will be renamed Franchise Finance Corporation of America. "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any circumstance or event that (a) can reasonably be expected to cause a Default or an Event of Default, (b) otherwise can reasonably be expected to (i) be material and adverse to the continued operation of any Company and its Subsidiaries taken as a whole, or (ii) be material and adverse to the financial condition, business operations, prospects or Properties of Company and its Subsidiaries taken as a whole, or (c) in any manner whatsoever does or can reasonably be expected to (i) materially and adversely affect the validity or enforceability of any material provision of any of the Loan Papers or (ii) materially and adversely affect the ability of Company or any Subsidiary of Company to perform its obligations under the Loan Papers executed by it. "MATURITY DATE" means the earlier of (a) the later of the Option Date or the Final Maturity or (b) the date all of the Obligations become due and payable (whether by acceleration, prepayment in full, scheduled reduction or otherwise). "MAXIMUM AMOUNT" means the maximum amount of interest which, under Applicable Law, Administrative Agent or any Lender is permitted to charge on the Obligations. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which Company, any Subsidiary of Company, or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of Company, any Subsidiary of Company, or any ERISA Affiliate and at least one Person other than Company, any Subsidiary of Company, and any ERISA Affiliate, or (b) was so maintained and in respect of which Company, any Subsidiary of Company, or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. -17- "NET CASH PROCEEDS" means with respect to any offering or other disposition of Capital Stock by any Person, the aggregate amount of cash received by such Person in connection with such transaction minus reasonable fees, costs and expenses and related Taxes. "NET WORTH" means, at any time, the shareholders' equity of Company and its Consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP at such time. "NOTE" means each promissory note of Company evidencing the Advances and obligations owing hereunder to each Lender under the Loan, in substantially the form of EXHIBIT A hereto, as each such note may be amended, extended, restated, renewed, substituted or replaced from time to time, and each promissory note of Company evidencing the Loan after the Conversion Date, in accordance with SECTION 2.14 hereof, as each such Note may be extended, restated, renewed, substituted or replaced from time to time. "OBLIGATIONS" means all present and future obligations, indebtedness and liabilities, and all renewals and extensions of all or any part thereof, of Company and each Subsidiary of Company to any Lender or Administrative Agent arising from, by virtue of, or pursuant to this Agreement, any of the other Loan Papers and any and all renewals and extensions thereof or any part thereof, or future amendments thereto, all interest accruing on all or any part thereof and reasonable attorneys' fees incurred by Lenders and Administrative Agent for the administration, execution of waivers, amendments and consents, and in connection with any restructuring, workouts or in the enforcement or the collection of all or any part thereof, whether such obligations, indebtedness and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several. Without limiting the generality of the foregoing, "Obligations" includes all amounts which would be owed by Company, each Subsidiary of Company and any other Person (other than Administrative Agent or Lenders) to Administrative Agent or Lenders under any Loan Paper, but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving Company, any Subsidiary of Company or any other Person (including all such amounts which would become due but for the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding of Company, any Subsidiary of Company or any other Person under any Debtor Relief Law). "OPERATING LEASES" means operating leases, as defined in accordance with GAAP. "OPTION DATE" means that date which is 364 days after the Closing Date. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor agency or entity performing substantially the same functions. "PERMITTED DISTRIBUTIONS" means, for Company for any fiscal year of Company, an amount not to exceed (a) 95% of Cash Flow From Operations for fiscal year 1999 of Company and (b) 90% of Cash Flow From Operations for each fiscal year thereafter. -18- "PERMITTED LIENS" means (a) those imposed by the Loan Papers (as defined in this Agreement) or by the Loan Papers (as defined in the Amended and Restated Credit Agreement); (b) Liens in connection with workers' compensation, unemployment insurance or other social security obligations (which phrase shall not be construed to refer to ERISA); (c) deposits, pledges or liens to secure the performance of bids, tenders, contracts (other than contracts for the payment of borrowed money), leases, statutory obligations, surety, customs, appeal, performance and payment bonds and other obligations of like nature arising in the ordinary course of business; (d) mechanics', workmen's, carriers, warehousemen's, materialmen's, landlords' or other like Liens arising in the ordinary course of business with respect to obligations which are not due or which are either (i) being contested in good faith and by appropriate proceedings diligently conducted (including, if applicable, by a Tenant of a Property as required under the Lease relating thereto or by a mortgagor under a Funded Mortgage as required thereby) and in respect of which adequate reserves shall have been established in accordance with GAAP on the books of Company or of its Subsidiaries or (ii) the obligation of a Tenant of a Property under its Lease or of a mortgagor under a Funded Mortgage and Company or any of its Subsidiaries has made a demand upon such Tenant or mortgagor to pay amounts owed in order to remove such Liens; provided that if the Tenant fails to pay such amounts then Company or its Subsidiary, as applicable, shall promptly take all necessary action to remove such Liens; (e) Liens for taxes, assessments, fees or governmental charges or levies not delinquent or to the extent that payment hereof is either (i) being contested in good faith and by appropriate proceedings diligently conducted (including, if applicable, by a Tenant of a Property as required under the Lease relating thereto or by a mortgagor under a Funded Mortgage as required thereby), and in respect of which adequate reserves shall have been established in accordance with GAAP on the books of Company or any Subsidiary of Company or (ii) the obligation of a Tenant of Property under its Lease or of a mortgagor under a Funded Mortgage and Company or any of its Subsidiaries has made a demand upon such Tenant or mortgagor to pay amounts owed in order to remove such Liens; provided that if the Tenant fails to pay such amounts then Company or its Subsidiary, as applicable, shall promptly take all necessary action to remove such Liens; (f) easements, rights of way, restrictions, leases of Property to others, easements for installations of public utilities, title imperfections and restrictions, zoning ordinances and other similar encumbrances affecting Property which in the aggregate do not materially adversely affect the value of such Property or materially impair its use for the operation of the business of Company or any Subsidiary of Company; -19- (g) Liens securing Intercompany Loans; (h) Liens on Property acquired by Company or any of its Subsidiaries in the ordinary course of business, securing Indebtedness of Company or any of its Subsidiaries incurred or assumed for the purpose of financing all or part of the cost of acquiring such Property; provided that (i) such Lien attaches solely to the Property so acquired in such transaction, (ii) such Lien attaches to such Property concurrently with or within 90 days after the acquisition thereof, (iii) such Property is used in the business of Company or any of its Subsidiaries, (iv) the amount of Indebtedness secured by Lien shall not exceed 100% of the cost of such Property, and (v) such Indebtedness is permitted to be incurred hereunder and would not otherwise result in a Default or Event of Default hereunder; and (i) Liens on the Property constituting Company's executive offices located in Scottsdale, Arizona, securing Indebtedness for the acquisition, refinancing, construction or improvement thereof. "PERSON" means an individual, partnership, joint venture, corporation, trust, Tribunal, unincorporated organization, and government, or any department, agency, or political subdivision thereof. "PLAN" means a Single Employer Plan or a Multiple Employer Plan. "PROHIBITED TRANSACTION" has the meaning specified therefor in Section 4975 of the Code or Section 406 of ERISA. "PROPERTY" means all types of real, personal, tangible, intangible, or mixed property, whether owned in fee simple or leased. "QUARTERLY DATE" means the last Business Day of each March, June, September and December during the term of this Agreement, commencing on September 30, 2000. "RATABLE" means, as to any Lender, in accordance with its Specified Percentage. "REAL ESTATE INVESTMENT TRUST means the classification for federal tax purposes as a real estate investment trust pursuant to Part II, Subchapter M of Chapter 1 of the Code. "REFINANCING ADVANCE" means an Advance that is used to pay the principal amount of an existing Advance (or any performance thereof) at the end of its Interest Period and which, after giving effect to such application, does not result in an increase in the aggregate amount of outstanding Advances. -20- "REGULATORY CHANGE" means any change after the date hereof in federal, state, or foreign Laws (including the introduction of any new Law) or the adoption or making after such date of any interpretations, directives, or requests of or under any federal, state, or foreign Laws (whether or not having the force of Law) by any Tribunal charged with the interpretation or administration thereof, applying to a class of financial institutions that includes any Lender. "REPORTABLE EVENT" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waivers in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "RESTRICTED PAYMENTS" means (a) any direct or indirect distribution, Distribution or other payment on account of any general or limited partnership interest in (or the setting aside of funds for, or the establishment of a sinking fund or analogous fund with respect to), or shares of Capital Stock or other securities of, Company or any Subsidiary of Company; (b) any payments of principal of, or interest on, or fees related to, or any other payments and prepayments with respect to, or the establishment of, or any payment to, any sinking fund or analogous fund for the purpose of making any such payments on, Indebtedness of Company or any Subsidiary of Company (including, without limitation, Debt evidenced by the Intercompany Notes, but excluding the Obligations); (c) any Management Fee or any management, consulting or other similar fees, or any interest thereon, payable by Company or any of its Subsidiaries to any Affiliate of Company; and (d) any administration fee or any administration, consulting or other similar fees, or any interest thereon, payable by Company or any of its Subsidiaries to any Affiliate of Company or to any other Person. "RETAINED SECURITIES" means any class of securities or portion thereof purchased or retained by Company or any Subsidiary from any corporation, trust or other entity in conjunction with any Asset Securitization. "RIGHTS" means rights, remedies, powers, and privileges. "S&P" means Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation. "SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, other than a Multiple Employer Plan, that is maintained for employees of Company or any ERISA Affiliate. "SOLVENT" means, with respect to any Person, that on such date (a) the fair value of the Property of such Person is greater than the total amount of liabilities, including, without limitation, Contingent Liabilities of such Person, (b) the present fair salable value of the assets of such Person is not -21- less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's Property would constitute an unreasonably small capital. "SPECIAL COUNSEL" means the law firm of Donohoe, Jameson & Carroll, P.C., Dallas, Texas, special counsel to Administrative Agent, or such other counsel selected by Administrative Agent from time to time. "SPECIFIED PERCENTAGE" means, as to any Lender, the percentage indicated beside its name on the signature pages hereof, or as adjusted or specified in any Assignment and Acceptance, or amendment to this Agreement. "SUBORDINATION AGREEMENT" means a subordination agreement substantially in the form of EXHIBIT G hereto, as amended, modified or supplemented from time to time. "SUBSIDIARY" of any Person means (a) any corporation, partnership, joint venture, trust, estate or other Person of which (or in which) more than 50% of: (i) the outstanding Capital Stock having voting power to elect a majority of the Board of Directors of such corporation (or other Persons performing similar functions of such entity, and irrespective of whether at the time Capital Stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (ii) the interest in the capital or profits of such partnership or joint venture, (iii) the beneficial interest of such trust or estate, or (iv) the equity interest of such other Person, is at the time directly or indirectly owned by (A) such Person, (B) such Person and one or more of its Subsidiaries or (C) one or more of such Person's Subsidiaries, and (b) any corporation which is a non-qualified REIT Subsidiary under the Code of which more than 50% of the non-voting preferred Capital Stock is at the time directly or indirectly owned by (i) such Person, (ii) such Person and one or more of its Subsidiaries or (iii) one or more of such Person's Subsidiaries; PROVIDED, HOWEVER, Subsidiary does mean and include FFCA Funding but does not mean or include any Asset Securitization Affiliate or Loan Sale Affiliate. -22- "TAXES" means all taxes, assessments, imposts, fees, or other charges at any time imposed by any Laws or Tribunal. "TENANTS" means any and all tenants, licensees, occupants, concessionaires or other Person or Persons possessing, occupying or otherwise using or having a right to use, any space at Property of Company or its Subsidiaries and giving or paying rent or other consideration, whether under written agreement or otherwise. "TOTAL ASSETS" means, at any time, all assets (calculated without any deduction for accumulated depreciation) of Company and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP at such time. "TOTAL INDEBTEDNESS" means, without duplication, with respect to Company and its Consolidated Subsidiaries, the sum of all Indebtedness of Company and its Consolidated Subsidiaries, excluding Indebtedness evidenced by the Intercompany Notes (which Debt is subject to a Subordination Agreement), calculated on a consolidated basis in accordance with GAAP. "TOTAL SECURED INDEBTEDNESS" means, at any time, the aggregate amount of Indebtedness of Company and its Consolidated Subsidiaries determined in accordance with GAAP on a consolidated basis that is secured solely by a Consensual Lien. "TOTAL UNENCUMBERED ASSETS" means, at any time, the aggregate amount of Total Assets of Company and its Consolidated Subsidiaries determined in accordance with GAAP on a consolidated basis which are not subject to a Lien, other than Permitted Liens of the type described in clauses (a) through (g) of the definition thereof. "TOTAL UNSECURED INDEBTEDNESS" means, at any time, the aggregate amount of Indebtedness of Company and its Consolidated Subsidiaries that is not secured by a Lien, other than Permitted Liens of the type described in clauses (a) through (g) of the definition thereof. "TRIBUNAL" means any state, commonwealth, federal, foreign, territorial, or other court or government or regulatory body, subdivision, agency, department, commission, board, bureau, or instrumentality of a governmental body. "TYPE" refers to the distribution between Advances bearing interest at the Base Rate or LIBOR Rate. "UCC" means the Uniform Commercial Code as adopted in the State of Texas. -23- "UNUSED COMMITMENT" means, on any date, with respect to each Lender, an amount equal to the product of such Lender's Specified Percentage multiplied by the Commitment in effect on such date, minus an amount equal to the sum of all outstanding Advances made by such Lender under the Loan which are outstanding on such date. "WITHDRAWAL LIABILITY" has the meaning given such term under Part I of Subtitle E of Title IV of ERISA. 1.2 ACCOUNTING AND OTHER TERMS. All accounting terms used in this Agreement which are not otherwise defined herein shall be construed in accordance with GAAP consistently applied on a consolidated basis for Company and its Consolidated Subsidiaries, unless otherwise expressly stated herein. References herein to one gender shall be deemed to include all other genders. Except where the context otherwise requires, all references to time are deemed to be Dallas, Texas time. ARTICLE II. AMOUNTS AND TERMS OF ADVANCES 2.1 ADVANCES UNDER THE LOAN. Each Lender severally agrees, on the terms and subject to the conditions hereinafter set forth, to make Advances to Company on any Business Day during the period from the Closing Date to the Option Date or, if Company and Lenders have agreed to extend the Loan until the Final Maturity pursuant to SECTION 2.14(A) hereof, to the Final Maturity, in an aggregate principal amount not to exceed at any time outstanding such Lender's Specified Percentage of the Commitment. On the Conversion Date, if Company has elected to convert the Loan to a term loan pursuant to SECTION 2.14(B) hereof, all outstanding Advances shall convert to a term loan in the amount of the Advances outstanding on the Conversion Date, and no scheduled payments of principal of Advances in respect of the term loan (other than Refinancing Advances) shall be required to be made until the Final Maturity. Subject to the terms and conditions of this Agreement, until the Conversion Date, Company may borrow, repay and reborrow the Advances. Notwithstanding anything in this SECTION 2.1 to the contrary, at no time shall the sum of all the aggregate principal amount of Advances outstanding under the Loan exceed the Commitment. After the Conversion Date, no Advances will be available under the Loan except Refinancing Advances. 2.2 MAKING ADVANCES. (a) Each Borrowing of Advances under the Loan prior to the Conversion Date shall be made upon the written notice of Company, received by Administrative Agent not later than (i) 12:00 noon three Business Days prior to the proposed date of the Borrowing, in the case of LIBOR Advances and (ii) not later than 10:00 a.m. on the date of such Borrowing, in the case of Base Rate Advances. Each such notice of a Borrowing (a "BORROWING NOTICE") shall be by telecopy, promptly confirmed by letter, in substantially the form of EXHIBIT E hereto specifying therein: -24- (i) the date of such proposed Borrowing, which shall be a Business Day; (ii) the amount of such proposed Borrowing which, (A) prior to the Conversion Date, shall not exceed the Commitment less the sum of all Advances then outstanding, and (B) shall, in the case of a Borrowing of LIBOR Advances, be in an amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof and, in the case of a Borrowing of Base Rate Advances, be in an amount of not less than $1,000,000 or an integral multiple of $500,000 in excess thereof; (iii) the Type of Advances of which the Borrowing is to be comprised; and (iv) if the Borrowing is to be comprised of LIBOR Advances, the duration of the initial Interest Period applicable to such Advances. If the Borrowing Notice fails to specify the duration of the initial Interest Period for any Borrowing comprised of LIBOR Advances, such Interest Period shall be one month. Administrative Agent shall give prompt notice (which may be by telecopy or telephonic, to be confirmed by telecopy) of its receipt of a Borrowing Notice to each Lender. Each Lender shall, before 2:00 p.m. on the date of each Advance hereunder under the Loan (other than a Refinancing Advance), make available to Administrative Agent Bank of America Plaza 901 Main Street 14th Floor Dallas, Texas 75202 Attn. Tonya Parker such Lender's Specified Percentage of the aggregate Advances under the Loan to be made on that day in immediately available funds. (b) Unless any applicable condition specified in ARTICLE III hereof has not been satisfied, Administrative Agent will make the funds on Advances under the Loan promptly available to Company (other than with respect to a Refinancing Advance) by wiring Norwest Bank Minneapolis, N.A., ABA #091000019, Beneficiary Bank: Norwest Bank Arizona, Beneficiary Account: 8711701002, Beneficiary Name: FFCA, or such other account as shall have been specified by Company. (c) After giving effect to any Borrowing, (i) there shall not be more than ten different Interest Periods in effect and (ii) the aggregate principal of outstanding Advances shall not exceed the Commitment. -25- (d) No Interest Period for a Borrowing under the Facility shall extend beyond the Maturity Date. (e) Unless a Lender shall have notified Administrative Agent prior to the date of any Advance that it will not make available its Specified Percentage of any Advance, Administrative Agent may assume that such Lender has made the appropriate amount available in accordance with SECTION 2.2(A), and Administrative Agent may, in reliance upon such assumption, make available to Company a corresponding amount. If and to the extent any Lender shall not have made such amount available to Administrative Agent, such Lender and Company severally agree to repay to Administrative Agent immediately on demand such corresponding amount together with interest thereon, from the date such amount is made available to Company until the date such amount is repaid to Administrative Agent, at (i) in the case of Company, the Base Rate, and (ii) in the case of such Lender, the Federal Funds Rate. The obligation of Company under this SECTION 2.2(E) shall not affect or impair any right of Company against any Lender for such Lender's breach of its obligation to fund Advances. (f) The failure by any Lender to make available its Specified Percentage of any Advance shall not relieve any other Lender of its obligation, if any, to make available its Specified Percentage of any Advance. In no event, however, shall any such Lender be responsible for the failure of any other Lender to make available any portion of any Advance. (g) Company shall indemnify each Lender against any Consequential Loss incurred by each Lender as a result of (i) any failure by Company to fulfill, on or before the date specified in the Borrowing Notice for an Advance, the conditions to such Advance set forth herein or (ii) Company's requesting that an Advance not be made on the date specified in the Borrowing Notice. 2.3 EVIDENCE OF INDEBTEDNESS. (a) The obligations of Company with respect to all Advances made by each Lender shall be evidenced by a Note in the amount of such Lender's Specified Percentage of the Commitment on the Closing Date (as the same may be modified pursuant to SECTION 9.4 hereof). (b) Absent demonstrable error, Administrative Agent's and each Lender's records shall be conclusive as to amounts owed Administrative Agent and such Lender under the Notes and this Agreement. 2.4 REDUCTION OF COMMITMENT. (a) VOLUNTARY COMMITMENT REDUCTION. Company shall have the right from time to time upon notice by Company to Administrative Agent not later than 1:00 p.m., five Business Days in advance, to reduce the Commitment, in whole or in part; provided, however, that Company shall pay the accrued and unpaid Commitment Fee on the amount of such reduction, if any, and any partial reduction shall be in an aggregate amount which is not less than $1,000,000 and an integral multiple of $500,000. Such notice shall specify the amount of reduction and the proposed date of such reduction. -26- (b) MANDATORY COMMITMENT REDUCTION OR TERMINATION. (i) (A) If Company and Lenders have not agreed to extend the Loan final maturity in accordance with the Extension Option pursuant to SECTION 2.14(A) hereof and Company has not exercised the Conversion Option in accordance with the terms of SECTION 2.14(B) hereof, then the Commitment shall automatically be reduced to zero on the Option Date. (B) If Company and Lenders have agreed to extend the Loan final maturity in accordance with the Extension Option pursuant to SECTION 2.14(A) hereof, or if Company has exercised the Conversion Option in accordance with the terms of SECTION 2.14(B) hereof, then the Commitment shall be automatically reduced to zero on the Final Maturity. (ii) ASSET SALES. On the date of any Asset Sale by Company or any Subsidiary of Company not otherwise permitted to be made pursuant to SECTION 6.6 hereof, the Commitment shall be automatically and permanently reduced by an amount equal to the amount by which the Asset Sale Proceeds of such Asset Sale exceeds the amount not otherwise permitted pursuant to SECTION 6.6 hereof. (c) COMMITMENT REDUCTIONS, GENERALLY. To the extent that the sum of the aggregate outstanding Advances exceed the Commitment after any reduction thereof, Company shall simultaneously repay on the date of such reduction, any such excess amount and all accrued interest thereon, together with any amounts constituting any Consequential Loss. Once reduced or terminated pursuant to this SECTION 2.4, the Commitment may not be increased or reinstated. 2.5 PREPAYMENTS. (a) OPTIONAL PREPAYMENTS. Company may, upon at least three Business Days prior written notice to Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, prepay the outstanding principal amount of any Advances in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid without premium other than any Consequential Loss; PROVIDED, HOWEVER, that in the case of a prepayment of a Base Rate Advance, the notice of prepayment may be given by telephone by 11:00 a.m. on the date of prepayment. Each partial prepayment shall, in the case of Base Rate Advances, be in an aggregate principal amount of not less than $1,000,000 or a larger integral multiple of $500,000 in excess thereof and, in the case of LIBOR Advances, be in an aggregate principal amount of not less than $5,000,000 or a larger integral multiple of $1,000,000 in excess thereof. If any notice of prepayment is given, the principal amount stated therein, together with accrued interest on the amount prepaid and the amount, if any, due under SECTIONS 2.11 and 2.13 hereof, shall be due and payable on the date specified in such notice. -27- (b) MANDATORY PREPAYMENTS. On the date of any Asset Sale (excluding any Loan Sale) by Company or any Subsidiary of Company in which the Asset Sale Proceeds thereof exceed $3,000,000, Company shall make a mandatory prepayment of Advances under the Loan in an amount equal to the amount by which the Asset Sale Proceeds of such Asset Sale exceeds $3,000,000. On the date of any Asset Sale (excluding any Loan Sale) of Company or any Subsidiary of Company which is not otherwise permitted to be made pursuant to SECTION 6.6 hereof, Company shall make a mandatory prepayment of Advances under the Loan by an amount equal to the amount by which the Asset Sale Proceeds of such Asset Sale exceeds the amount not otherwise permitted pursuant to SECTION 6.6 hereof. (c) PREPAYMENTS, GENERALLY. No prepayments of Advances made pursuant to SECTION 2.5(A) or the first sentence of SECTION 2.5(B) shall cause the Commitment to be reduced. Any prepayment of Advances pursuant to the second sentence of SECTION 2.5(B) shall cause the Commitment to be automatically and permanently reduced by the amount of such required prepayment. Any prepayment of Advances pursuant to this SECTION 2.5 shall be applied FIRST to Base Rate Advances, if any, then outstanding under the Facility, SECOND to LIBOR Advances for which the date of prepayment is the last day of the applicable Interest Period, if any, outstanding under the Facility and THIRD to LIBOR Advances with the shortest remaining Interest Periods outstanding under the Facility. If Company has exercised the Conversion Option in accordance with the terms of SECTION 2.14(B) hereof, Advances prepaid under SECTIONS 2.5(A) and 2.5(B) hereof may not be reborrowed. 2.6 REPAYMENT. (a) LIBOR ADVANCES. The principal amount of each LIBOR Advance is due and payable on the last day of the applicable Interest Period, which principal payment may be made by means of a Refinancing Advance in accordance with the terms of Section 2.09 hereof (and subject to the other provisions of this Agreement). (b) COMMITMENT REDUCTION. On the date of any reduction of the Commitment pursuant to SECTION 2.4 hereof prior to the Conversion Date, the aggregate amount of Advances in excess of the Commitment shall in each case be immediately due and payable. Each such principal repayments may not be made by means of Refinancing Advances. (c) OPTION DATE. The aggregate outstanding amount of the Advances shall be due and payable in full on the Option Date, provided that, notwithstanding the foregoing, on the Option Date if Company and Lenders have agreed to an Extension Option in accordance with the terms of SECTION 2.14 hereof, then the Loan shall be due and payable in full on the Final Maturity. Any portion of the Loan not extended in accordance with the terms of SECTION 2.14(A) hereof shall be due and payable on the Option Date. -28- (d) CONVERSION DATE. If Company has elected the Conversion Option, then the Loan shall be due and payable in full on the Final Maturity and no scheduled payments of principal of Advances (other than Refinancing Advances) shall be required to be made prior to the Final Maturity. (e) MATURITY DATE. All outstanding Advances under the Loan and all other Obligations shall be due and payable in full on the Maturity Date. (f) REPAYMENTS, GENERALLY. All outstanding Advances and other Obligations shall be due and payable in full on the Maturity Date. Any repayments made pursuant to this Section shall be without premium or penalty, except Company must pay together with any such prepayments any Consequential Losses. Repayment of Advances shall be applied to Base Rate Advances first, and then to LIBOR Advances. After (i) the Conversion Date, and (ii) the Option Date (if Company and Lenders did not agree to an Extension Option), Advances prepaid hereunder may not be reborrowed. 2.7 INTEREST. Subject to SECTION 2.8 below, Company shall pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal shall be paid in full, at the following rates: (a) BASE RATE ADVANCES. Base Rate Advances shall bear interest at a rate per annum equal to the lesser of (i) the Base Rate as in effect from time to time and (ii) the Highest Lawful Rate. If the amount of interest payable in respect of any interest computation period is reduced to the Highest Lawful Rate pursuant to the immediately preceding sentence and the amount of interest payable in respect of any subsequent interest computation period would be less than the Maximum Amount, then the amount of interest payable in respect of such subsequent interest computation period shall be automatically increased to the Maximum Amount; PROVIDED that at no time shall the aggregate amount by which interest paid has been increased pursuant to this sentence exceed the aggregate amount by which interest has been reduced pursuant to the immediately preceding sentence. (b) LIBOR ADVANCES. LIBOR Advances shall bear interest at the rate per annum equal to the LIBOR Rate applicable to such Advance, which at no time shall exceed the Highest Lawful Rate. (c) PAYMENT DATES. Accrued and unpaid interest on Base Rate Advances shall be paid quarterly in arrears on each Quarterly Date and on the appropriate maturity, repayment or prepayment date. Accrued and unpaid interest on LIBOR Advances shall be paid on the last day of the appropriate Interest Period and on the date of any prepayment or repayment of such Advance; PROVIDED, HOWEVER, that if any Interest Period for a LIBOR Advance exceeds three months, interest shall also be paid on each date occurring during the Interest Period which is the three month anniversary date of the first day of the Interest Period. 2.8 DEFAULT INTEREST. During the continuation of any Event of Default, Company shall pay, on demand, interest (after as well as before judgment to the extent permitted by Law) on the principal amount of all Advances outstanding and -29- on all other Obligations due and unpaid hereunder for each Advance equal to the lesser of the (a) the Highest Lawful Rate and (b) the Base Rate (whether or not in effect) plus 3.00%. 2.9 CONTINUATION AND CONVERSION ELECTIONS. (a) Company may upon irrevocable written notice to Administrative Agent and subject to the terms of this Agreement: (i) elect to convert, on any Business Day, all or any portion of outstanding Base Rate Advances (in an aggregate amount not less than $5,000,000 or a larger integral multiple of $1,000,000 in excess thereof) into LIBOR Advances; (ii) elect to convert at the end of any Interest Period therefor, all or any portion of outstanding LIBOR Advances comprised of the same Borrowing (in an aggregate amount not less than $1,000,000 or a larger integral multiple of $500,000 in excess thereof) into Base Rate Advances; or (iii) elect to continue, at the end of any Interest Period therefor, any LIBOR Advances; PROVIDED, HOWEVER, that if the aggregate amount of outstanding LIBOR Advances comprised in the same Borrowing shall have been reduced as a result of any payment, prepayment or conversion of part thereof to an amount less than $1,000,000, the LIBOR Advances comprised in such Borrowing shall automatically convert into Base Rate Advances at the end of each respective Interest Period. (b) Company shall deliver a notice of conversion or continuation (a "NOTICE OF CONVERSION/CONTINUATION"), in substantially the form of EXHIBIT D hereto, to Administrative Agent not later than (i) 12:00 noon three Business Days prior to the proposed date of conversion or continuation, if the Advances or any portion thereof are to be converted into or continued as LIBOR Advances; and (ii) not later than 10:00 a.m. on the proposed date of conversion or continuation, if the Advances or any portion thereof are to be converted into Base Rate Advances. Each such Notice of Conversion/Continuation shall be by telecopy or telephone, promptly confirmed in writing, specifying therein: (i) the proposed date of conversion or continuation; (ii) the aggregate amount of Advances to be converted or continued; (iii) the nature of the proposed conversion or continuation; and (iv) the duration of the applicable Interest Period. -30- (c) If, upon the expiration of any Interest Period applicable to LIBOR Advances, Company shall have failed to select a new Interest Period to be applicable to such LIBOR Advances or if an Event of Default shall then have occurred and be continuing, Company shall be deemed to have elected to convert such LIBOR Advances into Base Rate Advances effective as of the expiration date of such current Interest Period. (d) Upon receipt of a Notice of Conversion/Continuation, Administrative Agent shall promptly notify each Lender thereof. All conversions and continuations shall be made pro rata among Lenders based on their Specified Percentage of the respective outstanding principal amounts of the Advances with respect to which such notice was given. (e) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Advances, there shall not be outstanding Advances with more than ten different Interest Periods. 2.10 FEES. Subject to SECTION 9.8 hereof, Company agrees to pay to Administrative Agent, for the account of each Lender, a Commitment Fee on the average daily amount of each Lender's Unused Commitment, from the Closing Date through the Maturity Date, payable quarterly in arrears on each Quarterly Date occurring after the Closing Date, with the last such payment due and owing on the Maturity Date at the following per annum percentage applicable in the following situations: APPLICABILITY PERCENTAGE ------------- ---------- CATEGORY 1 - There is no Index Debt Rating or the 0.350% Index Debt Rating is the following: below BBB- by S&P and below Baa3 by Moody's CATEGORY 2 - The Index Debt Rating is the following: 0.200% BBB-, BBB or BBB+ by S&P or Baa3, Baa2 and Baa1 by Moody's CATEGORY 3 - The Index Debt Rating is the following: 0.150% A- or better by S&P or A3 and better by Moody's The Commitment Fee shall be (i) fully earned when due and nonrefundable when paid and (ii) adjusted on each Adjustment Date according to the most recent determination of the Index Debt Rating. For purposes of the foregoing, if the Index Debt Rating established by S&P or Moody's shall fall within a different category, the Commitment Fee shall be determined by reference to whichever Index Debt Rating shall fall within the superior (or numerically higher) category, unless the superior (or numerically higher) category is greater than one level above the other category, in which case the Commitment Fee shall be determined using the category immediately below the superior (or numerically higher) category. 2.11 FUNDING LOSSES. If Company makes any payment or prepayment of principal with respect to any LIBOR Advance (including payments made after any acceleration thereof) or converts any Advance from a LIBOR Advance on any day -31- other than the last day of an Interest Period applicable thereto or if Company fails to prepay, borrow, convert, or continue any LIBOR Advance after a notice or prepayment, borrowing, conversion or continuation has been given (or is deemed to have been given) to Administrative Agent, Company shall pay to each Lender on demand (subject to SECTION 9.8 hereof) any Consequential Loss. 2.12 COMPUTATIONS AND MANNER OF PAYMENTS. (a) Company shall make each payment not later than 1:00 p.m. on the day when due in immediately available funds to Administrative Agent, for the Ratable account of Lenders unless otherwise specifically provided herein, at Administrative Agent Bank of America Plaza 901 Main Street 14th Floor Dallas, Texas 75202 Attn. Tonya Parker for the further credit to the account of Franchise Finance Corporation of America. No later than the end of each day when each payment hereunder is made, Company shall notify Theresa Belk, telephone (214) 508-9177, facsimile (214) 508-2515, or such other Person as Administrative Agent may from time to time specify. Notwithstanding anything in this SECTION 2.12(A) or any other provision of this Agreement or any other Loan Paper to the contrary, any payment by Company in respect of any Advances after acceleration of the Advances pursuant to SECTION 7.2 or any monies received by Administrative Agent or any Lender as a result of the exercise of remedies under any Loan Paper after acceleration of Advances pursuant to SECTION 7.2 shall be distributed pro rata to each Lender based on the percentage that the outstanding Advances owed to such Lender bears to the aggregate Advances owed to all Lenders. (b) Unless Administrative Agent shall have received notice from Company prior to the date on which any payment is due hereunder that Company will not make payment in full, Administrative Agent may assume that such payment is so made on such date and may, in reliance upon such assumption, make distributions to Lenders. If and to the extent Company shall not have made such payment in full, each Lender shall repay to Administrative Agent forthwith on demand the applicable amount distributed, together with interest thereon at the Federal Funds Rate, from the date of distribution until the date of repayment. Company hereby authorizes each Lender, if and to the extent payment is not made when due hereunder, to charge the amount so due against any account of Company with such Lender. (c) Subject to SECTION 9.8 hereof, interest on Advances, the Commitment Fee and other amounts due under the Loan Papers shall be calculated on the basis of actual days elapsed but computed as if each year consisted of 360 days. Such computations shall be made including the first day but excluding the last day -32- occurring in the period for which such interest, payment or Commitment Fee is payable. Each determination by Administrative Agent or a Lender of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent demonstrable error. All payments under the Loan Papers shall be made in United States dollars, and without setoff, counterclaim, or other defense. (d) Reference to any particular index or reference rate for determining any applicable interest rate under this Agreement is for purposes of calculating the interest due and is not intended as and shall not be construed as requiring any Lender to actually fund any Advance at any particular index or reference rate. 2.13 YIELD PROTECTION. (a) If any Lender determines that either (i) the adoption, after the date hereof, of any Applicable Law, rule, regulation or guideline regarding capital adequacy and applicable to commercial banks or financial institutions generally or any change therein, or any change, after the date hereof, in the interpretation or administration thereof by any Tribunal, central bank or comparable agency charged with the interpretation or administration thereof, or (ii) compliance by any Lender (or Lending Office of any Lender) with any request or directive made after the date hereof applicable to commercial banks or financial institutions generally regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency has the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy (but excluding consequences of such Lender's negligence or intentional disregard of law or regulation)) by an amount reasonably deemed by such Lender to be material, then from time to time, within fifteen days after demand by such Lender, Company shall, subject to SECTION 9.8 hereof, pay to such Lender such additional amount or amounts as will adequately compensate such Lender for such reduction. Each Lender will notify Company of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this SECTION 2.13(A) as promptly as practicable after such Lender obtains actual knowledge of such event; PROVIDED, no Lender shall be liable for its failure or the failure of any other Lender to provide such notification. A certificate of such Lender claiming compensation under this SECTION 2.13(A), setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder and certifying that such claim is consistent with such Lender's treatment of similar customers having similar provisions generally in their agreements with such Lender shall be conclusive in the absence of demonstrable error. Each Lender shall use reasonable efforts to mitigate the effect upon Company of any such increased costs payable to such Lender under this SECTION 2.13(A). (b) If, after the date hereof, any Tribunal, central bank or other comparable authority, at any time imposes, modifies or deems applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the amount of, or credit extended by, any Lender, or imposes on any Lender any other condition affecting a LIBOR Advance, -33- the Notes, or its obligation to make a LIBOR Advance; and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining its LIBOR Advances, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under the Notes or reimbursement obligations by an amount deemed by such Lender to be material, THEN, within five days after demand by such Lender, Company shall, subject to SECTION 9.8 hereof, pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. Each Lender will (i) notify Company and Administrative Agent of any event occurring after the date of this Agreement that entitles such Lender to compensation pursuant to this SECTION 2.13(B), as promptly as practicable after such Lender obtains actual knowledge of the event; PROVIDED, no Lender shall be liable for its failure or the failure of any other Lender to provide such notification and (ii) use good faith and reasonable efforts to designate a different Lending Office for LIBOR Advances of such Lender if the designation will avoid the need for, or reduce the amount of, the compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender. A certificate of such Lender claiming compensation under this SECTION 2.13(B), setting forth in reasonable detail the computation of the additional amount or amounts to be paid to it hereunder and certifying that such claim is consistent with such Lender's treatment of similar customers having similar provisions generally in their agreements with such Lender shall be conclusive in the absence of demonstrable error. If such Lender demands compensation under this SECTION 2.13(B), Company may at any time, on at least five Business Days' prior notice to such Lender (i) repay in full the then outstanding principal amount of LIBOR Advances, of such Lender, together with accrued interest thereon, or (ii) convert the LIBOR Advances to Base Rate Advances in accordance with the provisions of this Agreement; PROVIDED, HOWEVER, that Company shall be liable for the Consequential Loss arising pursuant to those actions. (c) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation or administration of any Law shall make it unlawful, or any central bank or other Tribunal shall assert that it is unlawful, for a Lender to perform its obligations hereunder to make LIBOR Advances or to continue to fund or maintain LIBOR Advances hereunder, then, on notice thereof and demand therefor by such Lender to Company, (i) each LIBOR Advance will automatically, upon such demand, convert into a Base Rate Advance and (ii) the obligation of such Lender to make, or to convert Advances into, LIBOR Advances shall be suspended until such Lender notifies Administrative Agent and Company that such Lender has determined that the circumstances causing such suspension no longer exist. (d) Upon the occurrence and during the continuance of any Default or Event of Default, (i) each LIBOR Advance will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Advance and (ii) the obligation of each Lender to make, or to convert Advances into, LIBOR Advances shall be suspended. (e) Failure on the part of any Lender to demand compensation for any increased costs, increased capital or reduction in amounts received or receivable or reduction in return on capital pursuant to this SECTION 2.13 (collectively, "INCREASED ADVANCE COSTS") with respect to any period shall not -34- constitute a waiver of any Lender's right to demand compensation with respect to such period or any other period, subject, however, to the limitations set forth in this SECTION 2.13. Notwithstanding the foregoing, any Lender's demand for Increased Advance Costs shall not include any Increased Advance Costs with respect to any period more than two years prior to the date that such Lender gives notice to Company of such Increased Advance Costs unless the effective date of the condition which results in the right to receive Increased Advance Costs is retroactive (the "INCREASED ADVANCE COSTS RETROACTIVE EFFECTIVE DATE"). If any Increased Advance Costs has an Increased Advance Costs Retroactive Effective Date and any Lender demands compensation within two years after the date setting the Increased Advance Costs Retroactive Effective Date (the "INCREASED ADVANCE COSTS SET DATE"), such Lender shall have the right to receive such Increased Advance Costs from the Increased Advance Costs Retroactive Effective Date. If a Lender does not demand such Increased Advance Costs within two years after the Increased Advance Costs Set Date, such Lender may not receive payment of Increased Advance Costs with respect to any period more than two years prior to such demand. (f) The obligations of Company under this SECTION 2.13 shall survive any termination of this Agreement, subject, however, to the limitations set forth in SECTION 2.13(E) above. (g) Determinations by Lenders for purposes of this SECTION 2.13 shall be conclusive, absent demonstrable error. Any certificate delivered to Company by a Lender pursuant to this SECTION 2.13 shall include in reasonable detail the basis for such Lender's demand for additional compensation and a certification that the claim for compensation is consistent with such Lender's treatment of similar customers having similar provisions generally in their agreements with such Lender. (h) If any Lender notifies Administrative Agent that, in its reasonable determination, the LIBOR Rate for any Interest Period for any LIBOR Advances will not adequately reflect the cost to such Lender of making, funding or maintaining LIBOR Advances for such Interest Period, Administrative Agent shall promptly so notify Company, whereupon (i) each such LIBOR Advance will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Advance and (ii) the obligation of such Lender to make, or to convert Advances into, LIBOR Advances shall be suspended until such Lender notifies Administrative Agent that such Lender has determined that the circumstances causing such suspension no longer exist and Administrative Agent notifies Company of such fact. 2.14 EXTENSION OPTION AND CONVERSION OPTION RELATING TO THE LOAN. (a) On the Option Date, Company, with the prior written consent of Lenders and so long as there exists no Default or Event of Default, may elect to extend the maturity of the Loan for an additional 364 day period until the Final Maturity. Such election must be made no sooner than 60 days prior to the Option Date and no later than 45 days prior to the Option Date by written notice in accordance with the terms of SECTION 9.2 hereof to each Lender of its request to extend the final maturity of the Loan. Each Lender shall, no later than 30 days after receipt of such notice, give written notice to Company and Administrative -35- Agent of its approval or disapproval of such extension. Any Lender failing to give notice shall be deemed to have not approved such extension. No Lender shall be obligated to consent to such extension. If Company fails to receive the consent of all Lenders to such extension, the Commitment shall be reduced to zero on the Option Date. (b) On the Option Date, Company, so long as there exists no Default or Event of Default on such date of conversion, shall have the option (which shall not require the consent of any Lender) to convert the Loan to a term loan. Such election must be made no sooner than 60 days prior to the Option Date, and no later than 45 days prior to the Option Date, by written notice in accordance with the terms of SECTION 11.2 hereof to each Lender of such conversion. Prior to such conversion, Company shall execute and deliver new promissory notes to each Lender in the form required by Administrative Agent. Upon such notice and receipt by Lenders of the new promissory notes and payment of the Conversion Fee described in the immediately following sentence, the Loan shall automatically convert to a term loan on the Option Date which shall mature on the Final Maturity and no scheduled payments of principal of Advances (other than Refinancing Advances) shall be required to be made prior to the Final Maturity. No conversion of the Loan to a term loan shall be effective until and unless Company shall pay to Administrative Agent, for the account of Lenders in accordance with their Specified Percentages, a Conversion Fee based on the amount of the Commitment and Index Debt Rating in effect on the Option Date at the following per annum percentages, applicable in the following situations: APPLICABILITY PERCENTAGE ------------- ---------- CATEGORY 1 - There is no Index Debt Rating or the 0.500% Index Debt Rating is the following: below BBB- by S&P and below Baa3 by Moody's CATEGORY 2 - The Index Debt Rating is the following: 0.375% BBB- or better by S&P and Baa3 by Moody's CATEGORY 3 - The Index Debt Rating is the following: 0.250% BBB or better by S&P and Baa2 or better by Moody's For purposes of the foregoing, if the Index Debt Rating established by S&P or Moody's shall fall within a different category, the Conversion Fee shall be determined by reference to whichever Index Debt Rating shall fall within the superior (or numerically higher) category, unless the superior (or numerically higher) category is greater than one level above the other category, in which case the Conversion Fee shall be determined using the category immediately below the superior (or numerically higher) category. -36- ARTICLE III. CONDITIONS PRECEDENT 3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The obligations of each Lender under this Agreement and the obligation of each Lender to make the Initial Advance shall be subject to the following conditions precedent that on the Closing Date: (a) All terms, conditions and documentation in connection with this Agreement shall be acceptable to Lenders. (b) The making of the Commitment shall not contravene any Law applicable to Administrative Agent or any Lender. (c) Each Lender shall have received a Certificate from an Authorized Officer stating that no Material Adverse Change has occurred since the December 31, 1999 financial statements provided to Lenders. Administrative Agent shall have received financial information regarding Company and each Subsidiary of Company requested by it. (d) Each Lender shall have received an executed copy of this Agreement and its respective Note, duly completed and correct. Lenders shall have received copies of the Fee Letters signed by Company, as applicable. Each of the following shall have been delivered to Administrative Agent on behalf of Lenders, in form and substance satisfactory to Administrative Agent, Special Counsel and each Lender. The Guaranty Agreement executed by each Guarantor and a Subordination Agreement executed by each payee of an Intercompany Note. (e) Company shall have delivered to Administrative Agent a Certificate, dated the Closing Date, executed by an Authorized Officer, certifying that, to such Authorized Officer's knowledge, (i) no Default or Event of Default has occurred and is continuing, (ii) the representations and warranties set forth in ARTICLE IV hereof are true and correct in all material respects, and (iii) Company and each Subsidiary of Company has complied with all agreements and conditions to be complied with by it in all material respects under the Loan Papers by such date. (f) Company and each Guarantor shall have each delivered to Administrative Agent on behalf of Lenders a Secretary's Certificate, dated the Closing Date, certifying (i) that attached copies of the certificates of organization certified by the Secretary of States of the appropriate states, and bylaws are true and complete, and in full force and effect, without amendment except as shown, and (ii) that a copy of the resolutions authorizing execution and delivery of this Agreement and any Loan Papers, as appropriate, are true and complete, and that such resolutions are in full force and effect, were duly adopted, have not been amended, modified, or revoked, and constitute all resolutions adopted with respect to this loan transaction. Administrative Agent and Lenders may conclusively rely on the certificates delivered pursuant to this subsection until they receive notice in writing to the contrary. -37- (g) Administrative Agent shall have received an opinion or opinions of counsel to Company and its Subsidiaries, dated the Closing Date, acceptable to Lenders and otherwise in form and substance satisfactory to Lenders and Special Counsel, with respect to this loan transaction and otherwise, including, without limitation, opinions (i) to the valid and binding nature of the Loan Papers, (ii) to the power, authorization and corporate matters of each such Person taken in connection with the transactions contemplated by the Loan Papers, (iii) that the execution, delivery and performance by Company and the Subsidiaries of Company of the respective Loan Papers does not violate any of the terms of Company's or any such Subsidiary's agreements, and (iv) to such other matters as are reasonably requested by Special Counsel. (h) Administrative Agent shall have received, on behalf of Lenders, each of the following, in form and substance satisfactory to Administrative Agent and Special Counsel: (i) evidence that all proceedings of Company and its Subsidiaries taken in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to Lenders and Special Counsel; and each Lender shall have received copies of all documents or other evidence which Lenders or Special Counsel may reasonably request in connection with this facility, including without limitation the resolutions of the Board of Directors of Company and each Subsidiary, and the requisite authorizations of all other Persons necessary to authorize the transactions contemplated herein, certified to be true and correct by an Authorized Officer; (ii) payment of all fees, costs and expenses (including, without limitation, attorneys' fees of Special Counsel due to be paid on or through the Closing Date); and (iii) a Compliance Certificate computed after giving effect to the Initial Advance. (i) All corporate proceedings of Company and its Subsidiaries taken in connection with the transactions contemplated hereby, and all documents incidental thereto, shall be satisfactory in form and substance to each Lender. Administrative Agent and each Lender shall have received copies of all documents or other evidence that it may reasonably request in connection with such transactions. (j) All conditions precedent to the Initial Advance (as defined in the Amended and Restated Credit Agreement) and the Initial Letter of Credit (as defined in the Amended and Restated Credit Agreement) shall have been satisfied (or waived by each Lender). 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of each Lender to make each Advance (including the Initial Advance) shall be subject to the further conditions precedent that on the date of such Advance (a) the following statements shall be true (and the delivery of each Borrowing Notice under SECTION 2.2(a), each Application and each Conversion or Continuation Notice under SECTION 2.9(b), or the failure to deliver a Conversion or Continuation Notice under SECTION 2.9(b) shall constitute a representation that on the -38- disbursement date (except as to representations and warranties which (i) refer to a specific date, (ii) have been modified by transactions permitted pursuant to this Agreement or any other Loan Paper or (iii) have been specifically waived by Administrative Agent, to the extent permitted pursuant to SECTION 9.1) are true: (i) The representations and warranties contained in ARTICLE IV hereof are true and correct on such date, as though made on and as of such date; (ii) No event has occurred and is continuing, or would result from such Advance (including the intended application of the proceeds of such Advance), that does or could constitute a Default or Event of Default; and (iii) There shall have occurred no Material Adverse Change, and the making of such Advance, shall not cause or result in a Material Adverse Change; (iv) After giving effect to each such Advance, the aggregate outstanding Advances do not exceed the Commitment; and (v) The Unused Commitment (as defined in the Amended and Restated Credit Agreement) of each lender under the Amended and Restated Credit Agreement is zero; and (b) Administrative Agent shall have received, in form and substance acceptable to it, such other approvals, documents, certificates, opinions, and information as it may deem necessary or appropriate. ARTICLE IV. REPRESENTATIONS AND WARRANTIES Company represents and warrants that the following are true and correct: 4.1 ORGANIZATION AND QUALIFICATION. Company and each of its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the Laws of its state of incorporation. Company and each of its Subsidiaries is qualified to do business in all jurisdictions where the nature of its business or Properties require such qualification, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. Set forth on SCHEDULE 4.1 attached hereto is a complete and accurate listing with respect to Company and each of its Subsidiaries, showing (a) the jurisdiction of its organization and its mailing address, which is the principal place of business and executive offices of each unless otherwise indicated, (b) the classes of Capital Stock and shares of Capital Stock issued and outstanding in Company and each of its Subsidiaries, and the numbers or amounts of Capital Stock authorized and outstanding of Company and each of its Subsidiaries, and (c) each record and -39- beneficial owner of outstanding Capital Stock on the date hereof, indicating the ownership percentage (provided that, with Administrative Agent's consent, SCHEDULE 4.1 need only set forth each record and beneficial owner of 1% or more of Capital Stock of Company based on the most current records of Company prior to the Closing Date). All Capital Stock of Company and each of its Subsidiaries is validly issued and fully paid (except the common stock of FFCA Funding) and has been issued in compliance with all requirements of Applicable Law. No share of Capital Stock of Company or any Subsidiary of Company is subject to any Lien, including any restrictions on hypothecation or transfer (except the common stock of FFCA Funding and except for restrictions set forth in each Certificate of Incorporation of each Subsidiary). 4.2 DUE AUTHORIZATION; VALIDITY. The board of directors of Company and each Subsidiary of Company have duly authorized the execution, delivery, and performance of the Loan Papers to be executed by Company and each Subsidiary of Company, as appropriate. Company and each Subsidiary of Company has full legal right, power, and authority to execute, deliver, and perform under the Loan Papers to be executed and delivered by it. The Loan Papers constitute the legal, valid, and binding obligations of Company and each Subsidiary of Company, as appropriate, enforceable in accordance with their terms (subject as to enforcement of remedies to any applicable Debtor Relief Laws). 4.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. The execution or delivery of any Loan Papers, and performance thereunder, does not conflict with, or result in a breach of the terms, conditions, or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien (other than in favor of Administrative Agent) upon any Properties of Company or any Subsidiary of Company under, or require any consent, approval, or other action by, notice to, or filing with, any Tribunal or Person pursuant to, the certificate of incorporation or bylaws of Company or any Subsidiary of Company, any award of any arbitrator, or any agreement, instrument, or Law to which Company or any Subsidiary of Company, or any of their Properties is subject. 4.4 FINANCIAL STATEMENTS. The financial statements of Company and its Consolidated Subsidiaries, dated December 31, 1999 and delivered to Administrative Agent, fairly present its financial condition and the results of operations as of the dates and for the periods shown, all in accordance with GAAP. Such financial statements reflect all material liabilities, direct and contingent, of Company and its Consolidated Subsidiaries that are required to be disclosed in accordance with GAAP. As of the date of such financial statements, there were no Contingent Liabilities, liabilities for Taxes, forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments that are substantial in amount and that are not reflected on such financial statements or otherwise disclosed in writing to Administrative Agent. Since December 31, 1999, there has been no Material Adverse Change. Company and each Subsidiary of Company is Solvent. The projections of Company dated July 2, 2000 delivered to Administrative Agent were prepared in good faith and management believes them to be based on reasonable assumptions (each of which are stated in such statement) and to provide reasonable estimations of future -40- performance as of the dates and for the periods shown for Company and its Subsidiaries, subject to the uncertainty and approximation inherent in any projections. Company's fiscal year ends on December 31. 4.5 LITIGATION. As of the Closing Date, SCHEDULE 4.5 lists all Litigation that is pending, and to Company's best knowledge, threatened by written demand against Company or any of its Subsidiaries or any of their Properties or assets on the Closing Date in which an adverse determination with respect thereto could reasonably be expected to result in an uninsured liability of Company or any of its Subsidiaries in excess of $500,000. Except as set forth on SCHEDULE 4.5, there is no pending or, to Company's best knowledge, threatened Litigation against Company, any Subsidiary of Company or any of their respective Properties that could reasonably be expected to result in a Material Adverse Change. 4.6 COMPLIANCE WITH LAWS REGULATING THE INCURRENCE OF INDEBTEDNESS. No proceeds of any Advance will be used directly or indirectly to acquire any security in any transaction which is subject to Sections 13 and 14 of the Securities Exchange Act of 1934, as amended. Company is not, nor is any Subsidiary of Company, engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Following Company's intended use of the proceeds of each Advance, not more than 25% of the value of the assets of Company will be "MARGIN STOCK" within the meaning of Regulation U. Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as any of the preceding acts have been amended), or any other Law that the incurring of Indebtedness by Company would violate, including without limitation Laws relating to common or contract carriers or the sale of electricity, gas, steam, water, or other public utility services. 4.7 AUTHORIZATIONS, TITLE TO PROPERTIES, AND RELATED MATTERS. Company and each Subsidiary of Company possess all material Authorizations necessary and appropriate to own and operate their businesses and are not in violation thereof in any material respect. All such Authorizations are in full force and effect, and no event has occurred that permits, or after notice or lapse of time could permit, the revocation, termination or material and adverse modification of any such Authorization, except those which in the aggregate could not reasonably be expected to cause a Material Adverse Change. Company and each Subsidiary of Company have the requisite corporate power (as applicable) and legal right to own and operate their respective Property and to conduct their respective business. Each has good and indefeasible title (fee or leasehold, as applicable) to its Property, subject to no Lien of any kind, except Permitted Liens and first Liens for the benefit of Company or any Subsidiary of Company. Neither Company nor any Subsidiary of Company is in violation of its respective certificates or articles of incorporation or bylaws. Neither Company nor any Subsidiary of Company is in violation of any Law, or material agreement or instrument binding on or affecting it or any of its Properties, the effect of which could reasonably be expected to cause a Material Adverse Change. No business or Properties of Company or any Subsidiary of Company is affected by -41- any drought, storm, earthquake, embargo, act of God or public enemy, or other casualty, the effect of which could reasonably be expected to cause a Material Adverse Change. 4.8 OUTSTANDING DEBT AND LIENS. Company and its Subsidiaries have no outstanding Debt, Contingent Liabilities or Liens, except Permitted Liens, except as shown on SCHEDULE 4.8 hereto. No breach, default or event of default exists under any document, instrument or agreement evidencing or otherwise relating to any Indebtedness of Company or any of its Subsidiaries. All Intercompany Notes are subject to a Subordination Agreement. 4.9 TAXES. Company and each Subsidiary of Company has filed all federal, state, and other Tax returns (or extensions related thereto) which are required to be filed, and has paid all Taxes as shown on said returns, as well as all other Taxes, to the extent due and payable, except to the extent payment is contested in good faith and for which adequate reserves have been established therefor in accordance with GAAP. All Tax liabilities of Company and each Subsidiary of Company are adequately provided for on its books, including interest and penalties, and adequate reserves have been established therefor in accordance with GAAP. No income Tax liability of a material nature has been asserted by taxing authorities for Taxes in excess of those already paid, and no taxing authority has notified Company or any Subsidiary of Company of any deficiency in any Tax return. 4.10 ERISA. Each Plan of Company and each Subsidiary of Company has satisfied the minimum funding standards under all Laws applicable thereto, and no Plan has an accumulated funding deficiency thereunder. Company has not, and neither has any Subsidiary of Company incurred any material liability to the PBGC with respect to any Plan. No ERISA Event has occurred with respect to any Plan for which an Insufficiency in excess of $100,000 exists on the date of such occurrence. Neither Company nor any ERISA Affiliate has participated in any non-exempt Prohibited Transaction with respect to any Plan or trust created thereunder the result of which could be reasonably expected to have a Material Adverse Effect. Neither Company nor any ERISA Affiliate has incurred any Withdrawal Liability to any Multiemployer Plan that has not been satisfied. Neither Company nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA. 4.11 ENVIRONMENTAL LAWS. Company and each Subsidiary of Company has obtained all material environmental, health and safety Authorizations required under all applicable Environmental Laws to carry on its business as being conducted, except where the failure to obtain such Authorizations could not reasonably be expected to have a Material Adverse Effect. On the Closing Date, there are no environmental liabilities of Company or any Subsidiary of Company (with respect to any fee owned Properties) which could reasonably be expected to have a Material Adverse Effect, except as disclosed and described in detail on SCHEDULE 4.11 hereto. Each of such Authorizations is in full force and effect and Company and each Subsidiary of Company is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand -42- letter issued, entered, promulgated or approved thereunder, except to the extent the failure to have such Authorizations or comply with any of the terms and conditions thereof could not reasonably be expected to have a Material Adverse Effect. In addition, no written notice, notification, demand, request for information, citation, summons or order has been issued, no written complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the best knowledge of Company, or any Subsidiary of Company, threatened, by any Tribunal or other entity with respect to any alleged failure by Company or any Subsidiary of Company to have any environmental, health or safety Authorization required under any applicable Environmental Law in connection with the conduct of the business of Company or any Subsidiary of Company or with respect to any generation, treatment, storage, recycling, transportation, discharge, disposal or release of any Hazardous Materials by Company or any Subsidiary of Company, the effect of which could reasonably be expected to have a Material Adverse Effect. There are no environmental liabilities of Company or any Subsidiary of Company which could reasonably be expected to cause a Material Adverse Change. Company and each Subsidiary of Company, where reasonably determined by Company or such Subsidiary to be in accordance with customary business practices, have contractually required that Mortgagors in respect of Funded Mortgages and Tenants under Leases (i) be prohibited from generating or producing Hazardous Materials at or in connection with the Properties of Company and its Subsidiaries and disposing of any Hazardous Materials on or to any Property of Company or any Subsidiary of Company, except in compliance with applicable Environmental Laws or (ii) be obligated to maintain and occupy the Properties of Company and its Subsidiaries in compliance with all applicable Laws. 4.12 DISCLOSURE. Neither Company nor any Subsidiary of Company has made a material misstatement of fact, or failed to disclose any fact necessary to make the facts disclosed not misleading, in light of the circumstances under which they were made, to Administrative Agent or any Lender during the course of application for and negotiation of any Loan Papers or otherwise in connection with any Advances. There is no fact known to Company or any Subsidiary of Company that materially adversely affects any of Company's or any Subsidiary of Company's Properties or business, or that could constitute a Material Adverse Change, and that has not been set forth in the Loan Papers or in other documents furnished to Administrative Agent. 4.13 INVESTMENTS; SUBSIDIARIES. Company and its Subsidiaries have no Investments except as described on SCHEDULE 4.13 hereto and as permitted by SECTION 6.10 hereof. SCHEDULE 4.13 is a complete and accurate listing of Company and each Subsidiary of Company, showing (a) its complete name, (b) its jurisdiction of organization, (c) its capital structure, and (d) its street and mailing address, which is its principal place of business and executive office. 4.14 CERTAIN FEES. No broker's, finder's, management fee or other fee or commission will be payable by Company with respect to the making of Commitment or Advances hereunder (other than to Administrative Agent and Lenders hereunder), or the offering, issuance or sale of the Capital Stock of Company. Company and each Subsidiary of Company hereby agrees to indemnify and hold harmless Administrative Agent and each Lender from and against any claims, demand, liability, proceedings, costs or expenses asserted with respect to or arising in connection with any such fees or commissions. -43- 4.15 INTELLECTUAL PROPERTY. Company and each Subsidiary of Company has obtained all patents, trademarks, service-marks, trade names, copyrights, licenses and other rights, free from material restrictions, which are necessary for the operation of their respective businesses as presently conducted and as proposed to be conducted. 4.16 INVESTMENT COMPANY ACT. Neither Company nor any of its Subsidiaries is an "investment company", "promoter", "principal under" or "controlled by" an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The making of the Advances by Lenders, the application of the proceeds and repayment thereof by Company and the consummation of the transactions contemplated by the Loan Papers will not violate any such Act or any rule, regulation or order thereunder issued by the Securities and Exchange Commission. 4.17 RESTRICTED PAYMENTS. Neither Company nor any of its Subsidiaries has made any Restricted Payment during the period from and including December 31, 1999 through and including the Closing Date. 4.18 STATUS AS A REAL ESTATE INVESTMENT TRUST. Company (i) has elected to be treated as and is qualified as a Real Estate Investment Trust, (ii) has not revoked its election to be a Real Estate Investment Trust, (iii) for each taxable year, has satisfied the requirements of Section 856(c)(4) of the Code and (iv) for its current "tax year" (as defined in the Code) is and for all prior tax years subsequent to its election as a Real Estate Investment Trust has been entitled to a dividends paid deduction which meets the requirements of Section 857 of the Code. 4.19 COMMON ENTERPRISE. Company and its Subsidiaries are engaged in the businesses set forth in SECTION 6.8 hereof. These operations require financing on a basis such that the credit supplied can be made available to Company and its Subsidiaries, as required for the continued successful operation of Company and its Subsidiaries, taken as a whole. Company and each of its Subsidiaries expects to derive benefit (and the Board of Directors of Company and each Subsidiary of Company has determined that such Subsidiary may reasonably be expected to derive benefit), directly or indirectly, from the credit extended by Lenders hereunder, both in its separate capacity and as a member of the group of companies, since the successful operation and condition of Company and each of its Subsidiaries is dependent on the continued successful performance of the function of the group as a whole. 4.20 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All representations and warranties made under this Agreement shall be deemed to be made at and as of the Closing Date and at and as of the date of each Advance, and each shall be true and correct when made, except to the extent (a) previously fulfilled in accordance with the terms hereof, (b) subsequently inapplicable, or (c) previously waived in writing by Administrative Agent and Lenders with respect to any particular factual circumstance. The representations and warranties made under this Agreement shall be deemed applicable to each Subsidiary as of the -44- formation or acquisition of such Subsidiary and at and as of each date the representations and warranties are remade pursuant to this provision. All representations and warranties made under this Agreement shall survive, and not be waived by, the execution hereof by Administrative Agent and Lenders, any investigation or inquiry by Administrative Agent or any Lender, or by the making of any Advance under this Agreement. 4.21 YEAR 2000 COMPLIANCE. Company has (a) completed a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by its suppliers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by Company or any of its Subsidiaries (or its suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (b) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (c) completed implementation of that plan in accordance with that timetable. The Year 2000 Problem has not resulted in, and the Borrower reasonably believes that the Year 2000 Problem will not result in, a Material Adverse Effect. ARTICLE V. AFFIRMATIVE COVENANTS So long as the Commitment, any Advance or any portion of the Obligations is outstanding, or Company or any of its Subsidiaries owes any other amount hereunder or under any other Loan Paper: 5.1 COMPLIANCE WITH LAWS AND PAYMENT OF DEBT. Company shall, and shall cause each Subsidiary of Company to, comply with all Applicable Laws, including without limitation compliance with ERISA and all applicable federal and state securities Laws. Company shall, and shall cause each of its Subsidiaries to, pay its Indebtedness as and when due (or within any applicable grace period). 5.2 INSURANCE. Company (a) shall cause, and shall cause each Subsidiary of Company to cause, the Tenants under Leases and the Mortgagors under Funded Mortgages to keep the Properties of Company and its Subsidiaries adequately insured at all times by reputable insurers to such extent and against such risks, including fire and other risks insured against by extended coverage, as what is customary with companies similarly situated and in the same or similar businesses (except that Tenants and Mortgagors that Company or a Subsidiary of Company in good faith believes are financially responsible may establish or maintain self insurance), (b) shall, and shall cause each Subsidiary of Company to, maintain in full force and effect public liability (including liability insurance for all vehicles and other insurable Property) and worker's compensation insurance, in amounts customary for such similar companies to cover normal risks, by insurers satisfactory to Administrative Agent, and (c) Company shall, and shall cause each Subsidiary of Company to, maintain other insurance as may be required by Law or reasonably requested by Administrative Agent. Company shall from time to time deliver to Administrative Agent, upon demand, evidence of the maintenance of such insurance. -45- 5.3 INSPECTION RIGHTS. Subject to Applicable Law and any restrictions in any Leases or Funded Mortgages, Company shall, and shall cause each Subsidiary of Company to, permit Administrative Agent or any Lender, upon reasonable notice (provided that no advance notice is required after the occurrence and during the continuance of an Event of Default), to examine and make copies of and abstracts from their records and books of account, to visit and inspect their Properties and to discuss their affairs, finances, and accounts with any of their directors, officers, employees, accountants, attorneys and other representatives, all as Administrative Agent or any Lender may reasonably request. 5.4 RECORDS AND BOOKS OF ACCOUNT; CHANGES IN GAAP. Company shall, and shall cause each of its Subsidiaries to keep adequate records and books of account in conformity with GAAP. Company shall make such valuations of its assets as may be required by the terms of Section 856(c)(5) of the Code. Company shall not, nor shall Company permit any of its Subsidiaries to change its Fiscal Year, nor change its method of financial accounting except in accordance with GAAP. In connection with any such change after the date hereof, Company and Lenders shall negotiate in good faith to make appropriate alterations to the covenants set forth in SECTION 6.1 hereof, reflecting such change. 5.5 REPORTING REQUIREMENTS. Company shall furnish to each Lender and Administrative Agent: (a) As soon as available and in any event within 45 days after the end of Company's fiscal quarters, consolidated balance sheets of Company and its Consolidated Subsidiaries as of the end of such quarter, and consolidated statements of income, and consolidated statements of changes in cash flow of Company and its Consolidated Subsidiaries for the portion of the fiscal year ending with such quarter, setting forth, in comparative form, figures for the corresponding periods in the previous fiscal year, all in reasonable detail, and certified by an Authorized Officer as prepared in accordance with GAAP, and fairly presenting the financial condition and results of operations of Company and its Consolidated Subsidiaries (subject to normal, year-end audit adjustments); (b) As soon as available and in any event within 90 days after the end of each fiscal year, consolidated balance sheets of Company and its Consolidated Subsidiaries as of the end of such fiscal year, and consolidated statements of income and changes in cash flow of Company and its Consolidated Subsidiaries for such fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an unqualified opinion of the Auditor, which opinion shall state that such financial statements were prepared in accordance with GAAP, that the examination by the Auditor in connection with such financial statements was made in accordance with generally accepted auditing standards, and that such financial statements present fairly the financial condition and results of operations of Company and its Consolidated Subsidiaries; -46- (c) Promptly upon receipt thereof, copies of all material reports or letters submitted to Company or any Subsidiary of Company by the Auditor or any other accountants in connection with any annual, interim, or special audit, including without limitation the comment letter submitted to management in connection with any such audit; (d) Together with each set of financial statements delivered pursuant to subsections (a) and (b) above, a Compliance Certificate executed by an Authorized Officer, which Compliance Certificate must (i) certify that there has occurred no Default or Event of Default, (ii) compute the Applicable Margin, (iii) set forth the detailed calculations with respect to the SECTIONS 6.1(A), (B), (C), (D), (E), 6.3, 6.6 and 6.7 hereof, (iv) certify that Company continues to qualify as a Real Estate Investment Trust under the Code and (v) set forth the projected amount of Loan Sales to occur during the fiscal quarter immediately succeeding the fiscal quarter covered by such Compliance Certificate; (e) As soon as available and in any event not later than 30 days after the beginning of each fiscal year of Company, the annual operating budgets of Company and its Subsidiaries for such fiscal year; (f) Promptly upon knowledge by Company of the occurrence of any Default or Event of Default, a notice from an Authorized Officer, setting forth the details of such Default or Event of Default, and the action being taken or proposed to be taken with respect thereto; (g) As soon possible and in any event within five Business Days after knowledge thereof by Company or any of its Subsidiaries, notice of any Litigation pending or threatened by written demand against Company, any of its Subsidiaries or any of their respective Property which, if determined adversely, could reasonably be expected to result in a judgment, penalties, or uninsured liability or damages in excess of $1,000,000 together with a statement of an Authorized Officer describing the allegations of such Litigation, and the action being taken or proposed to be taken with respect thereto; (h) Promptly following notice or knowledge thereof by Company or any of its Subsidiaries, notice of any actual or threatened (which threat is evidenced in writing) loss or termination of any Authorization of Company or any such Subsidiary which if lost or terminated could reasonably be expected to have a Material Adverse Effect, together with a statement of an Authorized Officer describing the circumstances surrounding the same, and the action being taken or proposed to be taken with respect thereto; (i) Promptly after filing or receipt thereof, copies of all reports and notices that Company or any of its Subsidiaries (i) files or receives in respect of any Plan with or from the Internal Revenue Service, the PBGC, or the United States Department of Labor, or (ii) furnishes to or receives from any holders of any Indebtedness or Contingent Liability, if in either case, any information or dispute referred to therein either causes a Default or Event of Default, or could reasonably be expected to cause or result in a Default or an Event of Default; -47- (j) Within 120 days after the close of each fiscal year, a statement of the Insufficiencies of each Plan (but only if the aggregate amount of all Insufficiencies for all Plans exceeds $100,000), certified as correct by an actuary enrolled under ERISA; (k) As soon as possible and in any event within 10 days after Company or any of its Subsidiaries knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by an Authorized Officer, describing said Reportable Event and the action which the such Person proposes to take with respect thereto; (l) Promptly upon their becoming available, copies of all registration statements and regularly provided reports, if any, filed by Company with the Securities and Exchange Commission (of any governmental agency substituted therefor) or any national securities exchange; (m) Promptly upon the mailing thereof to the shareholders of Company generally, copies of all financial statements, reports and proxy statements so mailed; (n) As soon as possible and in any event within 5 days after Company's knowledge thereof, written notice of any change in the Index Debt Rating; and (o) From time to time, such other information regarding the business, affairs or financial condition of Company or any of its Subsidiaries as any Lender may reasonably request, including consolidating financial statements of Company and its Consolidated Subsidiaries pursuant to subsections (a) and (b) above. 5.6 USE OF PROCEEDS. The proceeds of the Advances shall be available (and Company and its Subsidiaries shall use such proceeds) to (a) finance acquisitions of Property, and making loans which are either secured by Property or which are unsecured and (b) use for other general working capital purposes; provided that no Lender shall have any responsibility as to use by Company or any of its Subsidiaries of any such proceeds. 5.7 MAINTENANCE OF EXISTENCE AND ASSETS. Except as provided by SECTION 6.5 of this Agreement, Company shall maintain, and shall cause each of its Subsidiaries to maintain, its corporate existence, authority to do business in the jurisdictions in which it is necessary for Company or such Subsidiary of Company to do so, and all Authorizations necessary for the operation of any of their businesses. Company shall maintain, and shall cause each of its Subsidiaries to maintain, the assets necessary for use in their respective businesses in good repair, working order and condition, and make all such repairs, renewals and replacements thereof as may be reasonably required by Company and its Subsidiaries. 5.8 PAYMENT OF TAXES. Company will and will cause each of its Subsidiaries to, promptly pay and discharge all lawful Taxes imposed upon it or upon its income or profit or upon any Property belonging to it, unless such Tax shall not at the time be due and payable, or if the validity thereof shall currently be contested on a timely basis in good faith by appropriate proceedings (provided that the enforcement of any Liens arising out of any such nonpayment shall be stayed or bonded during the proceedings) and adequate reserves with respect to such Tax shall have been established in accordance with GAAP. -48- 5.9 INDEMNITY. (a) COMPANY AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS ADMINISTRATIVE AGENT AND EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION, THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO OR SUCH PROCEEDING SHALL HAVE ACTUALLY BEEN INSTITUTED), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR OTHERWISE), ARISING FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE OPERATIONS OF COMPANY, ANY SUBSIDIARY OF COMPANY, ANY AFFILIATE OF COMPANY OR ANY PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL CONDITION OF PROPERTY OF COMPANY, ANY SUBSIDIARY OF COMPANY, ANY AFFILIATE OF COMPANY OR ANY PREDECESSORS IN INTEREST, IN EACH CASE RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE LOAN PAPERS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR TRANSACTION RELATING OR ATTENDANT THERETO AND THE MANAGEMENT OF THE ADVANCES BY ADMINISTRATIVE AGENT, EXPRESSLY INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF THE ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE AGENT OR ANY LENDER, OR THE USE OR INTENDED USE OF THE PROCEEDS OF THE ADVANCES HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING ANY CLAIM OR LIABILITY TO THE EXTENT IT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION (COLLECTIVELY, "INDEMNIFIED MATTERS"). (b) IN ADDITION, COMPANY SHALL PERIODICALLY, UPON REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL REASONABLE EXPENSES (INCLUDING THE COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER. IF FOR ANY REASON THE FOREGOING INDEMNIFICATION IS UNAVAILABLE TO ANY INDEMNITEE OR INSUFFICIENT TO HOLD ANY INDEMNITEE HARMLESS WITH RESPECT TO INDEMNIFIED MATTERS, THEN COMPANY SHALL CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY SUCH INDEMNITEE AS A RESULT OF SUCH LOSS, CLAIM, DAMAGE OR LIABILITY IN SUCH PROPORTION AS IS APPROPRIATE TO REFLECT NOT ONLY THE RELATIVE BENEFITS RECEIVED BY COMPANY AND THE HOLDERS OF THE CAPITAL STOCK OF COMPANY ON THE ONE HAND AND SUCH INDEMNITEE ON THE OTHER HAND BUT ALSO THE RELATIVE FAULT OF COMPANY AND SUCH INDEMNITEE, AS WELL AS ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS. THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER -49- THIS SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH COMPANY MAY OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF COMPANY, ADMINISTRATIVE AGENT, LENDERS AND ALL OTHER INDEMNITEES. THE OBLIGATIONS OF COMPANY UNDER THIS SECTION 5.9 SHALL SURVIVE (I) THE EXECUTION OF THIS AGREEMENT AND (II) ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS. 5.10 AUTHORIZATIONS AND MATERIAL AGREEMENTS. Company shall, and shall cause its Subsidiaries to, obtain, maintain and comply in all material respects with all Authorizations and agreements necessary or appropriate for any of them to own, maintain, or operate any of their businesses or Properties. 5.11 INTERCOMPANY NOTES. Any portion of any Advance under the Facility which is loaned by Company to any Subsidiary of Company shall be evidenced by Intercompany Notes in form and substance acceptable to Administrative Agent, and there shall be no prohibition on the ability of Company to pledge to Administrative Agent each such Intercompany Note. Company shall cause all Intercompany Notes to be subject to a Subordination Agreement. 5.12 FURTHER ASSURANCES. Company and each Subsidiary of Company will execute all such additional agreements and take any and all such other action, as Administrative Agent may, from time to time, deem reasonably necessary or proper in connection with the obligations of Company and each Subsidiary of Company under any of the Loan Papers. 5.13 SUBSIDIARIES AND OTHER OBLIGORS. Company shall cause each of its Subsidiaries to comply with each provision of this ARTICLE V. 5.14 INTEREST HEDGE AGREEMENTS. Company shall maintain an Interest Hedge Agreement or Agreements such that, after giving effect to such Interest Hedge Agreements, at least 50% of the aggregate Indebtedness of Company and its Subsidiaries outstanding at any time is subject to a fixed interest rate per annum for a term of at least two years. 5.15 YEAR 2000 COMPLIANCE. Company will promptly notify the Administrative Agent in the event Company discovers or determines that the Year 2000 Problem has resulted in, or is reasonably expected to result in, a Material Adverse Effect. ARTICLE VI. NEGATIVE COVENANTS So long as the Commitment, any Advance or any portion of the Obligations is outstanding, or Company or any of its Subsidiaries owes any other amount hereunder or under any other Loan Paper: -50- 6.1 FINANCIAL COVENANTS. Company and its Consolidated Subsidiaries shall comply with the following covenants: (a) MINIMUM NET WORTH. At all times during the term hereof, Net Worth shall not be less than the sum of (i) $750,000,000, PLUS (ii) an amount equal to 75% of the aggregate Net Cash Proceeds received by Company and its Consolidated Subsidiaries after the Closing Date from the offering, sale or other disposition of Capital Stock of Company or any Subsidiary of Company, PLUS (iii) an amount equal to the net worth of any Person that becomes a direct or indirect Subsidiary of Company or is merged into or consolidated with Company or any Subsidiary of Company or substantially all of the assets of which are acquired by Company or any Subsidiary of Company to the extent the purchase price paid therefor is paid in Capital Stock of Company or any of its Subsidiaries. (b) TOTAL INDEBTEDNESS TO ADJUSTED NET WORTH. At all times during the term hereof, the ratio of Total Indebtedness to Adjusted Net Worth shall not be greater than 1.20 to 1. (c) FIXED CHARGE COVERAGE RATIO. At all times during the term hereof, the Fixed Charge Coverage Ratio shall not be less than 2.00 to 1. (d) MAXIMUM TOTAL SECURED INDEBTEDNESS. At all times during the term hereof, the aggregate amount of Total Secured Indebtedness shall not exceed 10% of Total Assets. (e) TOTAL UNENCUMBERED ASSETS TO TOTAL UNSECURED INDEBTEDNESS. At all times during the term hereof, the ratio of Total Unencumbered Assets to Total Unsecured Indebtedness shall not be less than 1.75 to 1. 6.2 INDEBTEDNESS. Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, become or be liable in any manner in respect of, or suffer to exist, any Indebtedness, except (a) Indebtedness under the Loan Papers, (b) Indebtedness in existence on the date hereof, as shown on SCHEDULE 4.8 hereto, (c) Indebtedness of a Subsidiary of Company to Company or to another Subsidiary of Company in compliance with SECTION 6.17 hereof evidenced by Intercompany Notes evidencing loans made by Company or such Subsidiary with the proceeds of Advances, and (d) other Indebtedness, provided that (i) immediately prior thereto and after the occurrence thereof there shall be no Default or Event of Default and (ii) the covenants, terms and provisions with respect to such Indebtedness are no more restrictive than the terms of this Agreement and the other Loan Papers. 6.3 CONTINGENT LIABILITIES. Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, become or be liable in any manner in respect of, or suffer to exist, any Contingent Liabilities, except (a) Contingent Liabilities under or relating to the Loan Papers (as defined in this Agreement) and the Loan Papers (as defined in the Amended and Restated Credit Agreement), (b) Contingent Liabilities in existence on the Closing Date, as shown on SCHEDULE 4.8 hereto, (c) Contingent Liabilities resulting from the endorsement of negotiable instruments for collection in the ordinary course of -51- business, (d) Contingent Liabilities in respect of Interest Hedge Agreements of Company or any of its Subsidiaries, and (e) other Contingent Liabilities not to exceed $5,000,000 in aggregate principal amount. 6.4 LIENS. Company shall not, and shall not permit any of its Subsidiaries to, create or suffer to exist any Lien upon any of its Properties, except Permitted Liens. In case any Property shall be subject to a Lien in violation of this SECTION 6.4, Company or its Subsidiary, as the case may be, shall immediately make or cause to be made provision whereby the Notes will be secured equally and ratably with all other obligations secured thereby pursuant to such agreements and instruments as shall be approved by Majority Lenders, and in such case the Notes shall have the benefit, to the full extent that, and with such priority as, Lenders may be entitled under Applicable Law, of an equitable Lien on such Property securing the Notes. Such violation of SECTION 6.4 shall constitute an Event of Default hereunder, whether or not such provision is made pursuant to the immediately preceding sentence. 6.5 PROHIBITION OF FUNDAMENTAL CHANGES. Company will not, and will not cause or permit any of its Subsidiaries to, enter into any transaction of sale, transfer, merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself, or suffer any liquidation or dissolution, except (a) for sales in the ordinary course of business (which shall include Asset Sales in respect of Asset Securitizations and Loan Sales), (b) for the Maryland Merger (provided Franchise Finance Corporation of America, a Maryland corporation, simultaneously with the Maryland Merger shall have executed a debt assumption agreement and such other documents as are reasonably required by Administrative Agent), (c) for the liquidation or dissolution of any Subsidiary, Assets Securitization Affiliate or Loan Sale Affiliate, and (d) a Subsidiary of Company may merge into, or consolidate with, Company (provided Company is the survivor) or another Subsidiary of Company. Company will not, and will not cause or permit any of its Subsidiaries to, acquire any business or assets from, or capital stock of, or be a party to any acquisition of, any Person except for purchases of assets to be sold or used in the ordinary course of business (which shall include Asset Sales in respect of Asset Securitizations and Loan Sales). Company will not transfer any of the issued and outstanding Capital Stock of any Subsidiary which is a qualified REIT Subsidiary within the meaning of Section 865(i) of the Code and will not permit the issuance of any additional shares of such Capital Stock if the issuance thereof would cause such Subsidiary to fail to be characterized as a qualified REIT Subsidiary. 6.6 DISPOSITIONS OF ASSETS. Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, assign, or otherwise dispose of any assets of Company or any of its Subsidiaries in an Asset Sale, or otherwise consummate any Asset Sale, except so long as there exists no Default or Event of Default, and no Default or Event of Default would be caused thereby, Company and its Subsidiaries may consummate Asset Sales for fair market value in an aggregate amount not to exceed during any period of four consecutive fiscal quarters 25% of Total Assets (calculated as an amount equal to the result of (a) the sum of Total Assets as of the first day of each fiscal quarter during such four quarter period (b) divided by four), provided that the Asset Sale Proceeds in excess of $3,000,000 of each Asset Sale (excluding any Loan Sale) which occurs after the -52- Closing Date are applied as provided in SECTION 2.5(B) hereof; provided that, notwithstanding anything herein to the contrary, (i) Company will not dispose of any assets at any time in an amount that would impair or jeopardize the status of Company as a Real Estate Investment Trust and (ii) the market value of any assets sold in an Asset Securitization or a Loan Sale shall be excluded from the calculation of assets disposed of in Asset Sales for purposes of the 25% limitation set forth in this SECTION 6.6. On the day of any Asset Sale (excluding any Loan Sale) by Company or its Subsidiaries in which the Asset Sale Proceeds thereof exceed $3,000,000, Company shall deliver to Administrative Agent a certificate of an Authorized Officer certifying as to the amount of gross proceeds thereof and costs and expenses payable thereof which were deducted in determining the Asset Sale Proceeds. 6.7 DISTRIBUTIONS AND RESTRICTED PAYMENTS. Company shall not, and shall not permit any Subsidiary to, make any Restricted Payments, except that, notwithstanding the immediately preceding subsection, Company may (a) pay Permitted Distributions unless a Default or Event of Default shall exist or would be caused thereby, in which case Company may only pay such Distributions as may be required to maintain the status of Company as a Real Estate Investment Trust under the Code and (b) establish a stock option plan for employees and directors of Company and, provided no Default or Event of Default shall exist or would be caused thereby, Company may repurchase Capital Stock of Company for the purpose of matching employee stock purchases in connection with Company's retirement plans. 6.8 BUSINESS. Company shall not, and shall not permit any of its Subsidiaries to, engage to any substantial extent in any line or lines of business activity other than the lines of business activity engaged in by Company and its Subsidiaries as of the Closing Date. 6.9 TRANSACTIONS WITH AFFILIATES. Company shall not, and shall not permit any of its Subsidiaries to, enter into or be party to a transaction with any Affiliate, including, but not limited to, (a) dispositions of such assets in an Affiliate, (b) a loan or advance to an Affiliate, unless such Investment is evidenced by an Intercompany Note, and (c) mergers into, consolidations with, or purchases or acquisitions of assets from, any Affiliate; provided, (i) that Company may enter into such transactions if the value of the consideration for all such transactions (other than Asset Securitizations and Loan Sales) entered into after April 15, 1997 does not exceed $10,000,000 in aggregate amount; (ii) that an Affiliate who is an individual may serve as a director, officer or employee of Company, and (iii) that Company and its Subsidiaries may (A) enter into Asset Securitizations with Asset Securitization Affiliates and Loan Sales with the Company, its Subsidiaries and Loan Sale Affiliates, subject to the restrictions in SECTION 6.6 hereof and the requirements of SECTION 2.5(B) hereof, and (B) purchase or acquire Retained Securities. 6.10 LOANS AND INVESTMENTS. Company shall not, and shall not permit any of its Subsidiaries to, make any Investment to, or make or have any Investment in, any Person, or make any commitment to make any such Investment, or make any acquisition, except (a) Investments existing on the date hereof as shown on SECTION 4.13 hereto, (b) Investments in Cash Equivalents, (c) Investments in travel advances in the ordinary course of business to officers and employees, -53- (d) Investments in accounts receivable arising in the ordinary course of business, (e) Investments in Subsidiaries of Company in compliance with SECTION 6.17 hereof, (f) Investments in the form of subordinated investment securities and other similar instruments obtained by Company or any of its Subsidiaries in connection with an Asset Securitization; provided that the aggregate amount of such Investments pursuant to clause (f) (including the Secured Franchise Loan Pass-Through Certificates shown on SCHEDULE 4.13 hereto) shall not exceed 20% of Total Assets at any time, and (g) Investments in Loan Sale Affiliates not to exceed $5,000,000 in aggregate principal amount. 6.11 FISCAL YEAR AND ACCOUNTING METHOD. Company shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or method of accounting, except as may be required by GAAP. 6.12 AMENDMENT OF CORPORATE DOCUMENTS. Except with respect to the Maryland Merger (provided Franchise Finance Corporation of America, a Maryland corporation, simultaneously with the Maryland Merger shall have executed a debt assumption agreement and such other documents as are reasonably required by the Administrative Agent), Company shall not amend its articles of organization or bylaws and Company shall not permit any of its Subsidiaries to amend its articles of organization, bylaws or partnership agreement in any manner which could reasonably be expected to be materially adverse to the interests of Lenders. 6.13 COMPLIANCE WITH ERISA. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, or permit any member of such Person's Controlled Group to directly or indirectly, (a) terminate any Plan so as to result in any material (in the opinion of Administrative Agent) liability to Company, any Subsidiary of Company or any member of its Controlled Group, (b) permit to exist any ERISA Event, or any other event or condition, which presents the risk of any material (in the opinion of Administrative Agent) liability of Company, any Subsidiary of Company or any member of its Controlled Group, (c) make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any material (in the opinion of Administrative Agent) liability to Company, any Subsidiary of Company or any member of its Controlled Group, (d) enter into any new Plan or modify any existing Plan so as to increase its obligations thereunder (except in the ordinary course of business consistent with past practice) which could result in any material (in the opinion of Administrative Agent) liability to Company, any Subsidiary of Company or any member of its Controlled Group, or (e) permit the present value of all benefit liabilities, as defined in Title IV of ERISA, under each Plan of Company and each Subsidiary of Company or any member of its Controlled Group (using the actuarial assumptions utilized by the PBGC upon termination of a Plan) to materially (in the opinion of Administrative Agent) exceed the fair market value of Plan assets allocable to such benefits all determined as of the most recent valuation date for each such Plan. 6.14 SUBSIDIARIES AND OTHER OBLIGORS. Company shall not permit any of its Subsidiaries to violate any provision of this ARTICLE VI. -54- 6.15 AMENDMENTS TO MATERIAL AGREEMENTS. Company shall not, nor shall Company permit any of its Subsidiaries to, amend or change any Loan Paper other than with the prior written consent of Lenders pursuant to SECTION 9.1 hereof, nor shall Company or any of its Subsidiaries change or amend (or take any action or fail to take any action the result of which is an effective amendment or change), or accept any waiver or consent with respect to, any Intercompany Note other than with the prior written consent of Lenders pursuant to SECTION 9,1 hereof. 6.16 PROHIBITED TRANSACTIONS. Company shall not, and shall not permit any Subsidiary to, sell or otherwise transfer any Property in a transaction which constitutes a prohibited transaction within the meaning of Section 857(b)(6) of the Code if such prohibited transaction would cause Company or such Subsidiary to fail to satisfy any of the requirements of Section 856 of the Code. 6.17 NO NEW SUBSIDIARIES. Company shall not, and shall not permit any of its Subsidiaries to, acquire, incorporate or otherwise organize any Subsidiary which was not in existence on the Closing Date unless such Subsidiary (a) executes a Guaranty Agreement, a Subordination Agreement and an Intercompany Note and (b) delivers to Administrative Agent (i) the executed Guaranty Agreement, Subordination Agreement and an Officer's Certificate containing Articles of Incorporation, Bylaws, corporate resolutions, and incumbency of officers, all in form and substance reasonably satisfactory to Administrative Agent, and (ii) an opinion of legal counsel of such Subsidiary in form and substance reasonably satisfactory to Administrative Agent. 6.18 ASSET SECURITIZATION AND LOAN SALE AFFILIATES. Company will not permit any Asset Securitization Affiliate or Loan Sale Affiliate to conduct any active trade or business other than directly in respect of an Asset Securitization or a Loan Sale, as the case may be. Without limiting the generality of the foregoing, Company shall not permit any Asset Securitization Affiliate or Loan Sale Affiliate to directly or indirectly, other than in conjunction with an Asset Securitization or Loan Sale, as the case may be, (a) incur, assume, guaranty or otherwise create or become liable in respect of any Indebtedness, (b) make, or permit to remain outstanding, an Investment in any Person, (c) create or suffer to be created or exist a Lien upon any part of its property or upon any income, revenues, issues and profits thereof, (d) sell, transfer, exchange or otherwise dispose of any part of its property, (e) create, organize or establish any Person, including, without limitation, any Subsidiary, or (f) maintain, contribute to or assume any liability with respect to any Person. 6.19 REPAYMENT OF ADVANCES UNDER THE AMENDED AND RESTATED CREDIT AGREEMENT. At any time that Advances are outstanding hereunder, Company shall not, and shall not permit any Subsidiary to, repay or prepay any Advances (as defined in the Amended and Restated Credit Agreement) under the Amended and Restated Credit Agreement. -55- ARTICLE VII. EVENTS OF DEFAULT 7.1 EVENTS OF DEFAULT. Any one or more of the following shall be an "EVENT OF DEFAULT" hereunder, if the same shall occur for any reason whatsoever, whether voluntary or involuntary, by operation of Law, or otherwise: (a) Company shall fail to pay any (i) principal under any Loan Paper when due or (ii) any interest, fees, or other amounts under any Loan Paper within two Business Days when due; (b) Any representation or warranty made or deemed made by Company or any Subsidiary of Company (or any of its officers or representatives) under or in connection with any Loan Papers shall prove to have been incorrect or misleading in any material respect when made or deemed made; (c) Company or any Subsidiary of Company shall fail to perform or observe any term or condition contained in ARTICLE V (other than SECTION 5.12 hereof) and such failure shall not be remedied within fifteen days after written notice thereof shall have been given to Company by Administrative Agent; (d) Company or any Subsidiary of Company shall fail to perform or observe SECTION 5.12 hereof or any term or covenant contained in ARTICLE VI; (e) Company or any Subsidiary of Company shall fail to perform or observe any other term or covenant contained in any Loan Paper, other than those described in SECTIONS 7.1(A), (B), (C) and (D), and such failure shall not be remedied within fifteen days after written notice thereof shall have been given to Company by Administrative Agent; (f) Any material provision of any Loan Paper shall, for any reason, not be valid and binding on Company or any Subsidiary of Company, or not be in full force and effect, or shall be declared to be null and void; the validity or enforceability of any Loan Paper shall be contested by Company or any Subsidiary of Company; Company or any Subsidiary of Company shall deny that it has any or further liability or obligation under its respective Loan Papers; (g) Any of the following shall occur: (i) Company or any Subsidiary of Company shall make an assignment for the benefit of creditors or be unable to pay its debts generally as they become due; (ii) Company or any Subsidiary of Company shall petition or apply to any Tribunal for the appointment of a trustee, receiver, or liquidator of it, or of any substantial part of its assets, or shall commence any proceedings relating to Company or any Subsidiary of Company under any Debtor Relief Law, whether now or hereafter in effect; (iii) any such petition or application shall be filed, or any such proceedings shall be commenced, against Company or any Subsidiary of Company, or an order, judgment or decree shall be entered appointing any such trustee, receiver, or liquidator, or approving the petition in any such proceedings; (iv) any final order, judgment, or decree shall be entered in any proceedings against Company -56- or any Subsidiary of Company decreeing its dissolution; (v) any final order, judgment, or decree shall be entered in any proceedings against Company or any Subsidiary of Company decreeing its split-up which requires the divestiture of a substantial part of its assets; or (vi) Company or any Subsidiary of Company shall petition or apply to any Tribunal for the appointment of a trustee, receiver, or liquidator of it, or of any substantial part of its assets, or shall commence any proceedings relating to Company or any Subsidiary of Company under any Debtor Relief Law, whether now or hereafter in effect; (h) Company or any Subsidiary of Company shall fail to pay any Indebtedness or Contingent Liability in an aggregate amount of $1,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness or Contingent Liability; or Company or any Subsidiary of Company shall fail to perform or observe any term or covenant contained in any agreement or instrument relating to any such Indebtedness or Contingent Liability, when required to be performed or observed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument, and can result in acceleration of the maturity of such Indebtedness or Contingent Liability; or any such Indebtedness or Contingent Liability shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), repurchased or redeemed, prior to the stated maturity thereof; (i) Company or any Subsidiary of Company shall have any final judgment(s) outstanding against it for the payment of $500,000 or more, and such judgment(s) shall remain unstayed, in effect, and unpaid for a period of 60 days; (j) A Change of Control shall occur; (k) Company, any Subsidiary of Company, or any ERISA Affiliate shall have committed a failure described in Section 302(f)(l) of ERISA, and the amount determined under Section 302(f)(3) of ERISA is equal to or greater than $100,000; (l) Company, any Subsidiary, or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result thereof the aggregate annual contributions to all Multiemployer Plans in reorganization or being terminated is increased over the amounts contributed to such Plans for the preceding Plan year by an amount exceeding $50,000; (m) Company or any Subsidiary of Company shall be required under any Environmental Law to implement any remedial, neutralization, or stabilization process or program, the cost of which could constitute a Material Adverse Change; (n) Company shall fail or cause to qualify, or be unable to certify to Lenders its continuing status, as a Real Estate Investment Trust pursuant to Sections 856 through 860 of the Code; or any Subsidiary which is a qualified -57- REIT subsidiary within the meaning of Section 856(i) of the Code shall fail to qualify as a qualified REIT subsidiary within the meaning of Section 856(i) of the Code; or (o) An Event of Default (as defined in the Amended and Restated Credit Agreement) shall occur and be continuing under the Amended and Restated Credit Agreement. 7.2 REMEDIES UPON DEFAULT. If an Event of Default described in SECTION 7.1(G) shall occur, the Commitment shall be immediately terminated and the aggregate unpaid principal balance of and accrued interest on all Advances shall, to the extent permitted by applicable Law, thereupon become due and payable concurrently therewith, without any action by Administrative Agent or any Lender, and without diligence, presentment, demand, protest, notice of protest or intent to accelerate, or notice of any other kind, all of which are hereby expressly waived. Subject to the foregoing sentence, if any Event of Default shall occur and be continuing, Administrative Agent may at its election (provided (i) Administrative Agent has sent notice to all Lenders of its intention to do any one ore more of the following and within five Business Days of such notice Majority Lenders have not notified Administrative Agent not to take such action or (ii) Administrative Agent in good faith determines that immediate action is necessary to be taken to protect the Rights of Lenders), and shall at the discretion of Majority Lenders, do any one or more of the following: (a) Declare the entire unpaid balance of all Advances immediately due and payable, whereupon it shall be due and payable without diligence, presentment, demand, protest, notice of protest or intent to accelerate, or notice of any other kind (except notices specifically provided for under SECTION 7.1), all of which are hereby expressly waived (except to the extent waiver of the foregoing is not permitted by applicable Law); (b) Terminate the Commitment; (c) Reduce any claim of Administrative Agent and Lenders to judgment; (d) Exercise any Rights afforded under any Loan Papers, by Law, including but not limited to the UCC, at equity, or otherwise. 7.3 CUMULATIVE RIGHTS. All Rights available to Administrative Agent and Lenders under the Loan Papers shall be cumulative of and in addition to all other Rights granted thereto at Law or in equity, whether or not amounts owing thereunder shall be due and payable, and whether or not Administrative Agent or any Lender shall have instituted any suit for collection or other action in connection with the Loan Papers. Nothing contained herein or in any other Loan Papers shall limit the Right of any Lender to collect its Note upon acceleration of the Obligations pursuant to the terms of this Agreement. 7.4 WAIVERS. The acceptance by Administrative Agent or any Lender at any time and from time to time of partial payment of any amount owing under any Loan Papers shall not be deemed to be a waiver of any Default or Event of Default -58- then existing. No waiver by Administrative Agent or any Lender of any Default or Event of Default shall be deemed to be a waiver of any Default or Event of Default other than such Default or Event of Default. No delay or omission by Administrative Agent or any Lender in exercising any Right under the Loan Papers shall impair such Right or be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise of any such Right preclude other or further exercise thereof, or the exercise of any other Right under the Loan Papers or otherwise. 7.5 PERFORMANCE BY ADMINISTRATIVE AGENT OR ANY LENDER. Should any covenant of Company or any Subsidiary of Company fail to be performed in accordance with the terms of the Loan Papers, Administrative Agent may, at its option, perform or attempt to perform such covenant on behalf of Company or such Subsidiary. Notwithstanding the foregoing, it is expressly understood that neither Administrative Agent nor any Lender assumes, and shall not ever have, except by express written consent of Administrative Agent or such Lender, (a) any liability or responsibility for the performance of any duties or covenants of Company or any Subsidiary of Company or (b) any implied or fiduciary duties whatsoever to Company or any Subsidiary of Company. 7.6 EXPENDITURES. Company shall reimburse Administrative Agent and each Lender for any reasonable sums spent by it in connection with the exercise of any Right provided herein. Such sums shall bear interest at the lesser of (a) the Base Rate in effect from time to time, plus 3.0% and (b) the Highest Lawful Rate, from the date spent until the date of repayment by Company. 7.7 CONTROL. None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Administrative Agent or any Lender any Rights to exercise control over the affairs and/or management of Company or any Subsidiary of Company, the power of Administrative Agent and each Lender being limited to the Rights to exercise the remedies provided in this Article. ARTICLE VIII. ADMINISTRATIVE AGENT 8.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under this Agreement and the other Loan Papers as are delegated to Administrative Agent by the terms of the Loan Papers, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement and the other Loan Papers (including without limitation enforcement or collection of the Notes), Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Majority Lenders (or all Lenders, if required under SECTION 9.1), and such instructions shall be binding upon all Lenders; PROVIDED, HOWEVER, that Administrative Agent shall not be required to take any action which exposes Administrative Agent to personal -59- liability or which is contrary to any Loan Papers or applicable Law. Administrative Agent agrees to distribute promptly to each Lender copies of any notices, requests and other information received from Company pursuant to the terms of this Agreement, and to distribute to each applicable Lender in like funds all amounts delivered to Administrative Agent by Company for the Ratable or individual account of any Lender, with such funds to be distributed on the date of receipt by Administrative Agent provided such funds are received by the time prescribed in SECTION 2.12(A), or the immediately following Business Day if such funds are received after such time (any funds not so distributed by Administrative Agent shall bear interest payable by Administrative Agent at a rate per annum equal to the Federal Funds Rate to but not including the date of receipt by such Lender). Functions of Administrative Agent are administerial in nature and in no event shall Administrative Agent have a fiduciary or trustee relationship in respect of any Lender by reason of this Agreement or any other Loan Paper. 8.2 ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither Administrative Agent, nor any of its directors, officers, agents, employees, Affiliates, or representatives shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Paper, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, Administrative Agent (a) may treat the payee of any Note as the holder thereof until Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to Administrative Agent; (b) may consult with legal counsel (including counsel for Company or any of its Subsidiaries), independent public accountants, and other experts selected by it, and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with this Agreement or any other Loan Papers; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants, or conditions of this Agreement or any other Loan Papers on the part of Company or its Subsidiaries or to inspect the Property (including the books and records) of Company or its Subsidiaries; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement, any other Loan Papers, or any other instrument or document furnished pursuant hereto; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Papers by acting upon any notice, consent, certificate, or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. 8.3 BANK OF AMERICA, N.A. AND AFFILIATES. With respect to its Commitment, its Advances, and any Loan Papers, Bank of America, N.A. has the same Rights under this Agreement as any other Lender and may exercise the same as though it were not Administrative Agent. Bank of America, N.A. and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Company or any Subsidiary of Company, any Affiliate thereof, and any Person who may do business therewith, all as if Bank of America, N.A. were not Administrative Agent and without any duty to account therefor to any Lender. -60- 8.4 LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon Administrative Agent or any other Lender, and based on the financial statements referred to in SECTION 4.4 hereof and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Papers. 8.5 INDEMNIFICATION BY LENDERS. LENDERS SHALL INDEMNIFY ADMINISTRATIVE AGENT, PRO RATA, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN PAPERS OR ANY ACTION TAKEN OR OMITTED BY ADMINISTRATIVE AGENT THEREUNDER, INCLUDING MERE OR ORDINARY NEGLIGENCE OF ADMINISTRATIVE AGENT; PROVIDED, HOWEVER, THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, LENDERS SHALL REIMBURSE ADMINISTRATIVE AGENT, PRO RATA, PROMPTLY UPON DEMAND FOR ANY OUT-OF-POCKET EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) INCURRED BY ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATION, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL AND OTHER ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN PAPERS. THE INDEMNITY PROVIDED IN THIS SECTION 8.5 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT. ANY AMOUNTS SO PAID BY LENDERS TO ADMINISTRATIVE AGENT SHALL BE RETURNED BY ADMINISTRATIVE AGENT PRO RATA TO EACH PAYING LENDER TO THE EXTENT LATER PAID BY COMPANY OR ANY OTHER PERSON ON COMPANY'S BEHALF TO ADMINISTRATIVE AGENT. 8.6 SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign at any time by giving written notice thereof to Lenders and Company, and may be removed at any time with cause by the Majority Lenders or without cause by action of all Lenders (other than Administrative Agent, if it is a Lender); PROVIDED, HOWEVER, so long as (a) Bank of America, N.A. is a Lender and (b) no Default or Event of Default has occurred and is continuing, Bank of America, N.A. shall not have the right to resign as Administrative Agent. Upon any such resignation, Majority Lenders shall have the right, with the consent of Company (which consent shall not be unreasonably withheld) so long as no Event of Default has occurred and is continuing, to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed and shall have accepted such appointment within thirty days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of Lenders, with the consent of Company (which consent shall not be unreasonably withheld), appoint a successor Administrative Agent, which shall be a commercial bank organized under the Laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall -61- thereupon succeed to and become vested with all the Rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Papers, provided that (a) if the retiring or removed Administrative Agent is unable to appoint a successor Administrative Agent and (b) a Default or Event of Default shall have occurred and be continuing, Administrative Agent shall, after the expiration of a sixty day period from the date of notice, be relieved of all obligations as Administrative Agent hereunder. Notwithstanding any Administrative Agent's resignation or removal hereunder, the provisions of this Article shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 8.7 NOTICE OF DEFAULT. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default (other than an Event of Default under SECTION 7.1(A) hereof) unless Administrative Agent has received notice from a Lender or Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that Administrative Agent receives any such notice, Administrative Agent shall promptly give notice thereof to Lenders. ARTICLE IX. MISCELLANEOUS 9.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Papers, nor consent to any departure by Company or any Subsidiary of Company therefrom, shall be effective unless the same shall be in writing and signed by Administrative Agent with the consent of Majority Lenders, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver, or consent shall (and the result of action or failure to take action shall not) unless in writing and signed by all of Lenders and Administrative Agent, (a) increase the Commitment, (b) reduce any principal, interest, fees, or other amounts payable hereunder, or waive or result in the waiver of any Event of Default under SECTION 7.1(A), (c) extend the Maturity Date or otherwise postpone any date fixed for any payment of principal, interest, fees, or other amounts payable hereunder, (d) release any Guaranties securing the Obligations, other than releases contemplated hereby and by the Loan Papers, (e) change the definition of Specified Percentage or the number of Lenders required to take any action hereunder, (f) amend SECTION 6.1(E) or the definition of any defined term set forth therein, (g) amend this SECTION 9.1, or (h) release or amend any Subordination Agreement. No amendment, waiver, or consent shall affect the Rights or duties of Administrative Agent under any Loan Papers, unless it is in writing and signed by Administrative Agent in addition to the requisite number of Lenders. -62- 9.2 NOTICES. (a) MANNER OF DELIVERY. All notices communications and other materials to be given or delivered under the Loan Papers shall, except in those cases where giving notice by telephone is expressly permitted, be given or delivered in writing. All written notices, communications and materials shall be sent by registered or certified mail, postage prepaid, return receipt requested, by telecopier, or delivered by hand. In the event of a discrepancy between any telephonic notice and any written confirmation thereof, such written confirmation shall be deemed the effective notice except to the extent Administrative Agent, any Lender or Company has acted in reliance on such telephonic notice. (b) ADDRESSES. All notices, communications and materials to be given or delivered pursuant to this Agreement shall be given or delivered at the following respective addresses and telecopier and telephone numbers and to the attention of the following individuals or departments: If to Company: Franchise Finance Corporation of America The Perimeter Center 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone No.: (602) 585-4500 Facsimile No. (602) 585-2225 Attention: John R. Barravecchia Executive Vice President and Chief Financial Officer With a copy to: Franchise Finance Corporation of America The Perimeter Center 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone No.: (602) 585-4500 Facsimile No. (602) 585-2225 Attention: Dennis L. Ruben, Esq. Executive Vice President and General Counsel If to Administrative Agent: Bank of America, N.A. 100 North Tryon Street, NC1-007-17-11 Charlotte, North Carolina 28255 Telephone No.: (704) 386-9015 Facsimile No.: (704) 386-3271 Attention: Richard L. Nichols Managing Director With a copy to: Bank of America, N.A. 901 Main Street, 14th Floor Dallas, Texas 75202 Telephone No.: (214) 209-2138 Facsimile No.: (214) 209-2515 Attention: Tonya Parker (c) If to any Lender, to its address set forth below opposite its signature or on any Assignment and Acceptance or amendment to this Agreement; or at such other address or, telecopier or telephone number or to the attention of such other individual or department as the party to which such information pertains may hereafter specify for the purpose in a notice to the other specifically captioned "Notice of Change of Address". (d) EFFECTIVENESS. Each notice, communication and any material to be given or delivered to any party pursuant to this Agreement shall be effective or deemed delivered or furnished (i) if sent by mail, on the fifth day after such notice, communication or material is deposited in the mail, addressed as above provided, (ii) if sent by telecopier, when such notice, communication or material is transmitted to the appropriate number determined as above provided in this SECTION 9.2 and the appropriate receipt is received or otherwise acknowledged, (iii) if sent by hand delivery or overnight courier, when left at the address of the addressee addressed as above provided, and (iv) if given by telephone, when communicated to the individual or any member of the department specified as the individual or department to whose attention notices, communications and materials are to be given or delivered except that notices of a change of address, telecopier or telephone number or individual or department to whose attention notices, communications and materials are to be given or delivered shall not be effective until received; PROVIDED, HOWEVER, that notices to Administrative Agent pursuant to ARTICLE II shall be effective when received. Company agrees that Administrative Agent shall have no duty or obligation to verify or otherwise confirm telephonic notices given pursuant to ARTICLE II, and agrees to indemnify and hold harmless Administrative Agent and Lenders for any -64- and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, and expenses resulting, directly or indirectly, from acting upon any such notice. 9.3 PARTIES IN INTEREST. All covenants and agreements contained in this Agreement and all other Loan Papers shall bind and inure to the benefit of the respective successors and assigns of the parties hereto. Each Lender may from time to time assign or transfer its interests hereunder pursuant to SECTION 9.4 hereof. Neither Company nor any Subsidiary of Company may assign or transfer its Rights or obligations under any Loan Paper without the prior written consent of Administrative Agent. 9.4 ASSIGNMENTS AND PARTICIPATIONS. (a) Subject to the following sentence, each Lender (an "ASSIGNOR") may assign its Rights and obligations as a Lender under the Loan Papers to one or more Eligible Assignees pursuant to an Assignment and Acceptance, so long as (i) each assignment shall be of a constant, and not a varying percentage of all Rights and obligations thereunder, (ii) each Assignor shall in each case pay a $3,500 processing fee to Administrative Agent, and (iii) no such assignment shall be made unless a pro rata assignment is made under the Amended and Restated Credit Agreement and no such assignment (including the amount of the simultaneous assignment pursuant to the Amended and Restated Credit Agreement) shall be in an amount less than $10,000,000. Within five Business Days after Administrative Agent receives notice of any such assignment, Company shall execute and deliver to Administrative Agent, in exchange for the Notes issued to Assignor, new Notes to the order of such Assignor and its assignee in amounts equal to their respective Specified Percentages of the Commitment, if the Commitment is outstanding. Such new Notes shall be dated the effective date of the assignment. It is specifically acknowledged and agreed that on and after the effective date of each assignment, the assignee shall be a party hereto and shall have the Rights and obligations of a Lender under the Loan Papers. (b) Each Lender may sell participations to one or more Persons in all or any of its Rights and obligations under the Loan Papers; PROVIDED, HOWEVER, that (i) such Lender's obligations under the Loan Papers shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of its Notes for all purposes of the Loan Papers, (iv) the participant shall be granted the Right to vote on or consent to only those matters described in SECTIONS 9.1(A), (B), (C) and (D), (v) Company and each Subsidiary of Company, Administrative Agent, and other Lenders shall continue to deal solely and directly with such Lender in connection with its Rights and obligations under the Loan Papers and (vi) no such participation is for an amount less than $5,000,000. (c) Any Lender may, in connection with any assignment or participation, or proposed assignment or participation, disclose to the assignee or participant, or proposed assignee or participant, any information relating to Company or any Subsidiary of Company furnished to such Lender by or on behalf of Company or any Subsidiary of Company, provided such Person executes a Confidentiality Agreement. -65- (d) Notwithstanding any other provision set forth in this Agreement, each Lender may at any time create a security interest in all or any portion of its Rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. 9.5 SHARING OF PAYMENTS. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any Right of set-off, or otherwise) on account of its Advances in excess of its pro rata share of payments made by Company, such Lender shall forthwith purchase participations in Advances made by the other Lenders as shall be necessary to share the excess payment pro rata with each of them; PROVIDED, HOWEVER, that if any of such excess payment is thereafter recovered from the purchasing Lender, its purchase from each Lender shall be rescinded and each Lender shall repay the purchase price to the extent of such recovery together with a pro rata share of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Company agrees that any Lender so purchasing a participation from another Lender pursuant to this SECTION 9.5 may, to the fullest extent permitted by Law, exercise all its Rights of payment (including the Right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Company in the amount of such participation. 9.6 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of Company against any and all of the obligations of Company now or hereafter existing under this Agreement and the other Loan Papers, whether or not Administrative Agent or any Lender shall have made any demand under this Agreement or the other Loan Papers, and even if such obligations are unmatured. Each Lender shall promptly notify Company after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The Rights of each Lender under this SECTION 9.6 are in addition to other Rights (including, without limitation, other Rights of set-off) which such Lender may have. 9.7 COSTS, EXPENSES, AND TAXES. (a) Company agrees to pay on demand (i) all reasonable costs and expenses of Administrative Agent and its Affiliates in connection with the preparation and negotiation of all Loan Papers, including without limitation the reasonable fees and out-of-pocket expenses of Special Counsel, and the reasonable costs and expenses of Administrative Agent and its Affiliates in connection with the syndication of the Commitment and (ii) all costs and expenses (including reasonable attorneys' fees and expenses) of Administrative Agent and each Lender in connection with administration, interpretation, modification, amendment, waiver, or release of any Loan Papers and any restructuring, work-out, or collection of any portion of the Obligations or the enforcement of any Loan Papers. -66- (b) In addition, Company shall pay any and all stamp, debt, and other Taxes payable or determined to be payable in connection with any payment hereunder (other than Taxes on the overall net income of Administrative Agent or any Lender or franchise Taxes or Taxes on capital or capital receipts of Administrative Agent or any Lender), or the execution, delivery, or recordation of any Loan Papers, and agrees to save Administrative Agent and each Lender harmless from and against any and all liabilities with respect to, or resulting from any delay in paying or omission to pay any Taxes in accordance with this SECTION 9.7, including any penalty, interest, and expenses relating thereto. All payments by Company or any Subsidiary of Company under any Loan Papers shall be made free and clear of and without deduction for any present or future Taxes (other than Taxes on the overall net income of Administrative Agent or any Lender of any nature now or hereafter existing, levied, or withheld, or franchise Taxes or Taxes on capital or capital receipts of Administrative Agent or any Lender), including all interest, penalties, or similar liabilities relating thereto. If Company shall be required by Law to deduct or to withhold any Taxes from or in respect of any amount payable hereunder, (i) the amount so payable shall be increased to the extent necessary so that, after making all required deductions and withholdings (including Taxes on amounts payable to Administrative Agent or any Lender pursuant to this sentence), Administrative Agent or any Lender receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) Company shall make such deductions or withholdings, and (iii) Company shall pay the full amount deducted or withheld to the relevant taxing authority in accordance with applicable Law. Without prejudice to the survival of any other agreement of Company hereunder, the agreements and obligations of Company contained in this SECTION 9.7 shall survive the execution of this Agreement, termination of the Commitment, repayment of the Obligations, satisfaction of each agreement securing or assuring the Obligations and termination of this Agreement and each other Loan Paper. (c) Within 30 days after the date of any payment of Taxes, Company will furnish to Administrative Agent the original or a certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment hereunder, Company will furnish to Administrative Agent a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to Administrative Agent, in either case stating that such payment is exempt from or not subject to Taxes, PROVIDED, HOWEVER, that such certificate or opinion need only be given if: (i) Company makes any payment from any account located outside the United States, or (ii) the payment is made by a payor that is not a United States Person. For purposes of this SECTION 9.7 the terms "United States" and "United States Person" shall have the meanings set forth in Section 7701 of the Code. (d) Each Lender which is not a United States Person (as defined in Section 7701 of the Code) hereby agrees that: (i) it shall, no later than the Closing Date (or, in the case of a Lender which becomes a party hereto pursuant to SECTION 9.4 after the Closing Date, the date upon which such Lender becomes a party hereto) deliver to Company through Administrative Agent, with a copy to Administrative Agent: -67- (A) if any lending office is located in the United States of America, two (2) accurate and complete signed originals of Internal Revenue Service Form 4224 or any successor thereto ("Form 4224"), (B) if any lending office is located outside the United States of America, two (2) accurate and complete signed originals of Internal Revenue Service Form 1001 or any successor thereto ("Form 1001"). in each case indicating that such Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such lending office or lending offices under this Agreement free from withholding of United States Federal income tax; (ii) if at any time such Lender changes its lending office or lending offices or selects an additional lending office it shall, at the same time or reasonably promptly thereafter but only to the extent the forms previously delivered by it hereunder are no longer effective, deliver to Company through Administrative Agent, with a copy to Administrative Agent, in replacement for the forms previously delivered by it hereunder: (A) if such changed or additional lending office is located in the United States of America, two (2) accurate and complete signed originals of Form 4224; or (B) otherwise, two (2) accurate and complete signed originals of Form 1001, in each case indicating that such Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such changed or additional lending office under this Agreement free from withholding of United States Federal income tax; (iii) it shall, before or promptly after the occurrence of any event (including the passing of time but excluding any event mentioned in clause (ii) above) requiring a change in the most recent Form 4224 or Form 1001 previously delivered by such Lender and if the delivery of the same be lawful, deliver to Company through Administrative Agent with a copy to Administrative Agent, two (2) accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by such Lender; (iv) it shall, promptly upon the request of Company to that effect, deliver to Company such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Lender's tax status for withholding purposes; and (v) it shall notify Company within 30 days after any event (including an amendment to, or a change in any applicable law or regulation or in the written interpretation thereof by any regulatory authority or any judicial authority, or by ruling applicable to such Lender of any governmental -68- authority charged with the interpretation or administration of any law) shall occur that results in such Lender no longer being capable of receiving payments without any deduction or withholding of United States federal income tax. 9.8 RATE PROVISION. It is not the intention of any party to any Loan Papers to make an agreement violative of the Laws of any applicable jurisdiction relating to usury. In no event shall Company or any other Person be obligated to pay any amount in excess of the Maximum Amount. If Administrative Agent or any Lender ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and if principal is paid in full, any remaining excess shall be paid to Company or the other Person entitled thereto. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Maximum Amount, Company, each Subsidiary of Company, Administrative Agent and each Lender shall, to the maximum extent permitted under Applicable Law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Obligations so that the interest rate is uniform throughout the entire term of the Obligations; PROVIDED that if the Obligations are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Amount, Administrative Agent or Lenders, as appropriate, shall refund to Company the amount of such excess or credit the amount of such excess against the total principal amount owing, and, in such event, neither Administrative Agent nor any Lender shall be subject to any penalties provided by any Laws for contracting for, charging or receiving interest in excess of the Maximum Amount. This SECTION 9.8 shall control every other provision of all agreements among the parties to the Loan Papers pertaining to the transactions contemplated by or contained in the Loan Papers. 9.9 CONFIDENTIALITY. Each Lender and Administrative Agent agrees (on behalf of itself and each of its Affiliates, directors, officers, employees and representatives) to (a) keep confidential in accordance with its customary procedures for handling such information any non-public information supplied to it by Company pursuant to this Agreement which is identified by Company as being confidential at the time the same is delivered to Lenders or Administrative Agent, including, without limitation, written information and information transferred visually or electronically, together with all notes, analyses, compilations, studies or other documents that contain all or a portion of such information (collectively, "CONFIDENTIAL INFORMATION") and (b) use the Confidential Information solely in connection with the Loan Papers and the evaluation of Company and its Subsidiaries, provided that nothing herein shall limit the disclosure of any Confidential Information (a) to the extent required by Law or judicial process, (b) to counsel for any Lender or Administrative Agent, (c) to bank examiners, auditors or accountants of any Lender, (d) to Administrative Agent or any other Lender, (e) in connection with any Litigation to which any one or more of Lenders is a party, provided, further, that, unless specifically prohibited by applicable Law or court order, each Lender shall, prior to disclosure thereof, give prompt notification to Company of any request for disclosure of any such non-public information (i) by any governmental agency or representative thereof (other than any such request in connection with an -69- examination of such Lender's financial condition by such governmental agency) or (ii) pursuant to legal process, or (f) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) executes a Confidentiality Agreement. With respect to any disclosure of any Confidential Information set forth in subclause (i) or (ii) of clause (e) above, each Lender agrees, to the extent not prohibited by applicable law or court order, to (a) cooperate with Company so that Company may seek a protective order or other appropriate remedy and (b) use its best efforts to obtain an order or reasonable assurance that confidential treatment will be afforded such Confidential Information. At the earlier of such time as (a) a Person is no longer a Lender or participant under this Agreement, or (b) all Advances under this Agreement are paid in full and the Commitment is terminated, upon written request by Company and subject to any restrictions or regulations of any Tribunal having supervisory authority over Lenders, such Lender or participant shall return to Company the Confidential Information which is in tangible form, including any copies which such Lender or participant or any Persons to whom such Lender or participant transmitted the Confidential Information may have made, and such Lender or participant or such Person will destroy all abstracts, summaries thereof or references thereto in such Lender's or participant's or such Person's documents, and after written request by Company, shall promptly provide Company reasonable assurance in writing that such Lender or participant or such Person have complied with this paragraph. Each Lender acknowledges that Company is in the business of financing commercial real estate, equipment and enterprises and from time to time such Lender and Company may be in direct competition with each other for business. This Agreement does not constitute a license for any Lender to use, employ or exploit the Confidential Information to gain any advantage in the marketplace against Company; it being expressly understood and agreed that any use, employment or exploitation of the Confidential Information for a purpose not expressly permitted herein is strictly prohibited. 9.10 SEVERABILITY. If any provision of any Loan Papers is held to be illegal, invalid, or unenforceable under present or future Laws during the term thereof, such provision shall be fully severable, the appropriate Loan Paper shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of such Loan Paper a legal, valid, and enforceable provision as similar in terms to the illegal, invalid, or unenforceable provision as may be possible. 9.11 EXCEPTIONS TO COVENANTS. Neither Company nor any of its Subsidiaries shall be deemed to be permitted to take any action or to fail to take any action that is permitted as an exception to any covenant in any Loan Papers, or that is within the permissible limits of any covenant, if such action or omission would result in a violation of any other covenant in any Loan Papers. -70- 9.12 COUNTERPARTS. This Agreement and the other Loan Papers may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. 9.13 NO DUTIES OF DOCUMENTATION AGENT, SYNDICATION AGENT, MANAGING AGENT, OR CO- AGENTS. Company and Lenders acknowledge that the Documentation Agent, the Syndication Agent, the Managing Agent, and the Co-Agents shall have no duties, responsibilities or liabilities in their capacities as Syndication Agent, Documentation Agent, Managing Agent, and Co-Agents. 9.14 GOVERNING LAW; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE CONTRACTS MADE AND PERFORMABLE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO CONFLICT OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, COMPANY AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM EXTENT PERMITTED BY LAW, COMPANY HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. (b) COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT. COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO COMPANY AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION 9.13 SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 9.15 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK -71- IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first set forth above. COMPANY: FRANCHISE FINANCE CORPORATION OF AMERICA By: /s/ John R. Barravecchia ------------------------------------ John R. Barravecchia Executive Vice President and Chief Financial Officer -72- LENDERS: BANK OF AMERICA, N.A., individually and as Administrative Agent Specified Percentage: 25.3478260870% By: /s/ Richard L. Nichols ------------------------------------ Richard L. Nichols Managing Director Address: 100 North Tryon Street, NC1-007-17-11 Charlotte, North Carolina 28255 Facsimile: (704) 386-3271 Attention: Richard L. Nichols Telephone: (704) 386-9015 -73- WELLS FARGO BANK, NATIONAL ASSOCIATION, individually and as Documentation Agent Specified Percentage: 14.3478260870% By: /s/ John R. Randall ------------------------------------ John R. Randall Vice President Address: 100 West Washington, 25th Floor Phoenix, Arizona 85038 Facsimile: (602) 378-2350 Attention: Greg Stava Telephone: (602) 378-4445 -74- COMMERZBANK AKTIENGESELLSCHAFT, NEW YORK BRANCH, as Syndication Agent and COMMERZBANK AKTIENGESELLSCHAFT, New York Branch and Grand Cayman Branch, individually Specified Percentage: 14.3478260870% By: /s/ Steven F. Larsen ------------------------------------ Steven F. Larsen Vice President By: /s/ Oliver Welsch-Lehmann ------------------------------------ Oliver Welsch-Lehmann Assistant Vice President Address: 633 West 5th Street, Suite 6600 Los Angeles, California 90071 Facsimile: (213) 623-0039 Attention: Steven F. Larsen Telephone: (213) 683-5412 -75- COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, individually and as Managing Agent Specified Percentage: 8.6086956522% By: /s/ W. Jeffrey Vollack ------------------------------------ W. Jeffrey Vollack Senior Credit Officer Senior Vice President By: /s/ Bradford F. Scott ------------------------------------ Bradford F. Scott Executive Director Address: 4 Embarcadero Center, Suite 3200 San Francisco, California 94111 Facsimile: (415) 986-8349 Attention: Bradford F. Scott Telephone: (415) 782-9809 -76- BANK ONE, ARIZONA, N.A., individually and as Co-Agent Specified Percentage: 7.1739130435% By: /s/ Michael V. McCann ------------------------------------ Michael V. McCann Vice President Address: 201 North Central, 21st Floor Phoenix, Arizona 85004 Facsimile: (602) 221-1259 Attention: Mike McCann Telephone: (602) 221-2830 -77- UNION BANK OF CALIFORNIA, N.A., individually and as Co-Agent Specified Percentage: 7.1739130435% By: /s/ Donald H. Rubin ------------------------------------ Donald H. Rubin Vice President Address: 350 California Street, 6th Floor San Francisco, California 94104 Facsimile: (415) 705-7037 Attention: Don Rubin Telephone: (415) 705-7060 -78- WASHINGTON MUTUAL BANK d/b/a WESTERN BANK, individually and as Co-Agent Specified Percentage: 7.1739130435% By: /s/ Bruce Kendrex ------------------------------------ Bruce Kendrex Vice President Address: 1201 Third Avenue, Suite 1000 Seattle, Washington 98101 Facsimile: (206) 377-2575 Attention: Bruce Kendrex Telephone: (206) 490-4465 -79- WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH Specified Percentage: 4.3478260870% By: /s/ Raymond K. Miller ------------------------------------ Raymond K. Miller Director By: /s/ Leo Kapakos ------------------------------------ Leo Kapakos Associate Director Address: 1211 Avenue of the Americas New York City, New York 10036 Facsimile: (212) 852-6148 Attention: Leo Kapakos Telephone: (212) 852-6310 -80- THE INDUSTRIAL BANK OF JAPAN, LIMITED Specified Percentage: 5.7391304348% By: /s/ Takeshi Kubo ------------------------------------ Takeshi Kubo Vice President Address: 350 South Grand Avenue, Suite 1500 Los Angeles, California 90071 Facsimile: (213) 488-9840 Attention: Takeshi Kubo Telephone: (213) 893-6447 -81- BANK HAPOALIM B.M. Specified Percentage: 5.7391304348% By: /s/ Shlomo Braun ------------------------------------ Shlomo Braun Senior Vice President By: /s/ Lewroy Hackett ------------------------------------ Lewroy Hackett Vice President Address: 250 Montgomery, Suite 700 San Francisco, California 94104 Facsimile: (415) 989-9940, ext. 124 Attention: Chris J. Hillard Telephone: (415) 989-9948 -82- EXHIBIT A PROMISSORY NOTE $ Dallas, Texas _________ -------------------------- FOR VALUE RECEIVED, the undersigned, FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of ("Lender"), payable at such times, and in such amounts, as are specified in the Credit Agreement as hereinafter defined. The books and records of Administrative Agent shall be prima facie evidence of all sums due Lender. Borrower promises to pay interest on the unpaid principal amount of the Advances from the date made until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to Administrative Agent (as defined in the Credit Agreement) (for the account of Lender) at its principal banking house at Bank of America Plaza, 901 Main Street, Dallas, Texas 75202, or such other place as Administrative Agent may direct, in immediately available funds. This Note is one of the Notes evidencing Obligations under the Loans referred to in, and is entitled to the benefits of, the Credit Agreement (Facility B) dated as of September 15, 2000, among Borrower, Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and certain other lenders (as from time to time amended, modified or supplemented, the "Credit Agreement"). The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of an Event of Default (as defined in the Credit Agreement) and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. Borrower and each guarantor, surety and endorser waives demand, presentment, notice of dishonor, protest and diligence in collecting sums due hereunder; agrees to application of any debt of Lender to the payment hereof; agrees that extensions and renewals without limit as to number, acceptance of any number of partial payments, releases of any party liable hereon, and releases or substitutions of collateral, before or after maturity, shall not release or discharge its obligation under this Note; and agrees to pay in addition to all other sums due hereunder reasonable attorney's fees if this Note is placed in the hands of an attorney for collection or if it is collected through bankruptcy or other judicial proceeding. -1- This Note shall be governed by and construed in accordance with the laws of the State of Texas (without giving effect to conflict of laws) and the United States of America. FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By: -------------------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer -2- EXHIBIT B GUARANTY AGREEMENT THIS GUARANTY AGREEMENT, dated as of September 15, 2000 (this "Guaranty"), is made by FFCA Acquisition Corporation, a Delaware corporation, FFCA Institutional Advisors, Inc., a Delaware corporation, FFCA Capital Holding Corporation, a Delaware corporation, FFCA Residual Interest Corporation, a Delaware corporation, and FFCA Funding Corporation, a Delaware corporation (collectively, the "Guarantors"), of the obligations of Franchise Finance Corporation of America, a Delaware corporation ("Company"), under the Credit Agreement (defined below) among the Company, Bank of America, N.A. as Administrative Agent ("Administrative Agent"), Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and the lenders parties to the Credit Agreement (singly, a "Lender" and collectively, the "Lenders"). BACKGROUND 1. The Company, the Administrative Agent, and the Lenders have entered into a Credit Agreement (Facility B), dated as of September 15, 2000 (said Credit Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement"). The capitalized terms not otherwise defined herein have the meanings specified in the Credit Agreement. 2. Pursuant to the Credit Agreement, the Company may, subject to the terms of the Credit Agreement and the other Loan Papers, request that the Lenders make Advances. 3. It is a condition precedent to the obligation of the Lenders to make such Advances that each Guarantor guarantee repayment thereof upon the terms and conditions set forth herein. 4. Each of the Guarantors is a Subsidiary of the Company, and the Company and each of the Guarantors are members of the same consolidated group of companies and are engaged in related businesses. 5. The Board of Directors of each Guarantor has determined that (i) the execution, delivery, and performance of this Guaranty is necessary and convenient to the conduct, promotion, and attainment of each Guarantor's business and (ii) the Advances may reasonably be expected to benefit, directly or indirectly, each Guarantor. 6. The Guarantors desire to induce the Lenders to make such Advances. -1- NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make Advances under the Credit Agreement, the Guarantors hereby agree as follows: 1. Guaranty. (a) Each Guarantor, jointly and severally, hereby unconditionally guarantees the full and punctual payment of, and promises to pay, when due, whether at stated maturity, by mandatory prepayment, by acceleration or otherwise, the Obligations, and agrees to pay any and all reasonable expenses (including reasonable counsel fees and expenses) incurred in enforcement or collection of all or any part thereof, whether such obligations, indebtedness and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several, and any rights under this Guaranty. (b) Anything contained in this Guaranty to the contrary notwithstanding, the obligations of each Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Guarantor in respect of intercompany indebtedness to the Company or other Affiliates of the Company to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder) and treating as assets, subject to Paragraph 4(a) hereof, to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of such Guarantor pursuant to (i) Applicable Law or (ii) any agreement providing for an equitable allocation among such Guarantor and other Affiliates of the Company of obligations arising under guaranties by such parties. 2. Guaranty Absolute. The Guarantors guarantee that the Obligations will be paid strictly in accordance with the terms of the Credit Agreement, the Notes, and the other Loan Papers, regardless of any Applicable Law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto; provided, however, nothing contained in this Guaranty shall require the Guarantors to make any payment under this Guaranty in violation of any Applicable Law, regulation or order now or hereafter in effect. The obligations and liabilities of each Guarantor hereunder are independent of the obligations of the Company under the Credit Agreement and any Applicable Law. This Guaranty is an absolute guaranty of payment and performance and not a guaranty of collection, meaning that it is not necessary for the Administrative Agent or the Lenders, in order to enforce payment by any Guarantor, first or contemporaneously to accelerate payment of any of the Obligations, to institute suit or exhaust any rights against the Company or any other Person, or to enforce any Rights against any collateral. The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of: -2- (a) the taking or accepting of any other security or guaranty for any or all of the Obligations, including any reduction or termination of the Commitment; (b) any increase, reduction or payment in full at any time or from time to time of any part of the Obligations; (c) any lack of validity or enforceability of the Credit Agreement, the Notes, or any other Loan Paper or other agreement or instrument relating thereto, including but not limited by the unenforceability of all or any part of the Obligations by reason of the fact that (i) the Obligations, and/or the interest paid or payable with respect thereto, exceeds the amount permitted by Applicable Law, (ii) the act of creating the Obligations, or any part thereof, is ultra vires, (iii) the officers creating same acted in excess of their authority, or (iv) for any other reason; (d) any lack of corporate or other legal power of the Company or any other Person at any time liable for the payment of any or all of the Obligations; (e) any Debtor Relief Laws involving the Company, any Guarantor or any other Person obligated on any of the Obligations; (f) any renewal, compromise, extension, acceleration or other change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations; any adjustment, indulgence, forbearance, or compromise that may be granted or given by any Lender or the Administrative Agent to the Company, any Guarantor, or any Person at any time liable for the payment of any or all of the Obligations; or any other modification, amendment, or waiver of or any consent to departure from the Credit Agreement, the Notes, or any other Loan Paper and other agreement or instrument relating thereto without notification of any Guarantor (the right to such notification being herein specifically waived by Guarantors); (g) any exchange, release, sale, subordination, or non-perfection of any collateral or Lien therein or any lack of validity or enforceability or change in priority, destruction, reduction, or loss or impairment of value of any collateral or Lien therein; (h) any release or amendment or waiver of or consent to departure from any other guaranty for all or any of the Obligations; (i) the failure by any Lender or the Administrative Agent to make any demand upon or to bring any legal, equitable, or other action against the Company or any other Person (including without limitation any other Guarantor), or the failure or delay by any Lender or the Administrative Agent to, or the manner in which any Lender or the Administrative Agent -3- shall, proceed to exhaust rights against any direct or indirect security for the Obligations; (j) the existence of any claim, defense, set-off, or other rights which the Company or any Guarantor may have at any time against the Company, the Lenders, or any Guarantor, or any other Person, whether in connection with this Guaranty, the other Loan Papers, the transactions contemplated thereby, or any other transaction; (k) any failure of any Lender or the Administrative Agent to notify any Guarantor of any renewal, extension, or assignment of the Obligations or any part thereof, or the release of any security, or of any other action taken or refrained from being taken by any Lender or the Administrative Agent, it being understood that the Lenders and the Administrative Agent shall not be required to give any Guarantor any notice of any kind under any circumstances whatsoever with respect to or in connection with the Obligations; (l) any payment by the Company to the Lenders or the Administrative Agent is held to constitute a preference under any Debtor Relief Law or if for any other reason the Lenders or the Administrative Agent are required to refund such payment or pay the amount thereof to another Person; or (m) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Company, any Guarantor, any other guarantor or other Person liable on the Obligations, including without limitation any defense by reason of any disability or other defense of the Company, or the cessation from any cause whatsoever of the liability of the Company, or any claim that the Guarantors' obligations hereunder exceed or are more burdensome than those of the Company. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by any Lender or any other Person upon the insolvency, bankruptcy or reorganization of the Company, any Guarantor or otherwise, all as though such payment had not been made. 3. Waiver. To the extent not prohibited by Applicable Law, each Guarantor hereby waives: (a) promptness, protests, diligence, presentments, acceptance, performance, demands for performance, notices of nonperformance, notices of protests, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation or incurrence of new or additional indebtedness, and any of the events described in Section 2 and of any other occurrence or matter with respect to any of the Obligations, this Guaranty or any of the other Loan Papers; (b) any requirement that the Administrative Agent or any Lender protect, secure, perfect, or insure any Lien or security interest or any property subject thereto or exhaust any right or take any action against the Company or any other Person or any collateral or pursue any other remedy in the Administrative Agent's or any Lender's power whatsoever; (c) any right to assert against the Administrative Agent or any Lender as a counterclaim, set-off or cross-claim, any counterclaim, set-off or claim which it may now or hereafter have against -4- the Company or other Person liable on the Obligations; (d) any right to seek or enforce any remedy or right that the Administrative Agent or any Lender now has or may hereafter have against the Company (to the extent permitted by Applicable Law); (e) any right to participate in any collateral or any right benefitting the Administrative Agent or the Lenders in respect of the Obligations; and (f) any right by which it might be entitled to require suit on an accrued right of action in respect of any of the Obligations or require suit against the Company or any other Person, whether arising pursuant to Section 34.02 of the Texas Business and Commerce Code, as amended, Section 17.001 of the Texas Civil Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil Procedure, as amended, or otherwise. 4. Subrogation and Subordination. Notwithstanding any reference to subrogation contained herein to the contrary, each Guarantor hereby irrevocably waives any claim or other rights which it may have or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, any right to participate in any claim or remedy of any Lender against the Company or any collateral which any Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statutes or common law, including without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Obligations shall not have been paid in full, such amount shall be deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Lenders, and shall forthwith be paid to the Administrative Agent to be credited and applied upon the Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waiver set forth in this Paragraph 4 is knowingly made in contemplation of such benefits. 5. Representations and Warranties. Each Guarantor hereby represents and warrants that all representations and warranties as they apply to such Guarantor only set forth in Article IV of the Credit Agreement (each of which is hereby incorporated by reference) are true and correct. 6. Covenants. Each Guarantor hereby expressly assumes, confirms, and agrees to perform, observe, and be bound by all conditions and covenants set forth in the Credit Agreement, to the extent applicable to it, as if it were a signatory thereto. Each Guarantor further covenants and agrees (a) punctually and properly to perform all of such Guarantor's covenants and duties under any other Loan Papers; (b) from time to time promptly to furnish the Administrative Agent with any information or writings which the Administrative Agent may reasonably request concerning this Guaranty; and (c) promptly to notify the Administrative Agent of any claim, action, or proceeding affecting this Guaranty. 7. Amendments, Etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the Lenders as required pursuant to Section 9.1 of the Credit Agreement, and then such -5- waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 8. Addresses for Notices. Unless otherwise provided herein, all notices, requests, consents and demands shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy to the respective addresses specified herein or in the Credit Agreement and to the attention of the individuals listed thereunder, or, as to any party, to such other addresses as may be designated by it in written notice to all other parties. All notices, requests, consents and demands hereunder shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy, or if mailed, effective on the earlier of actual receipt or three (3) days after being mailed by certified mail, return receipt requested, postage prepaid, addressed as aforesaid. 9. No Waiver; Remedies. No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder or under any of the other Loan Papers shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder or under any of the other Loan Papers preclude any other or further exercise thereof or the exercise of any other right. Neither the Administrative Agent nor any Lender shall be required to (a) prosecute collection or seek to enforce or resort to any remedies against the Company or any other Person liable on any of the Obligations, (b) join the Company or any other Person liable on any of the Obligations in any action in which Lender prosecutes collection or seeks to enforce or resort to any remedies against the Company or other Person liable on any of the Obligations, or (c) seek to enforce or resort to any remedies with respect to any Liens granted to (or benefitting, directly or indirectly) the Administrative Agent or any Lender by the Company or any other Person liable on any of the Obligations. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure or insure any of the Liens or the properties or interests in properties subject thereto. The remedies herein provided are cumulative and not exclusive of any remedies provided by Applicable Law. 10. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Guarantor against any and all of the obligations of any Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not such Lender shall have made any demand under this Guaranty. Each Lender agrees promptly to notify such Guarantor after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 10 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. -6- 11. Continuing Guaranty; Transfer of Notes. This Guaranty is an irrevocable continuing guaranty of payment (and not of collectability) and shall (a) remain in full force and effect until termination of the Commitment and final payment in full (after the Maturity Date) of the Obligations and all other amounts payable under this Guaranty, (b) be binding upon each Guarantor, its successors and assigns, and (c) inure to the benefit of and be enforceable by each Lender and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), to the extent permitted by Section 9.4 of the Credit Agreement, each Lender may assign or otherwise transfer its rights under the Credit Agreement, the Notes or any of the other Loan Papers or any interest therein to any other Person, and such other Person shall thereupon become vested with all the rights or any interest therein, as appropriate, in respect thereof granted to the Lender herein or otherwise. 12. Information. Each Guarantor acknowledges and agrees that it shall have the sole responsibility for obtaining from the Company such information concerning the Company's financial condition or business operations as such Guarantor may require, and that neither the Administrative Agent nor any Lender has any duty at any time to disclose to any Guarantor any information relating to the business operations or financial conditions of the Company. 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO CONFLICT OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, EACH GUARANTOR AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. 14. WAIVER OF JURY TRIAL. EACH GUARANTOR, THE ADMINISTRATIVE AGENT, AND THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE LOAN PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THE CREDIT AGREEMENT. 15. Ratable Benefit. This Guaranty is for the ratable benefit of the Lenders, each of which shall share any proceeds of this Guaranty pursuant to the terms of the Credit Agreement. 16. Guarantor Insolvency. Should any Guarantor become insolvent, fail to pay its debts generally as they become due, voluntarily seek, consent to, or acquiesce in the benefits of any Debtor Relief Law or become a party to or be made the subject of any proceeding provided for by any Debtor Relief Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the rights of any Lender granted hereunder, then, the obligations of such Guarantor under this Guaranty shall be, as between such Guarantor and such Lender, a fully-matured, due, and payable obligation of such Guarantor to such -7- Lender (without regard to whether there is a Default or Event of Default under the Credit Agreement or whether any part of the Obligations is then due and owing by the Company to such Lender), payable in full by such Guarantor to such Lender upon demand, which shall be the estimated amount owing in respect of the contingent claim created hereunder. 17. ENTIRE AGREEMENT. THIS GUARANTY, TOGETHER WITH THE OTHER LOAN PAPERS, REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -8- IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. FFCA ACQUISITION CORPORATION Address for each Guarantor: c/o Franchise Finance Corporation of America The Perimeter Center By: /s/ John R. Barravecchia 17207 North Perimeter Drive ------------------------------------- Scottsdale, Arizona 85255 John R. Barravecchia Telephone No.: (480) 585-4500 Executive Vice President and Chief Facsimile No.: (480) 585-2225 Financial Officer Attention: John R. Barravecchia Executive Vice President and Chief Financial Officer FFCA INSTITUTIONAL ADVISORS, INC. with a copy to: The Perimeter Center By: /s/ John R. Barravecchia 17207 North Perimeter Drive ------------------------------------- Scottsdale, Arizona 85255 John R. Barravecchia Telephone No.: (480) 585-4500 Executive Vice President and Chief Facsimile No.: (480) 585-2225 Financial Officer Attention: John R. Barravecchia Executive Vice President and Chief Financial Officer Attention: Dennis L. Ruben, Esq. Executive Vice President and General Counsel FFCA CAPITAL HOLDING CORPORATION By: /s/ John R. Barravecchia ------------------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer -9- FFCA RESIDUAL INTEREST CORPORATION By: /s/ John R. Barravecchia ------------------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer FFCA FUNDING CORPORATION By: /s/ John R. Barravecchia ------------------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer -10- EXHIBIT C QUARTERLY COMPLIANCE CERTIFICATE The undersigned hereby certifies that he/she is a duly elected Authorized Officer of Franchise Finance Corporation of America, a Delaware corporation ("Borrower"), and that he/she is authorized to execute this Certificate on behalf of Borrower in connection with that certain Credit Agreement (Facility B), dated as of September 15, 2000 (as amended, modified or supplemented from time to time, the "Credit Agreement"), among Borrower, Bank of America, N.A., individually and as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and each other Lender a party thereto. All terms used but not defined herein shall have the meanings set forth in the Credit Agreement. This Certificate is submitted concurrently with quarterly financial statements of Borrower for the period ended ____________, ____. The undersigned hereby further certifies to the following as of the date set forth below: 1. The representations and warranties of Borrower under the Credit Agreement are true and complete in all material respects, before and after giving effect to any Advances. 2. No event has occurred which constitutes a Default or Event of Default. 3. Borrower continues to qualify as a Real Estate Investment Trust under the Code. 4. The following calculations are true, accurate and complete, and are made in accordance with the terms and provisions of the Credit Agreement: 1. Applicable Margin. The Index Debt Rating is _______________. The Applicable Margin with respect to Base Rate Advances is _____%. The Applicable Margin with respect to LIBOR Advances is _____%. 2. Section 6.1(a). Minimum Net Worth. (a) Minimum Net Worth
(i) $750,000,000 $750,000,000 (ii) 75% of aggregate Net Cash Proceeds received by $___________ Borrower and its Consolidated Subsidiaries after Closing Date from disposition of Capital Stock
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(iii) amount equal to Net Worth of any Person $___________ acquired (via asset or stock purchase) by Borrower or any Subsidiary to the extent purchase price is paid for in Capital Stock of Borrower or such Subsidiary (iv) Minimum Net Worth [(i) + (ii) + (iii)] $___________ (b) Actual Net Worth (determined in accordance with $___________ GAAP) 3. Section 6.1(b). Total Indebtedness to Adjusted Net Worth Ratio. (a) Maximum Ratio 1.20 to 1 (b) Actual Ratio (i) Indebtedness of Company and Consolidated Subsidiaries a. Debt for Borrowed Money $___________ b. Capital Lease obligations $___________ c. Reimbursement obligations relating to $___________ letters of credit d. Contingent Liabilities relating to (a), $___________ (b) and (c) above e. Withdrawal Liability $___________ f. indebtedness associated with Interest $___________ Hedge Agreements g. payments due for the deferred purchase $___________ price of property and services (excluding trade payables less than 90 days old) h. obligations (contingent or otherwise to $___________ purchase, retire or redeem any Capital Stock) i. [a. + b. + c. + d. + e. + f. + g. + h.] $___________ (ii) Indebtedness evidenced by Intercompany Notes $___________ and which is subject to a Subordination Agreement (iii) Total Indebtedness [(i) - (ii)] $___________ (iv) Adjusted Net Worth
-2-
a. Actual Net Worth (determined in $___________ accordance with GAAP) b. Accumulated Depreciation (determined in $___________ accordance with GAAP) c. Adjusted Net Worth [a. + b.] $___________ (v) Total Indebtedness to Adjusted Net Worth ____ to 1 [(iii)/(iv)] 4. Section 6.1(c). Fixed Charge Coverage Ratio. (a) Minimum Ratio 2.00 to 1 (b) Actual Ratio (i) Cash Flow From Operations for twelve- calendar $___________ month period ending on or most recently ended prior to date of determination (ii) cash interest payable on all Indebtedness $___________ (including interest on Capitalized Leases) (iii) [(i) + (ii)] $___________ (iv) cash interest payable on all Indebtedness $___________ (including interest on Capitalized Leases) (v) regularly scheduled principal amounts on $___________ Indebtedness (including rentals under Lease Obligations but excluding any payment which pays Indebtedness in full to the extent such payment exceeds the immediately preceding scheduled principal payment) (vi) principal amounts of all Indebtedness $___________ (including under Lease Obligations) required to be prepaid or purchased during such period (vii) [(iv) + (v) + (vi)] $___________ (viii) Fixed Charge Coverage Ratio [(iii)/(vii)] ____ to 1 5. Section 6.1(d). Maximum Total Secured Indebtedness. (a) Maximum Total Secured Indebtedness (10% of Total $___________ Assets)
-3-
(b) Actual Total Secured Indebtedness Indebtedness of $___________ Borrower and its Consolidated Subsidiaries (from Section 3(b)(i) above that is secured by a Consensual Lien) 6. Section 6.1(e). Ratio of Total Unencumbered Assets to Total Unsecured Indebtedness. (a) Minimum Ratio 1.75 to 1 (b) Actual Ratio (i) Total Assets not subject to a Lien other than $___________ Liens of the type described in clause (a) through (g) of the definition of Permitted Liens (ii) Aggregate amount of Indebtedness of Company $___________ and its Consolidated Subsidiaries that is not secured by a Lien other than Liens of the type described in clause (a) through (g) of the definition of Permitted Liens (iii) [(i)/(ii)] ____ to 1 7. Section 6.3. Contingent Liabilities. (a) Maximum $5,000,000 (b) Actual $___________ 8. Section 6.6. Disposition of Assets. (a) Maximum during any four consecutive fiscal quarters (i) Total Assets as of the first day of preceding $___________ four consecutive fiscal quarters divided by four (ii) 25% times 8(a)(i) above $___________ (b) Actual (excluding Assets disposed of in an Asset $___________ Securitization and a Loan Sale) 9. Section 6.7. Permitted Distributions. (a) Maximum (i) Cash Flow From Operations (from Section $___________ 4(b)(i) above) (ii) 95% times 9(a)(i) above for fiscal year 1999 $___________
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(iii) 90% times 9(a)(i) above for each fiscal year $___________ thereafter (b) Actual 10. Section 6.10(f) Asset Securitization Investments. $___________ (a) Maximum - 20% of Total Assets $___________ (b) Actual $___________ 11. Section 6.10(g) Loan Sale Affiliate Investments. (a) Maximum $5,000,000 (b) Actual $___________ 12. Projected Loan Sales. Aggregate amount of Loan Sales projected for fiscal $___________ quarter immediately succeeding this Certificate
-5- IN WITNESS WHEREOF, I have executed this Certificate as of the _____ day of _____________, ___. FRANCHISE FINANCE CORPORATION OF AMERICA By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- -6- EXHIBIT D CONVERSION/CONTINUANCE NOTICE [Date] Bank of America, N.A. Administrative Agent Bank of America Plaza 901 Main Street, 14th Floor Dallas, Texas 75202 Attention: Tonya Parker Ladies and Gentlemen: The undersigned refers to the Credit Agreement (Facility B), dated as of September 15, 2000 (as amended, modified or supplemented from time to time, the "CREDIT AGREEMENT", the terms defined therein being used herein as therein defined) among Franchise Finance Corporation of America, Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and each Lender party thereto, and hereby gives you notice pursuant to SECTION 2.9 of the Credit Agreement that the undersigned hereby requests Borrowing[s] [a continuation/conversion of an existing Advance] [continuations/conversions of existing Advances] under the Credit Agreement, and in that connection sets forth below the information relating to [each] such Advance as required by SECTION 2.9 of the Credit Agreement: (i) The principal amount of existing [LIBOR Advances] [Base Rate Advances] to be [converted] [continued] is $_________. (ii) The Business Day of such [continuation] [conversion] is _______________, ____. (iii) The Type of Advance[s] comprising such [continuation] [conversion] of Loans is [are] [Base Rate Advance [to the extent of an aggregate amount of $ ]] [LIBOR Advance [to the extent of an aggregate amount of $________________]]. (iv) The initial Interest Period for each LIBOR Advance made as part of such [continuation] [conversion] is _________ months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the [continuation] [conversion], before and after giving effect thereto and to the application of the proceeds therefrom: (A) the conditions precedent specified in ARTICLE III of the Credit Agreement have been satisfied with respect to the [continuation] [conversion] and will remain satisfied on the date of such [continuation] [conversion]; (B) the representations and warranties specified in ARTICLE IV of the Credit Agreement are true and correct in all material respects as though made on and as of such date; and (C) no event has occurred and is continuing or would result from such [continuation] [conversion], which constitutes a Default or Event of Default. Very truly yours, FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By: ----------------------------------- Name: ------------------------------ Title: ------------------------------ -2- EXHIBIT E BORROWING NOTICE [Date] Bank of America, N.A., Administrative Agent Bank of America Plaza 901 Main Street, 14th Floor Dallas, Texas 75202 Attention: Tonya Parker Ladies and Gentlemen: The undersigned refers to the Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000 (as amended, modified and supplemented from time to time, the "CREDIT AGREEMENT", the terms defined therein being used herein as therein defined) among Franchise Finance Corporation of America, Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and each Lender, and hereby gives you notice pursuant to SECTION 2.2 of the Credit Agreement that the undersigned hereby requests Borrowing[s] under the Credit Agreement, and in that connection sets forth below the information relating to [each] such Advance (a "PROPOSED BORROWING") as required by SECTION 2.2 of the Credit Agreement: Proposed Borrowing: (i) The Business Day of such Proposed Borrowing is ______________, 19___. (ii) The Type of Advance[s] comprising such Proposed Borrowing of Revolving Loans is [are] [Base Advance [to the extent of an aggregate amount of $ ]] [LIBOR Advance [to the extent of an aggregate amount of $________________]]. (iii) The Type of Advance[s] comprising such Proposed Borrowing of Term Loans is [are] [Base Advance [to the extent of an aggregate amount of $_______]] [LIBOR Advance [to the extent of an aggregate amount of $__________________]]. (iv) The aggregate amount of such Proposed Borrowing is $___________. [(v) The initial Interest Period for each LIBOR Advance made as part of such Proposed Borrowing is _______ months.] The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (A) the conditions precedent specified in ARTICLE III of the Credit Agreement have been satisfied with respect to the Proposed Borrowing and will remain satisfied on the date of such Proposed Borrowing; (B) the representations and warranties specified in ARTICLE IV of the Credit Agreement are true and correct in all material respects as though made on and as of such date; and (C) no event has occurred and is continuing or would result from such Proposed Borrowing, which constitutes a Default or Event of Default. Very truly yours, FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By: ------------------------------------ Name: ------------------------------- Title: ------------------------------- -2- EXHIBIT F ASSIGNMENT AND ACCEPTANCE AGREEMENT THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT ("Assignment and Acceptance") is dated ________________, _____, among ________________________ ("Assignor") and _____________________ ("Assignee") and Bank of America, N.A., as Administrative Agent ("Administrative Agent"). BACKGROUND. A. Reference is made to the Third Amended and Restated Credit Agreement (Facility A), dated as of September 15, 2000 (as it may hereafter be amended or otherwise modified from time to time, being referred to as the "Credit Agreement") among Franchise Finance Corporation of America (the "Company"), the financial institutions parties thereto as Lenders thereunder, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and Administrative Agent for Lenders under the Credit Agreement. Unless otherwise defined, terms are used herein as defined in the Credit Agreement. B. This Assignment and Acceptance is made with reference to the following facts: (i) Assignor is a Lender under and as defined in the Credit Agreement and, as such, presently holds a percentage of the rights and obligations of Lenders under the Credit Agreement. (ii) As of the date hereof, the Commitment is $_______________, and Assignor's Specified Percentage is ___%. (iii) On the terms and conditions set forth below, Assignor desires to sell and assign to Assignee, and Assignee desires to purchase and assume from Assignor, as of the Transfer Date (as defined below), a portion of Assignor's Specified Percentage of the Commitment equal to ______% [express as a percentage of Commitment] (the "Assigned Percentage"). AGREEMENT. NOW, THEREFORE, Assignor and Assignee hereby agree as follows: 1. Assignor hereby sells and assigns to Assignee, without recourse and, except as provided in paragraph 2 of this Assignment and Acceptance, without representation and warranty, and Assignee hereby purchases and assumes from Assignor, Assignor's rights and obligations under the Credit Agreement, to the extent of the Assigned Percentage (including without limitation, (a) the Assigned Percentage of the Commitment as in effect as of the Transfer Date and (b) _____% of each of the Advances owing to Assignor on the Transfer Date). 2. Assignor (a) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement, any other Loan Paper or any other instrument or document furnished pursuant thereto, or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other Loan Paper or any other instrument or document furnished pursuant thereto or any collateral; and (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any Person the performance or observance by the Company or any Person of any of its obligations under the Loan Papers or any other instrument or document furnished pursuant thereto. 3. Assignee (a) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered to Assignor pursuant to Section 5.5 of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (b) agrees that it will, independently and without reliance upon the Administrative Agent, Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Loan Papers; (c) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Papers as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (d) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Loan Papers are required to be performed by it as a Lender; (e) specifies, as its address for notice and Lending Office, the office set forth beneath its name on the signature pages hereof; (f) confirms that it is an Eligible Assignee[; AND (G) ATTACHES THE FORMS PRESCRIBED BY THE IRS CERTIFYING AS TO ASSIGNEE'S STATUS FOR PURPOSES OF DETERMINING EXEMPTION FROM UNITED STATES WITHHOLDING TAXES WITH RESPECT TO ALL PAYMENTS TO BE MADE TO ASSIGNEE UNDER THE CREDIT AGREEMENT, THE OTHER LOAN PAPERS AND THIS ASSIGNMENT OR ACCEPTANCE OR SUCH OTHER DOCUMENTS AS ARE NECESSARY TO INDICATE THAT ALL SUCH PAYMENTS ARE SUBJECT TO TAXES AT A RATE REDUCED BY APPLICABLE TREATY]. 4. The effective date for this Assignment and Acceptance (the "Transfer Date") shall be the date following execution by the parties hereto on which Assignor receives from Assignee an amount in same day funds equal to _____% of the aggregate principal amount of Advances owing to Assignor on such date, together with the $3,500 processing fee required under Section 9.4 of the Credit -2- Agreement, and Administrative Agent and the Company receive notice thereof and an executed copy of this Assignment and Acceptance. The Company acknowledges its obligations under the Credit Agreement, and agrees, within five Business Days after receiving an executed copy of this Assignment and Acceptance to execute and deliver to Administrative Agent, in exchange for the Note originally delivered to Assignor, new Notes to the order of Assignor and Assignee in amounts equal to their respective Specified Percentages of the Commitment. 5. As of the Transfer Date, (a) Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder, (b) Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement and other Loan Papers, and (c) Assignor's Specified Percentage shall be %, and Assignee's Specified Percentage shall be ___________%. 7. From and after the Transfer Date, Administrative Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and fees with respect thereto) to Assignee. Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Transfer Date directly between themselves. 8. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the state of Texas, without reference to principles of conflict of laws. ASSIGNOR: By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- -3- Address: ASSIGNEE: - ---------------------------------- ---------------------------------- - ---------------------------------- ---------------------------------- - ---------------------------------- ---------------------------------- Attn: By: ------------------------------ ------------------------------------- Telephone No.: ( ) ___-____ Name: ----------------------------------- Telecopier No.: ( ) ___-____ Title: ---------------------------------- LIBOR Lending Office: - ---------------------------------- - ---------------------------------- - ---------------------------------- Attn: ------------------------------ Telephone No.: ( ) ___-____ Telecopier No.: ( ) ___-____ ADMINISTRATIVE AGENT BANK OF AMERICA, N.A., Administrative Agent By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Accepted and approved this _____ day of ___________, _____: FRANCHISE FINANCE CORPORATION OF AMERICA By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- -4- EXHIBIT G SUBORDINATION AGREEMENT SUBORDINATION AGREEMENT, dated as of ____________________, _____ (as amended, supplemented, or otherwise modified from time to time, this "Agreement") made by ______________________, a _____________ (the "Company"), Franchise Finance Corporation of America, a Delaware corporation ("FFCA"), __________________, a ______________, and __________________, a _______________ (collectively, the "Subordinated Creditors") for the benefit of the Lenders (each a "Lender") party to the Credit Agreement (as defined below), Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, and Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and Bank of America, N.A., as the Administrative Agent (the "Administrative Agent") for itself and the Lenders. BACKGROUND: (1) The Lenders, Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and the Administrative Agent have entered into a Credit Agreement (Facility B), dated as of September 15, 2000, with FFCA (as amended, supplemented, or otherwise modified from time to time, the "Credit Agreement"). Unless otherwise defined herein, defined terms used herein shall have the meanings ascribed to them in the Credit Agreement. (2) The Company is or may be indebted to one or more of the Subordinated Creditors in the aggregate principal amount of $115,000,000 or such lesser amount as shall equal the aggregate unpaid principal amount of Intercompany Loans made by one or more of the Subordinated Creditors to the Company evidenced by the promissory note of even date herewith in such principal amount (as the same may hereafter be amended, supplemented, or otherwise modified from time to time, the "Debt Agreement"). All such obligations of the Company now or hereafter existing under the Debt Agreement, whether for principal, interest (including, without limitation, interest accruing after the filing of a petition initiating any Proceeding (as defined below), whether or not such interest accrues after the filing of such petition for purposes of the Bankruptcy Code of 1978, 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code") or is an allowed claim in such Proceeding), fees, expenses or otherwise are hereinafter referred to as "Subordinated Debt". For purposes of this Agreement, "Proceeding" means any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or other similar case or proceeding under any federal or state bankruptcy or similar law or an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of a Person. (3) It is a condition precedent to the making of Advances by the Lenders under the Credit Agreement that the Subordinated Creditors shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises, the Company and the Subordinated Creditors hereby agree as follows: SECTION 1. Agreement to Subordinate. Each of the Subordinated Creditors and the Company agrees that the Subordinated Debt is and shall be subordinate, to the extent and in the manner hereinafter set forth, to the prior payment in full of all obligations of the Company now or hereafter existing under the Credit Agreement and the other Loan Papers, whether for principal, interest (including, without limitation, interest, as provided in the Notes, accruing after the filing of a petition initiating any Proceeding, whether or not such interest accrues after the filing of such petition for purposes of the Bankruptcy Code or is an allowed claim in such Proceeding), fees, expenses or otherwise (such obligations and all Obligations, as defined in the Credit Agreement, being herein collectively called the "Obligations"). For the purposes of this Agreement, the Obligations shall not be deemed to have been paid in full until (a) all maturity dates therefor shall have elapsed, (b) the Commitment shall have been terminated, and (c) the Lenders shall have received indefeasible payment of the Obligations in full in cash (such date that the conditions described in (a), (b), and (c) herein are satisfied shall be the "Credit Agreement Termination Date"). SECTION 2. Events of Subordination. (a) In the event of any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of the Company or any Subsidiary of the Company or any of their respective debts, whether voluntary or involuntary, in any Proceeding of the Company or any Subsidiary of the Company or otherwise, the Lenders shall be entitled to receive indefeasible payment in full in cash of the Obligations before the Subordinated Creditors are entitled to receive any payment of all or any of the Subordinated Debt, and any payment or distribution of any kind (whether in cash, property or securities) that otherwise would be payable or deliverable upon or with respect to the Subordinated Debt in any such Proceeding (including any payment that may be payable by reason of any other indebtedness of the Company being subordinated to payment of the Subordinated Debt) shall, subject to the following sentence, be paid or delivered directly to the Administrative Agent for the account of the Lenders for application (in the case of cash) to, or as collateral (in the case of non-cash property or securities) for, the payment or prepayment of the Obligations until the Obligations shall have been paid indefeasibly in full in cash and the Credit Agreement Termination Date to have occurred. (b) Upon the occurrence of a Default or Event of Default and during the continuance thereof, no payment (including any payment that may be payable by reason of any other indebtedness of the Company being subordinated to payment of the Subordinated Debt) shall be made by the Company for or on account of any Subordinated Debt, and the Subordinated Creditors shall not take or receive from the Company or any Subsidiary of the Company, directly or indirectly, in cash or -2- other property or by set-off or in any other manner, including, without limitation, from or by way of collateral, any payment of all or any of the Subordinated Debt, unless and until the Obligations shall have been paid indefeasibly in full in cash and the Credit Agreement Termination Date has occurred. (c) During the continuance of a Default or Event of Default, the Lenders shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Obligations before the Subordinated Creditors are entitled to receive any payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Subordinated Debt) by the Company on account of the Subordinated Debt. SECTION 3. In Furtherance of Subordination. Each of the Subordinated Creditors agrees as follows: (a) All payments or distributions upon or with respect to the Subordinated Debt which are received by such Subordinated Creditor contrary to the provisions of this Agreement shall be received in trust for the benefit of the Lenders, shall be segregated from other funds and property held by such Subordinated Creditor and shall be forthwith paid over to the Administrative Agent for the account of the Lenders in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to, or held as collateral (in the case of non-cash property or securities) for, the payment or prepayment of the Obligations in accordance with the terms of the Credit Agreement. (b) Each of the Subordinated Creditors hereby waives and agrees not to assert against Administrative Agent or any Lender any rights which a guarantor or surety with respect to any indebtedness of the Company or any obligor could exercise. The Subordinated Creditors shall not assert, enforce, or otherwise exercise (a) any right of subrogation to any of the rights or Liens of Administrative Agent or any Lender or any other Person against the Company or any of its Subsidiaries or any other obligor on all or any part of the Obligations or any collateral or other security, or (b) any right of recourse, reimbursement, contribution, indemnification, or similar right against the Company or any of its Subsidiaries or any other obligor on all or any part of the Obligations or any collateral or any security, and the Subordinated Creditors hereby waive any and all of the foregoing rights and the benefit of, and any right to participate in, any collateral or other security given to Administrative Agent or any Lender or any other Person to secure payment of the Obligations, however any such Rights arise, whether hereunder or any other Loan Paper or by operation of Law until after the Credit Agreement Termination Date has occurred. (c) Each of the Subordinated Creditor hereby irrevocably appoints Administrative Agent, such Subordinated Creditor's attorney-in-fact, with full authority in the place and stead of such Subordinated Creditor and in the name of such Subordinated Creditor or otherwise to, after the occurrence of a Default or Event of Default and during the continuance thereof, (a) file any claims, proofs of claim, or other instruments of similar character necessary to enforce the obligations of the Company and its Subsidiaries with respect to the Subordinated Debt and (b) collect and receive any and all payments or -3- distributions which may be payable or deliverable upon or with respect to the Subordinated Debt. Such power of attorney is coupled with an interest and is irrevocable prior to final indefeasible payment in full of the Obligations. (d) The Administrative Agent is hereby authorized to demand specific performance of this Agreement, whether or not the Company shall have complied with any of the provisions hereof applicable to it, at any time when any of the Subordinated Creditors shall have failed to comply with any of the provisions of this Agreement applicable to it. Each of the Subordinated Creditors hereby irrevocably waives any defense based on the adequacy of a remedy at law, which might be asserted as a bar to such remedy of specific performance. (e) No assets or Properties of the Company or its Subsidiaries shall secure the Subordinated Debt, except to the extent of Liens which are assigned to the Administrative Agent on behalf of the Lenders. SECTION 4. Remedies of the Subordinated Creditor. Each of the Subordinated Creditor agrees that, so long as the Obligations shall not have been paid indefeasibly in full in cash and the Credit Agreement Termination Date has occurred, such Subordinated Creditor will not take, sue for, ask or demand from the Company or its Subsidiaries, payment of all or any of the Subordinated Debt, or exercise any remedy against the Company or its Subsidiaries available contractually, by law or otherwise, or commence in its capacity as a creditor, or join with any creditor in commencing, or directly or indirectly cause in its capacity as creditor to the Company or its Subsidiaries to commence, or assist the Company or its Subsidiaries in commencing, any Proceeding or any other remedy against the Company or its Subsidiaries. SECTION 5. Agreements in Respect of Subordinated Debt. (a) No Subordinated Creditor will: (i) Sell, assign, pledge, encumber or otherwise dispose of any of the Subordinated Debt; or (ii) Permit any of the terms of any of the Subordinated Debt to be changed or amended (or issue any consent, waiver or approval which has the effect of resulting in any change or amendment) in any manner which could reasonably be expected to be materially adverse to the interests of the Lenders. (b) The Subordinated Creditors shall immediately notify the Administrative Agent of the occurrence of any breach or default under the Subordinated Debt beyond any grace period provided with respect thereto. -4- SECTION 6. Agreement by the Company. The Company agrees that it will not make any payment of any of the Subordinated Debt (or take any other action) in contravention of the provisions of this Agreement. SECTION 7. Obligations Hereunder Not Affected. All rights and interests of the Administrative Agent and the Lenders hereunder, and all agreements and obligations of the Subordinated Creditors and the Company under this Agreement, shall remain in full force and effect irrespective of: (i) any lack of validity or enforceability of the Credit Agreement, the Notes, the Loan Papers or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, the Loan Papers or the Notes, including, without limitation, any increase in the Obligations resulting from the extension of additional credit to the Company or otherwise; (iii) any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or (iv) any change, restructuring or termination of the corporate structure or existence of the Company or its Subsidiaries. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. SECTION 8. Waiver. Each of the Subordinated Creditors and the Company hereby waive promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any requirement that the Administrative Agent or any Lender or exhaust any right or take any action against the Company, its Subsidiaries or any other Person or entity. SECTION 9. Representations and Warranties. Each Subordinated Creditor and the Company each hereby represent and warrant as follows: (a) The Subordinated Debt now outstanding, true and complete copies of instruments evidencing which have been furnished to the Administrative Agent, has been duly authorized, issued and delivered by the Company, and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. There exists no default in respect of the Subordinated Debt. -5- (b) Such Subordinated Creditor has, independently and without reliance upon the Administrative Agent or any Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. SECTION 10. Amendments to this Agreement. No amendment or waiver of any provision of this Agreement, and no consent to any departure by any of the Subordinated Creditors or the Company herefrom, shall in any event be effective unless the same shall be in writing and signed as provided in the Credit Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 11. Expenses. Each of the Subordinated Creditors and the Company agree, jointly and severally, upon demand to pay to the Administrative Agent the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel and of any experts or agents, which the Administrative Agent or any Lender may incur in connection with the (a) the administration of this Agreement, (b) the exercise or enforcement of any of the rights of the Administrative Agent or the Lenders hereunder or (c) the failure by any Subordinated Creditor to perform or observe any of the provisions hereof. SECTION 12. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered to it, if to the Subordinated Creditors, at its respective address specified in the Credit Agreement or the Guaranty Agreement, and if to the Administrative Agent or any Lender, at its address specified in the Credit Agreement, or as to each party, at such other address as shall be designated by such party in a written notice to each other party. All such notices and other communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective as provided in the Credit Agreement. SECTION 13. No Waiver; Remedies. No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by Law. SECTION 14. Continuing Agreement; Assignments Under the Credit Agreement. This Agreement is a continuing agreement and shall (a) remain in full force and effect until the indefeasible payment in full in cash of the Obligations and until the Commitment has terminated, (b) be binding upon each Subordinated Creditor and its successors and assigns, and (c) inure to the benefit of, and be enforceable by, the Administrative Agent, the Lenders and their respective permitted successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender may assign or otherwise transfer all or any portion of its rights and obligations under, and in accordance with the terms of, the Credit Agreement to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Lender herein or otherwise. Notwithstanding any other provision of this -6- Agreement, this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy or reorganization of the Company or its Subsidiaries or otherwise, all as though such payment had not been made. In any such event, all payments and distributions upon or with respect to the Subordinated Debt which have been theretofore received by any Subordinated Creditor shall be deemed to have been received in trust for the benefit of the Lenders, shall be segregated from other funds and property held by such Subordinated Creditor and shall be forthwith paid over to the Administrative Agent for the account of the Lenders in the same form as so received (with any necessary indorsement) to be applied (in the case of cash) to, or held as collateral (in the case of non-cash property or securities) for, the payment or prepayment of the Obligations in accordance with the terms of the Credit Agreement. SECTION 15. GOVERNING LAW. (a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS RELATED HERETO SHALL BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE EXTENT FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF ALL OR ANY PART OF THIS AGREEMENT AND ALL LOAN PAPERS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, EACH SUBORDINATED CREDITOR AGREES THAT THE COURTS OF TEXAS WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. (b) THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT. IN ADDITION, THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE COMPANY AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON RECEIPT BY THE COMPANY. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 16. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. -7- SECTION 17. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS RELATED HERETO REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. SECTION 18. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -8- IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. FRANCHISE FINANCE CORPORATION OF AMERICA By: ------------------------------------- John R. Barravecchia Executive Vice President and Chief Financial Officer (OTHER SUBORDINATED CREDITOR) By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- (OTHER SUBORDINATED CREDITOR) By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- (THE COMPANY) By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- -9- EXHIBIT H [Form of Confidentiality Agreement] CONFIDENTIALITY AGREEMENT [Date] [Insert Name and Address of Prospective Participant or Assignee] Re: Credit Agreement (Facility B), dated as of September 15, 2000, among Franchise Finance Corporation of America ("FFCA"), the lenders named therein (the "Lenders"), Wells Fargo Bank, National Association, as Documentation Agent, Commerzbank Aktiengesellschaft, New York Branch, as Syndication Agent, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Managing Agent, Bank One, Arizona, N.A., Union Bank of California, N.A. and Washington Mutual Bank, d/b/a Western Bank, as Co-Agents, and Bank of America, N.A., as Administrative Agent Dear ______________: As a Lender under the above-referenced Credit Agreement (the "Credit Agreement"), we have agreed with FFCA pursuant to Section 9.9 of the Credit Agreement to use reasonable precautions to keep confidential, except as otherwise provided therein, all non-public information identified by FFCA as being confidential at the time the same is delivered to us pursuant to the Credit Agreement, including, without limitation, written information and information transferred visually or electronically, together with all notes, analyses, compilations, studies or other documents that contain all or a portion of such information (collectively, "Confidential Information"). As provided in said Section 9.9, we are permitted to provide you, as a prospective [participant] [assignee Lender], with certain Confidential Information subject to the execution and delivery by you, prior to receiving Confidential Information, of a Confidentiality Agreement in this form. No Confidential Information will be made available to you until your execution and return to us of this Confidentiality Agreement. Accordingly, in consideration of the foregoing, you agree (on behalf of yourself and each of your affiliates, directors, officers, employees, agents and representatives) that (A) the Confidential Information will not be used by you except in connection with the proposed [participation] [assignment] mentioned above and (B) you shall keep all Confidential Information confidential, provided that nothing herein shall limit the disclosure of any Confidential Information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to your counsel or to counsel for any of the other Lenders or the - ---------, --- Page 2 Administrative Agent, (iii) to your bank examiners, auditors or accountants, (iv) to the Administrative Agent or any other Lender, (v) in connection with any litigation to which you or any one or more of the Lenders are a party; provided, further, that, unless specifically prohibited by applicable law or court order, you agree, prior to disclosure thereof, to give prompt notification to FFCA of any request for disclosure of any Confidential Information (x) by any governmental agency or representative thereof (other than any such request in connection with an examination of your financial condition by such governmental agency) or (y) pursuant to legal process. With respect to any disclosure of any Confidential Information set forth in subclause (x) or (y) of clause (v) above, you agree, to the extent not prohibited by applicable law or court order, to (i) cooperate with FFCA so that FFCA may seek a protective order or other appropriate remedy and (ii) use its best efforts to obtain an order or reasonable assurance that confidential treatment will be afforded such information. At the earlier of such time as (i) you are no longer a Lender, an assignee or participant under the Credit Agreement, or (ii) all Advances (as defined in the Credit Agreement) under the Credit Agreement are paid in full and the Commitment (as defined in the Credit Agreement) is terminated, upon written request by FFCA and subject to any restrictions or regulations of any Tribunal having supervisory authority over you, you shall return to FFCA the Confidential Information which is in tangible form, including any copies which you or any persons to whom you transmitted the Confidential Information may have made, and you and they will destroy all abstracts, summaries thereof or references thereto in your and their documents, and after written request by FFCA, shall promptly provide FFCA reasonable assurance in writing that you have destroyed such documents. It is acknowledged that FFCA is in the business of financing commercial real estate, equipment and enterprises and from time to time you and FFCA may be in direct competition with each other for business. This Confidentiality Agreement does not constitute a license for you to use, employ or exploit the Confidential Information to gain any advantage in the marketplace against FFCA; it being expressly understood and agreed that any use, employment or exploitation of the Confidential Information for a purpose not expressly permitted herein is strictly prohibited. This Confidentiality Agreement contains the entire understanding of the parties to this Confidentiality Agreement with respect to the matters addressed in this Confidentiality Agreement and may be amended, modified, supplemented or altered only by a writing duly executed by you and us which is consented in writing to by FFCA and any prior agreements or understandings, whether oral or written, are entirely superseded by this Confidentiality Agreement. The covenants, conditions and agreements contained in this Confidentiality Agreement shall bind you and use and inure to the benefit of you, us and FFCA and their respective parent corporations, affiliated companies, subsidiaries, officers, employees, partners, agents and successors and assigns. -2- - ---------, --- Page 3 Would you please indicate your agreement to the foregoing by signing at the place provided below the enclosed copy of this Confidentiality Agreement. Very truly yours, By: ------------------------------------- Title: ---------------------------------- THE FOREGOING IS AGREED TO AS OF THE DATE OF THIS LETTER. By: ---------------------------------- Title: ------------------------------- EX-99.03 7 0007.txt FINAL PROSPECTUS SUPPLEMENT PROSPECTUS SUPPLEMENT (To Prospectus Dated April 16, 1998) LOGO $150,000,000 FRANCHISE FINANCE CORPORATION OF AMERICA 8.75% SENIOR NOTES DUE 2010 ------------ The notes will mature on October 15, 2010. Interest on the notes is payable semiannually on April 15 and October 15, beginning April 15, 2001. The notes are unsecured and rank equally with all of FFCA's other unsecured senior indebtedness. The notes will be issued only in registered form in denominations of $1,000. FFCA may, at its option, redeem the notes as described in this prospectus. INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE S-13 IN THIS PROSPECTUS SUPPLEMENT. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus supplement or the related prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------ Per Note Total ------------ --------------- Public offering price ..................... 99.205% $148,807,500 Underwriting discounts .................... .650% $ 975,000 Proceeds to FFCA before expenses .......... 98.555% $147,832,500 Interest on the notes will accrue from September 21, 2000. ------------ The underwriters are offering the notes subject to various conditions. The underwriters expect to deliver the notes to purchasers on or about September 21, 2000. ------------ SALOMON SMITH BARNEY MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE BANC OF AMERICA SECURITIES LLC September 18, 2000 FRANCHISE FINANCE CORPORATION OF AMERICA Investment Locations as of June 30, 2000(1) [MAP GRAPHIC OF THE UNITED STATES SHOWING THE INVESTMENT LOCATIONS OF FFCA] (1) Does not include eight properties located in Alaska, Hawaii and Canada. THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING, AND YOU ARE URGED TO READ BOTH THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL TO OBTAIN MATERIAL INFORMATION CONCERNING THE NOTES AND AN INVESTMENT IN THE NOTES. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR INCORPORATED BY REFERENCE IN THE ACCOMPANYING PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS SUPPLEMENT. ------------ TABLE OF CONTENTS Page ----- Prospectus Supplement Prospectus Supplement Summary ................................. S-5 Risk Factors .................................................. S-13 Use of Proceeds ............................................... S-17 Capitalization ................................................ S-17 Selected Financial Data ....................................... S-18 Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................ S-20 Business and Properties ....................................... S-27 Management and Directors of the Company ....................... S-41 Description of the Notes ...................................... S-43 Certain Federal Income Tax Considerations ..................... S-50 Underwriting .................................................. S-50 Legal Matters ................................................. S-52 Prospectus Available Information ......................................... 2 Incorporation of Certain Documents by Reference ............... 2 The Company ................................................... 3 Use of Proceeds ............................................... 3 Ratios of Earnings to Fixed Charges ........................... 3 Description of Debt Securities ................................ 4 Description of Common Stock ................................... 13 Description of Preferred Stock ................................ 14 Restrictions On Transfers of Capital Stock .................... 19 Certain Federal Income Tax Considerations ..................... 20 Plan of Distribution .......................................... 25 Legal Matters ................................................. 26 Experts ....................................................... 26 S-3 THIS PAGE INTENTIONALLY LEFT BLANK S-4 PROSPECTUS SUPPLEMENT SUMMARY This summary highlights the information contained in this prospectus supplement and the accompanying prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in the notes. You should read both the prospectus supplement and the prospectus carefully. Unless the context indicates otherwise, the terms "FFCA," "our," "we," and "the company" refer to Franchise Finance Corporation of America and its subsidiaries. THE COMPANY FFCA is the largest REIT in the United States providing real estate financing to multi-unit operators in the chain restaurant industry and a leading provider of real estate financing to the convenience store and automotive services and parts industries. FFCA provides flexible financing alternatives through a variety of investment vehicles including mortgage loans, long-term real estate leases, equipment loans and construction financing. FFCA has financed chain restaurant real estate since 1980 and began financing convenience stores and automotive services and parts stores in 1997. FFCA's portfolio is diversified by geography, industry sector, operators and chains, which has had a favorable impact on its access to, and cost of, capital. As of June 30, 2000, FFCA had an investment/servicing portfolio consisting of approximately 5,600 properties. Over 490 operators in approximately 160 retail chains throughout North America operate the properties. FFCA provides financing principally through mortgage loans and sale-leaseback transactions to operators with experienced management in established retail chains. Generally, multi-unit operators that have a national or regional presence operate the properties. FFCA is a fully integrated, self-administered REIT and its common stock is traded on the New York Stock Exchange under the symbol "FFA." As of September 1, 2000, FFCA had an equity market capitalization of approximately $1.3 billion. FFCA's corporate offices are located at 17207 North Perimeter Drive, Scottsdale, Arizona 85255-5402. FFCA's telephone number is (480) 585-4500 and its Internet web site address is http://www.ffca.com. FFCA's website is not part of this prospectus supplement or the accompanying prospectus. BUSINESS OBJECTIVES AND STRATEGIES FFCA seeks to enhance its operating performance and financial position by pursuing the following business objectives and strategies: * ESTABLISHING LONG-TERM FUNDING SOURCE. FFCA entered into a three-year loan sale agreement in December 1999 with Washington Mutual Bank, FA, the nation's eighth largest financial services company. This alliance, to be Washington Mutual's exclusive provider of chain store loans, subject to specified conditions, represents a significant source of new capital for FFCA. FFCA expects 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, because Washington Mutual wishes to limit its concentration of individual borrowers to a specific dollar amount, Washington Mutual does not purchase every loan that FFCA originates. Therefore, while FFCA may no longer have to rely on accumulating large amounts of mortgage loans, using its bank lines of credit to carry the loans, for sale through securitization transactions, it may continue to securitize loans in some cases. In connection with the loan sale agreement, a warrant was issued to Washington Mutual, Inc. to purchase 2 million shares of FFCA common stock at a price of $25.47 per share. The warrant expires in December 2009, or earlier if the loan sale agreement is terminated or not renewed upon the expiration of its initial term. S-5 * UTILIZING CONSERVATIVE INVESTMENT STRUCTURING. FFCA structures its investments to enhance the stability of its cash flows. FFCA's sale-leaseback transactions, which are retained in its portfolio, are structured as triple net leases. These leases provide that lessees are responsible for the payment of all property operating expenses, including property taxes, maintenance and insurance expenses. As a result, FFCA avoids making significant capital expenditures with respect to these properties. The leases generally have 20-year terms and provide for base rentals plus additional payments based upon specified contractual increases or a participation in the gross sales from the properties. FFCA's mortgage financings are generally secured by first liens on the mortgaged property and generally provide for full recourse to the borrower. FFCA generally lends an amount that does not exceed the sum of the aggregate replacement cost of the building and equipment used in the operation of the mortgaged property provided as security for the loan, and the fair market value of the real property based upon the cost of comparable land. In addition, FFCA generally structures its transactions so that all of the loans made to a borrower or an affiliated group of borrowers are both cross-defaulted and cross-collateralized. * APPLYING RESEARCH-DRIVEN UNDERWRITING. FFCA targets quality investments by applying conservative, research-driven underwriting criteria designed to evaluate risk and return indicators. Before underwriting a transaction, FFCA thoroughly researches various factors, including: * Operator management depth and experience * Chain store sales trends and profitability * Chain store historical cost and requested investment amount * Concept analysis -- concept history and stability -- comparison of operator performance to concept averages * Site considerations -- age of improvements/physical condition -- market penetration & competition -- environmental issues * FOCUSING ON EXPERIENCED MULTI-UNIT OPERATORS WITH BRAND NAME FRANCHISES. FFCA seeks multi-unit operators conducting business under nationally or regionally recognized brand names to operate the properties it finances. As a result, FFCA believes it is able to achieve a better risk-adjusted return for its shareholders. Generally, the operators include both chain store franchisors and franchisees. Examples of well-known chains in FFCA's portfolio include Applebee's, Arby's, Burger King, Checker Auto Parts, Chevron, Circle K, Citgo, Cracker Barrel Old Country Store, 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. * MAINTAINING APPROPRIATE INFRASTRUCTURE TO ACTIVELY MANAGE PORTFOLIO. Since 1980, members of FFCA's management group have gained extensive experience in the development and refinement of systems of operation, management and research, which has enhanced FFCA's ability to identify, evaluate and structure new investments as well as actively monitor and manage its investment portfolio. FFCA's experience in the real estate industry results in in-house efficiency with respect to virtually every aspect of real estate acquisition and management. FFCA uses its infrastructure to continually monitor and administer its investments to enhance the stability of its cash flows. FFCA collects financial data on the properties financed by FFCA to determine profitability, and FFCA's in-house staff inspects underperforming properties to assess their condition. The servicing staff monitors the receipt of monthly payments, payment of property taxes and maintenance of required insurance coverages. Lease and mortgage payments are S-6 generally collected by electronic account debits on the first day of each month. Servicing and legal department personnel administer underperforming and nonperforming properties and also supervise the in-house administration of property dispositions and tenant substitutions. FFCA has an established record of resolving underperforming and nonperforming leased assets and loans. For the three years ended December 31, 1999 and the six months ended June 30, 2000, the occupancy rate for FFCA's properties has been approximately 99%. * MINIMIZING INVESTMENT RISK THROUGH DIVERSIFICATION. In structuring its portfolio, FFCA seeks diversification, which reduces risk and favorably impacts its access to, and cost of, capital. Elements of FFCA's investment diversification include: -- Geographic Diversification. FFCA's portfolio is geographically diverse with investments in properties located in all 50 states, Washington, D.C. and Canada as of June 30, 2000. The map on the inside front cover of this prospectus supplement shows the location of properties in FFCA's investment/servicing portfolio as of June 30, 2000, except for eight properties located in Alaska, Hawaii and Canada. -- Industry Sector Diversification. FFCA's portfolio continues to become more diverse in terms of industry sectors, with interests in 3,395 chain restaurant properties, 1,554 convenience stores, 349 automotive services and parts stores and 10 other retail properties as of June 30, 2000. -- Operator and Chain Diversification. FFCA's portfolio is diverse in terms of operators and chains, with properties that were leased to, or owned by, over 490 national and regional operating companies with no single operator representing more than 8% of revenues for the six months ended June 30, 2000. Multi-unit operators are the predominant operators of FFCA's properties. Additionally, approximately 160 retail chains are represented in FFCA's portfolio. As of June 30, 2000, approximately 64% of the properties financed by FFCA were chain restaurants including Applebee's, Arby's, Black Eyed Pea, Burger King, Chili's, Denny's, Fuddruckers, Hardee's, Jack in the Box, Kentucky Fried Chicken, Pizza Hut, Taco Bell, Wendy's and Whataburger. In addition, approximately 29% of FFCA's investments were in convenience stores, including Circle K, E-Z Serve, 7-Eleven and White Hen Pantry, and 7% were in automotive services and parts stores, including SpeeDee Oil, Midas and Checker Auto Parts. * OFFERING OPERATORS A FULL RANGE OF FINANCING PRODUCTS. FFCA provides its customers with a variety of financing alternatives including mortgage loans, sale-leaseback transactions, equipment loans, senior loans, participating mortgages and construction loans. FFCA believes that offering its customers a full range of financing products gives the company a competitive advantage over traditional mortgage lenders and other real estate financing companies. Additionally, FFCA continuously reviews other financing products that it may offer operators to further improve the company's competitive position. * MAINTAINING A CONSERVATIVE CAPITAL STRUCTURE. FFCA seeks to operate with a moderate use of leverage and believes that its investments' stable, predictable cash flows will permit it to continue obtaining attractive debt and equity financing. FFCA seeks to maintain a ratio of total indebtedness to total market capitalization of not more than 40%. Based on debt outstanding on FFCA's balance sheet as of June 30, 2000 and its closing stock price on that date, FFCA's total indebtedness as a percentage of total market capitalization was approximately 36%. Total indebtedness includes debt associated with originating mortgages held for sale. * MAXIMIZING CAPITAL MARKET FLEXIBILITY. FFCA's strategic alliance with Washington Mutual enables FFCA to sell mortgage loans to Washington Mutual and retain the servicing of the loans. S-7 In addition to loans sold to Washington Mutual, FFCA has the flexibility to sell mortgage loans it originates in securitized offerings. FFCA typically retains interests in securitized pools in the form of subordinated securities, interest-only securities and mortgage servicing rights. To date, FFCA has successfully completed five mortgage loan securitizations. The face amounts of the mortgages involved were: (1) $178.8 million in 1996; (2) $260.8 million in 1997; (3) $335.3 million in 1998; (4) $414.9 million in the second quarter of 1999; and (5) $674.4 million in the fourth quarter of 1999. RECENT DEVELOPMENTS The following is a summary of recent developments affecting FFCA: RATINGS UPGRADE * APRIL 2000: Moody's Investors Service upgraded the senior unsecured debt rating of FFCA to Baa2 from Baa3. According to Moody's, the rating upgrade was based on FFCA's strong underwriting and leadership in finance for restaurant properties, the further diversification of FFCA's funding sources through the loan sale facility with Washington Mutual and FFCA's controlled expansion beyond the chain restaurant property industry into convenience/gas stores and automotive parts and services outlets. LONG-TERM FUNDING SOURCE ESTABLISHED * DECEMBER 1999: FFCA and Washington Mutual entered into a three-year loan sale agreement. Under this arrangement, Washington Mutual purchases loans originated by FFCA and FFCA continues to service the loans. ACQUISITIONS AND FINANCINGS * SEPTEMBER 2000: FFCA provided $99 million of mortgage financing to Shoney's, Inc. for 142 restaurant locations across the United States. * JULY 2000: FFCA provided $142.6 million of mortgage financing for 65 Cracker Barrel restaurant locations across the United States, operated by affiliates of CBRL Group, Inc. * JUNE 2000: FFCA provided $14.8 million of mortgage financing for five restaurant locations across the United States, operated by an affiliate of Chart House Enterprises, Inc. FFCA also provided $19.7 million of mortgage and equipment financing to an affiliate of E-Z Serve Convenience Stores, Inc. for 26 convenience store locations in Georgia and Florida. * APRIL 2000: FFCA provided $20.9 million of mortgage and equipment financing to an affiliate of E-Z Serve Convenience Stores, Inc. for 17 Chevron Food Mart locations in Alabama and Mississippi. FFCA also provided $39.7 million of mortgage and equipment financing to affiliates of Uni-Marts, Inc. for 36 convenience store locations in Pennsylvania. * FEBRUARY 2000: FFCA provided $17.5 million of mortgage financing to OSI Group, Inc. for 22 Exxon locations in West Virginia. S-8 DEBT OFFERINGS AND SECURITIZATIONS * JUNE 2000: FFCA issued $15 million in unsecured notes due in 2010, bearing interest at 8.905%. FFCA used the note proceeds to pay down its revolving line of credit. * JANUARY 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%. FFCA used the proceeds of the notes to pay down its revolving line of credit. * NOVEMBER 1999: FFCA priced and sold approximately $607 million of secured franchise loan asset-backed securities. FFCA received proceeds from the sale of securities, net of expenses, of approximately $651 million. OTHER DEVELOPMENT * AUGUST 2000: Citgo Petroleum Corporation, a gasoline refining and marketing company, named FFCA as its preferred financing partner. The designation has positioned FFCA as a preferred provider of a variety of financial products and services to Citgo's independent marketers and operators in 43 states. S-9 THE OFFERING Notes Offered ................ FFCA is offering a total of $150 million of 8.75% senior notes. Issue Price .................. FFCA is offering the notes for $1,000 per note purchased. Maturity ..................... The notes will mature on October 15, 2010. Interest ..................... FFCA will pay interest on the notes at an annual rate of 8.75%. FFCA will pay the interest due on the notes every six months on April 15 and October 15. FFCA will make the first payment on April 15, 2001. Certain Covenants ............ FFCA will issue the notes under an indenture with Wells Fargo Bank Arizona, National Association, as trustee. The indenture will restrict FFCA's ability, and the ability of FFCA's subsidiaries, to: * incur debt; * secure debt with FFCA's assets or those of FFCA's subsidiaries; and * sell specified assets or merge with other companies. Ranking of the Notes ......... The notes represent senior unsecured debt of FFCA: * The notes will rank equally with all of FFCA's current and future debt that does not expressly provide that it ranks junior to senior unsecured debt of FFCA. On June 30, 2000, on a "pro forma" basis after giving effect to the offering and the application of the net proceeds, FFCA would have had $767.7 million of senior unsecured debt outstanding. * The notes will rank ahead of all of FFCA's current and future debt that expressly provides that it is subordinated to senior unsecured debt of FFCA. On June 30, 2000, on a "pro forma" basis after giving effect to the offering and the application of the net proceeds, FFCA would not have had any of this type of debt outstanding. * The notes will rank behind any of FFCA's mortgage and other secured indebtedness and behind debt and other liabilities of FFCA's subsidiaries. On June 30, 2000, on a "pro forma" basis after giving effect to the offering and the application of the net proceeds, FFCA would not have had any of this type of debt outstanding. Optional Redemption .......... FFCA may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes" under the heading "Optional Redemption," plus any interest that is due and unpaid on the date FFCA redeems the notes. Use of Proceeds .............. FFCA will use the net proceeds of the notes to reduce amounts outstanding under FFCA's unsecured revolving credit facility with Bank of America, N.A.
S-10 SUMMARY FINANCIAL INFORMATION FFCA derived the historical financial information shown below from FFCA's audited financial statements for 1997 through 1999 and unaudited financial statements for the six months ended June 30, 1999 and June 30, 2000. The information is only a summary and you should read it together with FFCA's historical financial statements and related notes contained in the annual and quarterly reports and other information FFCA has filed with the Securities and Exchange Commission, which is incorporated into the accompanying prospectus, as well as the financial information included in this prospectus supplement.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ----------------------- --------------------------------------- 2000 1999 1999 1998 1997 --------- --------- ---------- --------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Revenues: Rental ....................................... $ 80,760 $ 73,009 $ 151,193 $ 121,490 $ 101,292 Mortgage loan interest ....................... 11,219 12,942 28,769 26,118 10,987 Investment income and other .................. 23,719 15,780 38,513 21,960 22,709 --------- --------- ---------- --------- ---------- Total Revenues ............................. 115,698 101,731 218,475 169,568 134,988 --------- --------- ---------- --------- ---------- Expenses: Depreciation and amortization ................ 17,339 14,883 30,923 24,518 20,784 Operating, general and administrative......... 11,674 6,602 20,612 14,244 11,106 Property costs ............................... 1,035 947 1,884 1,778 1,641 Interest ..................................... 30,870 27,229 57,312 43,846 35,750 --------- --------- ---------- --------- ---------- Total Expenses ............................. 60,918 49,661 110,731 84,386 69,281 --------- --------- ---------- --------- ---------- Income before gain on sale of property and other costs ............................. 54,780 52,070 107,744 85,182 65,707 Gain on sale of property, net ................. 11,588 9,847 40,983 10,535 5,471 Other, net .................................... 2,485 -- -- -- 1,719 --------- --------- ---------- --------- ---------- Net Income .................................... $ 68,853 $ 61,917 $ 148,727 $ 95,717 $ 72,897 ========= ========= ========== ========= ========== Basic earnings per share ...................... $ 1.22 $ 1.13 $ 2.69 $ 2.01 $ 1.78 ========= ========= ========== ========= ========== Diluted earnings per share .................... $ 1.22 $ 1.13 $ 2.68 $ 2.00 $ 1.76 ========= ========= ========== ========= ========== OTHER DATA: EBITDA(1) ..................................... $ 117,724 $ 104,029 $ 236,962 $ 164,081 $ 129,431 FFO(2) ........................................ 78,889 68,068 145,137 111,974 87,559 FFO per share, assuming dilution(2) ........... 1.40 1.24 2.61 2.34 2.12 Ratio of earnings to fixed charges(3) ......... 3.20x 3.23x 3.55x 3.17x 3.04x Ratio of EBITDA to interest expense(1) .................................. 3.81x 3.82x 4.13x 3.74x 3.62x Number of properties owned .................... 2,278 2,055 2,264 1,933 1,477
(Footnotes for table are presented on next page) S-11
As of June 30, As of December 31, ---------------------- ------------------------------------ 2000 1999 1999 1998 1997 --------- --------- ---------- --------- --------- (Dollars in thousands) SELECTED BALANCE SHEET DATA: Real estate before accumulated depreciation ................................ $1,489,708 $1,369,948 $1,474,758 $1,274,600 $ 951,305 Mortgage loans held for sale .................. 112,097 277,878 139,703 163,172 251,622 Mortgage loans receivable ..................... 53,630 54,283 57,996 43,343 35,184 Real estate investment securities ............. 191,634 143,563 185,252 113,692 55,185 Total assets .................................. 1,702,346 1,720,801 1,710,796 1,460,429 1,179,198 Total debt .................................... 732,704 802,513 748,359 696,668 619,860 Total shareholders' equity .................... 917,567 870,324 903,632 716,434 522,996
- ---------- (1) EBITDA represents net income before interest expense, income taxes, depreciation and amortization. EBITDA is not intended to represent cash flow from operations as defined by GAAP and you should not consider it as an alternative to cash flow as a measure of liquidity or as an alternative to net income as an indicator of operating performance. EBITDA is included in this prospectus supplement because management believes that certain investors find it to be a useful tool for measuring a company's ability to service its debt. EBITDA as calculated by FFCA may not be comparable to calculations as presented by other companies, even in the same industry. (2) As defined by the National Association of Real Estate Investment Trusts ("NAREIT"), Funds from Operations, or FFO, represents net income determined in accordance with generally accepted accounting principles, excluding gains (or losses) from debt restructuring and sale of property, plus depreciation of chain store property. Beginning in 2000, FFCA's ongoing business includes the origination and sale of mortgage loans through its subsidiary, FFCA Funding Corporation; therefore, the cash gains or losses on the sale of these mortgage loans are included in FFCA's FFO. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and should not be considered as an alternative to net income as an indication of FFCA's performance or to cash flow as a measure of liquidity. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. (3) For the purpose of computing such ratios, "earnings" represents net income plus fixed charges. "Fixed charges" represents interest expense, which includes amortization of debt issuance costs. S-12 RISK FACTORS This prospectus supplement and the accompanying prospectus include "forward looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act including in particular the statements about FFCA's plans, strategies and prospects under the headings "Prospectus Supplement Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business and Properties." 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 included important factors that could cause actual results to differ materially from the forward looking statements below and elsewhere in this prospectus supplement and the accompanying prospectus, including under the headings "Business -- Factors Affecting Future Operating Results" and "-- Regulation" in its Annual Report on Form 10-K for the year ended December 31, 1999, or the 1999 Form 10-K, incorporated by reference in the accompanying prospectus. FFCA qualifies these forward-looking statements by the cautionary statements below. You should consider the following risks, as well as those listed under "Business -- Factors Affecting Future Operating Results" in the 1999 Form 10-K incorporated by reference in the accompanying prospectus, in deciding whether to purchase the notes: DEBT FINANCING RISKS FFCA is subject to the risks associated with debt financing, including the risk that the cash provided by FFCA's operating activities will be insufficient to meet required payments of principal and interest and the risk that FFCA will not be able to repay or refinance existing indebtedness or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If FFCA is unable to refinance its indebtedness on acceptable terms, it might be forced to dispose of properties on disadvantageous terms, which might result in losses. TRADING MARKET FOR THE NOTES Prior to the offering, there has been no public market for the notes. The underwriters have advised FFCA that they intend to make a market in the notes; however, the underwriters are not obligated to do so. The underwriters may discontinue any market-making at any time, and there is no assurance that an active public market for the notes will develop or, if it develops, that it will continue. Further, declines and volatility in the market for securities generally, as well as changes in FFCA's financial performance or prospects, may adversely affect the liquidity of, and trading market for, the notes. DEPENDENCE ON THE SUCCESS OF THE CONCEPTS AND FACILITIES FINANCED BY FFCA FFCA invests primarily in chain restaurant properties, convenience stores and automotive services and parts retail facilities. Investments in these properties are subject to various risks, including decreases in demand for products, increased labor costs, (including increases in the minimum wage or statutorily-mandated benefits), changes in tax laws or environmental regulations, increases in the number of, and the physical condition of, competing properties offering similar products and dependence on operators for the profitable operation of the properties. Some of the risks the chain restaurant industry is subject to include changes in consumer demand or food preferences, and contaminated food products. Some of the risks applicable to the convenience store industry are competition from new retail facilities offering similar products in the immediate vicinity of each particular store, pending changes in legislation concerning the sale of tobacco products, and, to the extent applicable, gasoline margin volatility and the availability of gasoline supplies. Some of the risks of the automotive services and parts industry are technological changes in the production and maintenance of automobiles and changes in consumer preferences in transportation options. FFCA's success is dependent on the success of these industries in general and the specific chains and retail facilities which FFCA finances. S-13 The ability of the operators to pay their obligations to FFCA in a timely manner depends on a number of factors, including the successful operation of their businesses. Various factors, many of which are beyond the control of any operator, may adversely affect the economic viability of the chain store facility, including: * national, regional and local economic conditions, which may be adversely affected by industry slowdowns, company relocations, prevailing employment conditions and levels of employment and other factors; * local real estate conditions, like competition from facilities having businesses similar to the chain store facility; * changes or weaknesses in specific industry segments; * perceptions by prospective customers of the safety, convenience, services and attractiveness of the chain store facility and of the related concept; * changes in demographics, consumer tastes and traffic patterns; * the ability to obtain and retain capable management; * retroactive changes to building codes, similar ordinances and other legal requirements; and * increases in operating expenses. In the second quarter of 2000, Quincy's Restaurants, Inc. failed to make two monthly payments and FFCA terminated the master lease relating to 96 of the properties. FFCA took a deed instead of foreclosing on the remaining 16 properties, which together contributed 4% to FFCA's first quarter 2000 revenues. FFCA subsequently leased 97 of the properties to a third party under a lease that expires September 30, 2000. FFCA is currently negotiating a long-term lease of the properties; however, there can be no assurance that FFCA will be able to successfully lease the properties. OPERATOR, CONCEPT AND GEOGRAPHIC CONCENTRATION For the six months ended June 30, 2000; * 24% of FFCA's revenues were generated by FFCA's top five clients; * 13% of FFCA's revenues were generated by operators of Burger King restaurant facilities; and * 35% of FFCA's revenues were generated by properties located in five states--Florida, Texas, Georgia, Ohio and California. FFCA may face additional operator concentration risk in the future because the industries that FFCA finances have been consolidating and FFCA typically finances the larger operators seeking to consolidate these industries. For the six months ended June 30, 2000, 7.7% of FFCA's revenues came from RTM, Inc. and its affiliates (a portion of which is guaranteed by Arby's, Inc. and Triarc Companies, Inc.). RTM is the largest franchisee of Arby's restaurants and the owner and franchisor of the Mrs. Winner's and Lee's Famous Recipe concepts. Thus, RTM as an operator, Burger King as a concept, and properties located in the states of Florida, Texas, Georgia, Ohio and California, will continue to have a meaningful impact on FFCA's revenues. DEPENDENCE ON FRANCHISORS AND OTHERS Each of the chain store facilities in which FFCA has an investment is operating as part of a chain of restaurants, convenience stores or automotive services and parts stores. The management practices of the franchisors of the chains, a lack of support by such franchisors, franchisee organizations or third parties, or the bankruptcy or business discontinuation of any franchisor, franchisee organization or third party, may adversely affect the operating results of the related chain store facilities. Likewise, the management practices or a lack of support with respect to the concepts owned by the related operators also may adversely affect the results of operations at the chain store facilities of these operators, which could have an adverse effect on an operator's ability to make payments to FFCA under a lease or loan. RELIANCE UPON LOAN SALE AGREEMENT WITH WASHINGTON MUTUAL FFCA's loan sale agreement with Washington Mutual has a three-year term. There is no obligation for Washington Mutual to renew the arrangement upon the expiration of that term. S-14 Moreover, the agreement with Washington Mutual does not obligate Washington Mutual to purchase loans from FFCA. Washington Mutual may elect not to purchase loans from FFCA because of concentration issues, underwriting criteria, or for other reasons. Additionally, because Washington Mutual is a regulated lending institution, its ability to continue to purchase loans from FFCA may be subject to changes in regulations affecting these institutions. SECURITIZATION RISKS AND CHANGING MARKET CONDITIONS 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 markets specifically, the credit quality of FFCA's loans, compliance of FFCA's loans with the eligibility requirements established by the securitization documents and the absence of any material downgrading or withdrawal of ratings given to certificates issued in FFCA's previous securitizations. Volatility in the credit markets may impair FFCA's ability to successfully securitize its loans in the future. FFCA has a $600 million loan sale facility with Morgan Stanley. To the extent FFCA sells loans through the Morgan Stanley loan sale facility or in connection with a direct securitization, the sales are generally without recourse to FFCA, except with respect to breaches of representations and warranties contained in the applicable loan sale agreement. With respect to any breaches, FFCA will be required to: (1) cure the breach, (2) replace the loan in question with a loan that conforms to the representations and warranties, or (3) repurchase the loan. In addition, under the Morgan Stanley loan sale facility, FFCA may be required in some circumstances to make payments to Morgan Stanley of up to 10% of the total consideration received by FFCA for the sale of the loans to the trust. FFCA also owns subordinated interests in the loans it securitizes. These interests are in a "first loss" position relative to the more senior securities sold to third parties, and accordingly carry a greater risk as it relates to the nonpayment of the loans. At June 30, 2000, FFCA had approximately $192 million invested in these subordinated interests, which represented less than 12% of FFCA's total assets. The value of the subordinated interests, excluding those classified as held-to-maturity securities, is marked to market each calendar quarter with material changes in value impacting FFCA's financial statements. Although no material changes have occurred to date, FFCA may, in the future, recognize material changes that would result in a reduction in their value on FFCA's financial statements. These reductions could negatively impact FFCA's net income, stockholders' equity and total assets in the future. ENVIRONMENTAL MATTERS The properties FFCA invests in are subject to requirements and potential liabilities under environmental laws and regulations. For example, some environmental laws impose liability upon property owners or operators for the presence of hazardous substances on their property regardless of whether the owner was responsible for the release of these substances. In addition, a property owner or operator may be subject to common law claims by third parties for personal injury based on exposure to hazardous substances or for property damage based on environmental contamination emanating from a property. The costs of any required remediation or removal of these substances may be substantial and the owner's or operator's liability as to any property is generally not limited under these laws and regulations and could significantly exceed the value of the property or the aggregate assets of the owner. Under some environmental laws, like the federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, a lender may become liable, as an "owner" or "operator", for the costs 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 or operator caused the environmental damage. Although the Asset Conservation, Lender Liability and Deposit Insurance Protection Act of 1996, offers limited protection to lenders from CERCLA liability, a lender may lose the protection if agents or employees of the lender are deemed to have exercised decision-making control over the borrower's environmental compliance or hazardous substance handling and disposal practices or to have assumed day-to-day management of the operational functions of the site. S-15 Under the Resource Conservation and Recovery Act, the Environmental Protection Agency established a comprehensive regulatory program for the detection, prevention and cleanup of leaking underground storage tanks UST. Expanded regulations enacted by the EPA, which became generally effective in 1998, established requirements for: * installing UST systems; * upgrading UST systems; * taking corrective action in response to releases; * closing UST systems; * keeping appropriate records; and * maintaining evidence of financial responsibility for taking corrective action and compensating third parties for bodily injury and property damage resulting from releases. These regulations permit states to develop, administer and enforce their own regulatory programs, incorporating requirements that are at least as stringent as the federal standards. States with programs approved by the EPA may assume primary responsibility for enforcing the national requirements. Various federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos-containing materials, or ACMs, when the ACMs are in poor condition or during renovation or demolition of a building. These laws, as well as common law standards, may impose liability for releases of ACMs and may permit third parties to seek recovery from owners or operators of real properties for personal injuries associated with the releases. Losses arising from the presence of ACMs are not covered by FFCA's environmental insurance policies. The environmental due diligence that FFCA performs on a property may not have identified or reasonably quantified all environmental conditions. FFCA did not perform environmental audits on most of the properties acquired from its predecessors. In addition, the environmental condition of a property could in the future be affected by actions or omissions by borrowers under FFCA's mortgage loans or by third parties unrelated to the borrowers. While FFCA has purchased environmental insurance for many of the properties it has financed or acquired, and for all of those that have USTs or those that are selling gasoline or other petroleum products, there can be no assurance that the environmental insurance policies will provide sufficient coverage in the event of environmental liability at a property, or that applicable deductibles, per loss limitations and aggregate coverages or exclusions from coverage may not contribute to a loss to investors or that the environmental insurer will pay amounts due under the environmental insurance policies. For more detailed information see "BUSINESS AND PROPERTIES--Regulation." HEDGING TRANSACTIONS FFCA invests in derivative financial instruments for the sole purpose of providing protection against fluctuations in interest rates. From the time FFCA's fixed-rate mortgage loans are originated until the time they are sold through a securitization transaction, the company hedges against fluctuations in interest rates through the use of derivative financial instruments. At June 30, 2000, FFCA had outstanding interest rate swap contracts aggregating $38 million in notional amount. FFCA intends to terminate these contracts upon securitization of the related fixed-rate mortgage loans. Based on prevailing interest rates, FFCA would have paid approximately $314,000 if it had terminated the swap contracts at June 30, 2000. REIT TAX STATUS FFCA has 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 as a REIT in any given year. FFCA's failure to maintain its REIT status would have a material S-16 adverse effect on FFCA. 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 the changes might have, could also affect the ability of FFCA to realize its investment objectives. USE OF PROCEEDS FFCA will use the net proceeds, after expenses, from this offering of the 8.75% Senior Notes due 2010, estimated to be approximately $147,332,500, to reduce amounts outstanding under FFCA's $350 million unsecured revolving credit facility with Bank of America. As of September 15, 2000, the amount outstanding under the credit facility was $188 million. Interest under the credit facility is due in periodic installments at a rate equal to the 30-day London Interbank Offered Rate, or LIBOR, plus 125 basis points. The credit facility expires in September 2003. CAPITALIZATION The following table shows the capitalization of FFCA as of June 30, 2000 and the adjusted capitalization of FFCA as of that date after giving effect to the issuance and sale of the notes offered in this prospectus and the application of the net proceeds from the offering. This information should be read together with the information under "Prospectus Supplement Summary," "Selected Financial Data" and FFCA's consolidated financial statements and related notes incorporated by reference into the accompanying prospectus.
As of June 30, 2000 ------------------------------- Historical As Adjusted -------------- -------------- (Dollars in thousands) 8.75% Senior Notes due 2010 ....................................... $ -- $ 150,000 Notes Payable ..................................................... 617,704 617,704 Credit Agreement(1) ............................................... 115,000 -- ---------- ---------- Total Debt ..................................................... 732,704 767,704 ---------- ---------- Shareholders' Equity: Preferred stock, par value $.01 per share, 10 million shares authorized, none issued or outstanding ......................... -- -- Common stock, par value $.01 per share, authorized 200 million shares, issued and outstanding 56,427,416 shares ............... 564 564 Capital in excess of par value ................................... 933,450 933,450 Accumulated other comprehensive loss ............................. (1,150) (1,150) Cumulative net income ............................................ 515,403 515,403 Cumulative dividends ............................................. (530,700) (530,700) ---------- ---------- Total Shareholders' Equity ..................................... 917,567 917,567 ---------- ---------- Total Capitalization ........................................... $1,650,271 $1,685,271 ========== ==========
- ---------- (1) As of September 15, 2000, the amount outstanding under the credit facility with Bank of America was $188 million. S-17 SELECTED FINANCIAL DATA FFCA derived the historical financial information below from its audited financial statements for 1995 through 1999 and unaudited financial statements for the six months ended June 30, 1999 and June 30, 2000. The information below is only a summary and you should read it together with FFCA's historical financial statements and related notes contained in the annual and quarterly reports and other information FFCA has filed with the Securities and Exchange Commission, as well "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Six Months Ended June 30, Year Ended December 31, ------------------------- -------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 -------- --------- --------- --------- --------- --------- --------- (Dollars in thousands, except per share data) Statement of Income Data: Revenues: Rental .................................. $ 80,760 $ 73,009 $ 151,193 $ 121,490 $ 101,292 $ 95,612 $ 86,182 Mortgage loan interest .................. 11,219 12,942 28,769 26,118 10,987 15,738 14,118 Investment income and other ............. 23,719 15,780 38,513 21,960 13,672 6,955 2,283 Interest (related party) ................ -- -- -- -- 9,037 2,861 -- -------- --------- --------- --------- --------- --------- --------- Total Revenues .......................... 115,698 101,731 218,475 169,568 134,988 121,166 102,583 -------- --------- --------- --------- --------- --------- --------- Expenses: Depreciation and amortization ........... 17,339 14,883 30,923 24,518 20,784 20,654 21,201 Operating, general and administrative ... 11,674 6,602 20,612 14,244 11,106 11,488 10,283 Property costs .......................... 1,035 947 1,884 1,778 1,641 2,041 2,046 Interest ................................ 30,543 26,721 56,297 42,846 34,764 25,974 15,276 Interest (related party) ................ 327 508 1,015 1,000 986 973 961 -------- --------- --------- --------- --------- --------- --------- Total Expenses ......................... 60,918 49,661 110,731 84,386 69,281 61,130 49,767 -------- --------- --------- --------- --------- --------- --------- Income before gain on sale of property and other costs ......................... 54,780 52,070 107,744 85,182 65,707 60,036 52,816 Unrealized gain on real estate investment securities ................... 3,147 -- -- -- -- -- -- Gain on sale of property, net ............ 11,588 9,847 40,983 10,535 5,471 9,899 977 Equity in net income (loss) of affiliate . -- -- -- -- 1,719 (1,396) -- Extraordinary item-loss on early extinguishment of debt .................. -- -- -- -- -- -- (2,464) Income tax expense ....................... 662 -- -- -- -- -- -- -------- --------- --------- --------- --------- --------- --------- Net Income ............................... $ 68,853 $ 61,917 $ 148,727 $ 95,717 $ 72,897 $ 68,539 $ 51,329 ======== ========= ========= ========= ========= ========= ========= Basic earnings per share ................. $ 1.22 $ 1.13 $ 2.69 $ 2.01 $ 1.78 $ 1.70 $ 1.28 ======== ========= ========= ========= ========= ========= ========= Diluted earnings per share ............... $ 1.22 $ 1.13 $ 2.68 $ 2.00 $ 1.76 $ 1.69 $ 1.27 ======== ========= ========= ========= ========= ========= ========= Other Data: EBITDA(1) ................................ $117,724 $ 104,029 $ 236,962 $ 164,081 $ 129,431 $ 116,140 $ 88,767 FFO(2) ................................... 78,889 68,068 145,137 111,974 87,559 79,492 73,539 FFO per share, assuming dilution(2) ...... 1.40 1.24 2.61 2.34 2.12 1.96 1.83 Cash flows from operating activities ..... 65,363 63,125 145,940 112,300 83,129 85,949 78,621 Cash flows from investing activities ..... 11,493 (249,296) (238,996) (293,984) (204,326) (148,629) (259,715) Cash flows from financing activities ..... (71,720) 200,236 93,932 178,435 116,977 71,963 171,066 Ratio of earnings to fixed charges(3) .... 3.20x 3.23x 3.55x 3.17x 3.04x 3.54x 4.16x Ratio of EBITDA to interest expense(1) ... 3.81x 3.82x 4.13x 3.74x 3.62x 4.31x 5.47x Number of properties owned ............... 2,278 2,055 2,264 1,933 1,477 1,371 1,261 Number of properties represented by interests in securities .............. 2,862 1,796 2,888 1,483 626 243 --
(Footnotes for table are located on next page) S-18
As of June 30, Year Ended December 31, ---------------------- -------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- ---- Selected Balance Sheet Data: Real estate before accumulated depreciation ............................. $1,489,708 $1,369,948 $1,474,758 $1,274,600 $ 951,305 $868,215 $794,580 Mortgage loans held for sale .............. 112,097 277,878 139,703 163,172 251,622 -- -- Mortgage loans receivable ................. 53,630 54,283 57,996 43,343 35,184 57,808 199,486 Real estate investment securities ......... 191,634 143,563 185,252 113,692 55,185 29,733 -- Total assets .............................. 1,702,346 1,720,801 1,710,796 1,460,429 1,179,198 988,776 843,504 Total debt ................................ 732,704 802,513 748,359 696,668 619,860 457,956 317,202 Total shareholders' equity ................ 917,567 870,324 903,632 716,434 522,996 495,370 493,817
- ------------ (1) EBITDA represents net income before interest expense, income taxes, depreciation and amortization. EBITDA is not intended to represent cash flow from operations as defined by GAAP and investors should not consider it as an alternative to cash flow as a measure of liquidity or as an alternative to net income as an indicator of operating performance. EBITDA is included in this prospectus supplement because management believes that certain investors find it to be a useful tool for measuring a company's ability to service its debt. EBITDA as calculated by FFCA may not be comparable to calculations as presented by other companies, even in the same industry. (2) As defined by the National Association of Real Estate Investment Trusts ("NAREIT"), Funds from Operations, or FFO, represents net income determined in accordance with generally accepted accounting principles, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of chain store property. Beginning in 2000, FFCA's ongoing business includes the origination and sale of mortgage loans through its subsidiary, FFCA Funding Corporation; therefore, the cash gains or losses on the sale of these mortgage loans are included in FFCA's FFO. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and should not be considered as an alternative to net income as an indication of FFCA's performance or to cash flow as a measure of liquidity. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. (3) For the purpose of computing such ratios, "earnings" represents net income plus fixed charges and REIT formation transaction costs. "Fixed charges" represents interest expense, which includes amortization of debt issuance costs. S-19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL FFCA is a self-administered 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. At June 30, 2000, FFCA's servicing portfolio represented approximately 5,600 properties, including chain store mortgage loans serviced for others. FFCA had interests in 5,308 properties representing nearly $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, more than 490 different operators in approximately 160 retail chains comprise the portfolio. FFCA's investment portfolio included 2,446 chain store properties represented by investments in real estate mortgage loans and properties subject to leases and 2,862 properties represented by securitized mortgage loans in which FFCA holds a residual interest. FFCA entered into a three-year loan sale agreement beginning in January 2000 with Washington Mutual Bank, FA, where Washington Mutual agreed to purchase loans that FFCA originates and services. This alliance with the nation's eighth largest financial services company to be its exclusive provider of chain store loans represents a significant source of new capital. FFCA expects 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, because Washington Mutual wishes to limit its concentration of individual borrowers to a specific dollar amount, Washington Mutual does not purchase every loan that FFCA originates. Therefore, while FFCA may no longer have to rely on accumulating large amounts of mortgage loans, using its bank lines of credit to carry the loans, for sale through securitization transactions, it may continue to securitize loans in some cases. In connection with the loan sale agreement, a warrant was issued to Washington Mutual to purchase 2 million shares of FFCA common stock at a price of $25.47 per share. The warrant expires in December 2009, or earlier, in accordance with the terms of the warrant agreement. On January 4, 2000, FFCA established a nonqualified REIT subsidiary, FFCA Funding Corporation, or "Funding Corp.," to enhance FFCA's access to the capital markets. Funding Corp., a taxable corporation, will originate mortgage loans for sale to Washington Mutual. FFCA will then service the mortgage loans. 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 its 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. 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. LIQUIDITY AND CAPITAL RESOURCES During the second quarter of 2000, FFCA and its subsidiary, Funding Corp., originated $169 million in new real estate financings ($41 million in chain restaurant properties, $113 million in convenience stores and $15 million in automotive services and parts stores). Over 90% of the new financings during the second quarter of the year 2000 were mortgage loans and notes ($157 million) and the balance were properties subject to operating leases ($12 million). During the quarter, $150 million in loans were sold to Washington Mutual under the loan sale agreement that became effective in January 2000, resulting in gains totaling $5 million, net of the estimated liability for obligations under a limited loan loss provision. It is anticipated that a large percentage of the loans originated during the remainder of the year will be sold under this loan sale agreement instead of being held in FFCA's portfolio pending sale through a securitization transaction. This strategy will have the effect S-20 of reducing the rate of growth in FFCA's mortgage interest income (since the loans are sold on the same day as they are originated, they generate no interest income for FFCA) and increasing net income through the recognition of cash gains on the sale of the loans. Due to the unpredictable timing of the sale of loans, the recognition of gains is expected to increase the volatility of FFCA's earnings on a quarter-to-quarter basis. Under the Washington Mutual loan sale agreement, Funding Corp. originates loans and simultaneously sells them to Washington Mutual; therefore, Washington Mutual effectively funds the loans at origination. Accordingly, Funding Corp. does not require significant liquidity or access to capital to originate loans. FFCA's other investment activities are funded initially by draws on its revolving credit facilities and cash generated from operations. At June 30, 2000, FFCA had $235 million available on its $350 million bank revolving loan facility and $348 million available on its $600 million loan sale facility described below. On September 15, 2000, FFCA amended and renewed its bank revolving loan facility. As of September 15, 2000, FFCA had $188 million outstanding under this facility. The current bank revolving loan facility expires in September 2003. FFCA has a $600 million loan sale facility with Morgan Stanley. This loan sale facility permits FFCA to sell loans on a regular basis to a trust for an agreed upon advance rate until the trust accumulates a sufficiently large pool of loans for sale through a larger securitization transaction. Generally, FFCA intends to use this loan facility in circumstances where Washington Mutual declines the loan or where the amount of a loan origination transaction exceeds the amount that Washington Mutual will purchase due to the limit on its concentration of loans to an individual borrower group. FFCA acts as servicer for the loans following the sale to the trust. During the quarter ended June 30, 2000, FFCA sold 119 loans with an aggregate principal balance of $74 million through the loan sale facility. Cash proceeds from the sale amounted to approximately 85% of the mortgage loan balance with the remaining sale proceeds represented by trust certificates. These retained subordinated investment securities, totaling approximately $14 million, were accounted for as the sale of mortgage loans and the purchase of trust certificates. The net cash proceeds approximated $63 million and were used to reduce amounts outstanding under FFCA's bank revolving loan facility. The subordinated investment securities held by FFCA are the last of the securities to be repaid from the loan pool, so that if any of the underlying mortgage loans default, these securities take the first loss. Any future credit losses in the securitized loan pool would be concentrated in these subordinated investment securities retained by FFCA; however, FFCA originates and services mortgage loans and has the infrastructure and resources to deal with potential defaults on the securitized portfolio (as it does with the mortgage loans it holds for investment). As of June 30, 2000, delinquent mortgage loans represent approximately 1% of the total securitized loan pool balance. While FFCA intends to originate mortgage loans through its subsidiary, Funding Corp., for sale to Washington Mutual, it may continue to securitize loans in some cases. Several factors affect FFCA's ability to complete securitizations of its loans, including conditions in the securities markets generally, conditions in the asset-backed securities market specifically, the credit quality of FFCA's loans, compliance of FFCA's loans with the eligibility requirements established by the securitization documents and the absence of any material downgrading or withdrawal of ratings given to certificates issued in FFCA's previous securitizations. Adverse changes in any of these factors could impair FFCA's ability to originate and sell loans on a favorable or timely basis. FFCA's inability to sell or securitize loans may adversely affect FFCA's financial performance and growth prospects. The credit markets have in recent years experienced volatility. Continued volatility may impair FFCA's ability to successfully securitize its loans in the future. In addition, unpredictability in the debt and equity markets may impact FFCA's cost of borrowings and ability to efficiently raise equity capital. Accordingly, the cost of raising debt or equity capital may be higher in the future, which could adversely impact FFCA's results of operations. During the quarter, FFCA accessed the debt markets by issuing medium term notes. On June 26, 2000, FFCA issued $15 million in unsecured notes due in 2010, bearing interest at 8.905%. The note proceeds were used to pay down FFCA's bank revolving line of credit. In April 2000, Moody's Investors Service upgraded the senior unsecured debt rating of FFCA to Baa2 from Baa3. According S-21 to Moody's, the rating upgrade was based on FFCA's strong underwriting and leadership in finance for restaurant properties, the further diversification of FFCA's funding sources through the loan sale facility with Washington Mutual and FFCA's controlled expansion beyond the chain restaurant property industry into convenience/gas stores and automotive parts and services outlets. Cash generated from operations provides distributions to the shareholders in the form of quarterly dividends. Operations during the six months ended June 30, 2000 provided net cash of $65 million as compared to $63 million for the six months ended June 30, 1999. FFCA also plans to use cash generated from operations during 2000 to reduce amounts outstanding on its bank revolving loan facility. FFCA intends to pay down its bank debt in order to provide flexibility for the payment of the senior notes, totaling $150 million, that mature in November. Depending on the debt markets, FFCA may issue new unsecured debt or may in the interim use its bank revolving loan facility to pay the senior notes until new debt or equity securities of FFCA are issued. FFCA has a dividend reinvestment plan that allows shareholders to acquire additional shares of FFCA stock by automatically reinvesting their quarterly dividends. As of June 30, 2000, shareholders owning approximately 6% of the outstanding shares of FFCA common stock participate in the dividend reinvestment plan and dividends reinvested during the quarter ended June 30, 2000 totaled approximately $1.8 million. FFCA declared a second quarter 2000 dividend of $0.53 per share, or $2.12 per share on an annualized basis, payable on August 18, 2000 to shareholders of record on August 10, 2000. Management anticipates that cash generated from operations will be sufficient to meet operating requirements and provide the level of shareholder dividends required to maintain FFCA's status as a REIT. On May 1, 2000, FFCA paid the principal due on a mortgage on its corporate headquarters building, payable to its affiliate in the amount of $8.5 million, together with accrued interest, and additional interest in the amount of $1.13 million as provided in the related loan agreement. In addition, FFCA entered into a contract with this affiliate to purchase a parcel of land (3.6 acres) for approximately $1.9 million. The land parcel is located adjacent to FFCA's current corporate headquarters site and may be used for the future expansion of FFCA's corporate headquarters. 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. For those fixed-rate mortgage loans originated by FFCA for sale through a securitization transaction, FFCA generally hedges against fluctuations in interest rates through the use of derivative financial instruments (primarily interest rate swap contracts) from the time the fixed-rate mortgage loans are originated until the time they are sold. FFCA intends to terminate these contracts upon securitization of the related fixed-rate mortgage loans and, at that time, both the gain or loss on the sale of the loans and the gain or loss on the termination of the interest rate swap contracts will be measured and recognized in the statement of operations. At June 30, 2000, FFCA had outstanding interest rate swap contracts aggregating $38 million in notional amount. Based on the level of interest rates prevailing, FFCA would have paid approximately $314,000 if it had terminated the swap contracts at June 30, 2000. FFCA estimates that a hypothetical one percentage point increase or decrease in long-term interest rates at June 30, 2000 would impact the financial instruments described above and result in a change to net income of approximately $170,000. This sensitivity analysis contains certain simplifying assumptions (for example, it does not consider the impact of prepayment risk or credit spread risk). Therefore, although it gives an indication of FFCA's exposure to interest rate changes at June 30, 2000, it is not intended to predict future results and FFCA's actual results will likely vary. RESULTS OF OPERATIONS Three and Six Months Ended June 30, 2000 Compared to the Three and Six Months Ended June 30, 1999. FFCA's operations for the second quarter of 2000 resulted in net income of $33.9 million S-22 ($.60 per share) as compared to net income of $36.5 million ($.65 per share) in 1999. Net income for the six months ended June 30, 2000, rose to $68.9 million ($1.22 per share) from $61.9 million ($1.13 per share) for the comparable period in 1999. Net income for the quarter was impacted by lower growth in rental revenue due to nonperformance of a master lease (discussed below) and increases in general and administrative expenses. Total revenues rose to $57 million during the quarter from $53 million in the comparable quarter of 1999 primarily due to the growth of FFCA's investment in securitized loan pools. Revenues for the six months ended June 30, 2000, showed a similar increase from the comparable period of the prior year and also increased due to the growth in FFCA's portfolio of properties subject to leases. In prior quarters, FFCA's primary source of revenue growth had been rental revenues generated by new investments in chain store properties; however, during 1999, FFCA made a strategic decision to focus on originating mortgage loan products rather than sale-leasebacks because of better shareholder returns. After consideration of various options, in December 1999, FFCA entered into a three-year loan sale agreement with Washington Mutual Bank whereby Washington Mutual agreed to purchase loans that FFCA originates and services. 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, FFCA may continue to securitize loans in some cases. Accordingly, growth in earnings of FFCA in the near future is anticipated to be primarily from gains on the sale of mortgage loans originated by FFCA and, to a lesser extent, from increases in real estate investment securities income. During the quarter ended June 30, 2000, rental revenue was negatively impacted by the nonperformance of certain properties owned by FFCA that were leased to Quincy's Restaurants, Inc. ("Quincy's"), a family restaurant chain. The chain leased 96 properties from FFCA under a master lease, and for the first quarter of 2000 contributed approximately 4% to FFCA's total revenues. Quincy's, with monthly lease and loan payments aggregating nearly $800,000, failed to make its April and May payments. FFCA terminated the master lease on May 31, 2000 and took a deed in lieu of foreclosure on 16 additional properties securing certain related loans. On June 8, 2000, FFCA signed an agreement with a new restaurant operator to lease and operate 97 of the properties and during the term of this new agreement, FFCA intends to negotiate a long-term lease arrangement with respect to these properties. Fifteen of the properties that were the subject of the deed in lieu of foreclosure remain vacant and will be remarketed for lease or sale. Certain of the leases and mortgages in FFCA's portfolio also provide for contingent revenues based on a percentage of the gross sales of the related chain store properties. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements, clarifying generally accepted accounting principles related to accounting for contingent rental revenues. This new accounting guidance requires companies to recognize contingent rentals as revenue when the change in the factor on which the contingent lease payment is based actually occurs. Recently, the SEC issued SAB 101B, deferring the implementation of SAB 101 until the fourth quarter of 2000 and, accordingly, FFCA has delayed its adoption of SAB 101 until that time. Currently, FFCA recognizes estimated contingent revenues ratably throughout the year when it is probable that a property will exceed the sales threshold where percentage rental revenues are due, with verification of the actual amount of percentage revenues due received from the operator at various times during the year, based on the operator's reporting requirements. Since many of the operators of FFCA's chain store properties report sales on a calendar year basis, it is anticipated that, had FFCA adopted SAB 101, the effect on the June 30, 2000 financial statements would have been a shifting of the recognition of contingent revenues that otherwise would have been recognized in the first half of the year to the latter part of the year. Mortgage interest income generated by FFCA's loan portfolio totaled $5.1 million for the quarter ended June 30, 2000 as compared to $8 million for the second quarter of 1999. The majority of the mortgage interest income is generated by mortgage loans that are held for sale. Increases and decreases in mortgage interest income between quarters have been, and will continue to be, impacted by the amount of loans held for sale and the timing of the sale of these loans. It is anticipated that a S-23 large percentage of the loans originated during the remainder of the year will be sold under the loan sale agreement with Washington Mutual instead of being held in FFCA's portfolio pending sale through a securitization transaction; therefore, it is expected that mortgage interest income will continue to be a smaller percentage of FFCA's revenue in the current year than in the prior year. For those loans that are sold through securitization transactions, FFCA no longer receives mortgage interest income from the mortgages it has sold; however, it retains certain interests through the purchase of subordinated investment securities. These securities generate revenues that are included in "Real Estate Investment Securities Income" in the accompanying financial statements. The increase in real estate investment securities income between 1999 and 2000 is due primarily to the addition of subordinated investment securities related to the securitization transactions that closed in 1999 and 2000. Expenses increased to $31.4 million during the quarter from $26 million in the comparable quarter of 1999. This increase was primarily due to increased operating, general and administrative expenses and higher interest expense. Operating, general and administrative expenses in the second quarter of 2000 were $3 million higher than the same quarter in 1999 due to several factors. Salary expense increased from the prior year due primarily to the addition of loan origination and servicing personnel required to administer FFCA's growing loan origination and servicing activities. In addition, FFCA incurred consulting costs of approximately $600,000 during the quarter to evaluate the feasibility and extent of opportunities in providing internet-based products and services to chain stores. FFCA does not anticipate material ongoing expenses related to this project. Interest expense for the quarter also increased slightly due to an increase in interest rates. Expenses for the six months ended June 30, 2000, showed similar increases from the comparable period of 1999. During the quarter, FFCA sold 26 properties, as compared to 20 properties sold in the second quarter of 1999, and recorded net gains totaling $1.1 million on these sales, as compared to net gains of $1.4 million recorded in the second quarter of 1999. Loan prepayments received during the quarter on securitized mortgage loans represented another three properties removed from FFCA's servicing portfolio. During the quarter, mortgage loans originated by Funding Corp., together with loans that FFCA sold into its loan sale facility during 1999 and 2000, were sold to Washington Mutual resulting in gains totaling approximately $5 million. Cash proceeds from the sales of property and from mortgage loan and note payoffs during the quarter were used to pay down FFCA's bank credit facility. Fiscal Year Ended December 31, 1999 Compared to Fiscal 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. 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 S-24 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, including such well-known chains as Applebee's, Arby's, Burger King, Checker Auto Parts, Chevron, Circle K, Citgo, Cracker Barrel Old Country Store, 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. S-25 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, 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 S-26 FFCA's total real estate investment portfolio. The vacancy level in the portfolio is currently at less than 1% and has remained at less than 2% since FFCA became a REIT in 1994. BUSINESS AND PROPERTIES BUSINESS OBJECTIVES AND STRATEGY FFCA seeks to enhance its operating performance and financial position: * through continued investment activity; * by controlling expenses through greater operational efficiencies and economies of scale; * through the receipt of contractual lease escalations; and * by increasing its use of internally generated cash flow for investments or other transactions that strengthen its financial position. FFCA seeks to achieve growth in cash flow, while maintaining low portfolio investment risk, through diligent adherence to our 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 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 six months ended June 30, 2000, 76% of the revenues generated by the portfolio reflect restaurant investments, 18% reflect convenience store investments and 6% reflect automotive services and parts investments, as compared to the year ended December 31, 1996 where over 99% of revenues were reflected in restaurant investments. During 1999, FFCA made a strategic decision to focus on offering mortgage loan products, rather than long-term leases, because they provided better 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, the nation's eighth 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. 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 June 30, 2000, FFCA had investments in more than 5,300 locations S-27 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 490 different 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 for the six months ended June 30, 2000. These experienced multi-unit operators conduct business under nationally or regionally recognized brand names. FFCA's portfolio includes over 160 different chains, including well-known chains like Applebee's, Arby's, Burger King, Checker Auto Parts, Chevron, Circle K, Citgo, Cracker Barrel Old Country Store, 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, FFCA expects the portfolio to continue to become more diversified. 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. 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 nonperforming 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 nonperforming 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. 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 S-28 borrower recourse, which means the tenant or borrower is personally liable for the obligation. 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. In the case of properties FFCA acquires or finances that have underground storage tanks present, or where other petroleum products are being dispensed, FFCA always obtains environmental insurance. PROPERTIES PROPERTY CHARACTERISTICS. 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 June 30, 2000, FFCA had interests in 5,308 properties consisting of investments in 3,395 chain restaurants, 1,554 convenience stores, 349 automotive outlets and 10 other retail properties. FFCA's portfolio included 2,446 chain store properties represented by investments in real estate mortgage loans and properties subject to leases and 2,862 properties represented by securitized mortgage loans in which FFCA holds a residual interest. Of the 2,446 properties included in FFCA's investment portfolio at June 30, 2000, FFCA has an ownership interest in 2,278 properties on a fee-simple basis in which FFCA holds title to the property, or the "owned" properties. The real estate owned by FFCA at June 30, 2000 consists of the land and buildings comprising each chain property, except for 11 properties on which FFCA holds title to the land only and made mortgage loans for the related buildings, or 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, or the "financed properties." On approximately 20 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. 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 out parcel 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, like 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 S-29 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, like tobacco, beverages and snacks, to 5,000 square feet for a store that has a bakery, a sit down restaurant area or a pharmacy, with many of these locations also selling 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, which is approximately 27% for land, 39% for the building and 33% for the equipment, and $1,556,000 million for an urban convenience store, which is approximately 35% for land, 34% for the building and 31% for the 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 various types and amounts of insurance. There are, however, some types of losses, like ones resulting from wars or earthquakes, that may be either uninsurable or not economically insurable in some or all locations. In some circumstances FFCA may permit a chain store operator to self-insure for particular types of losses. An uninsured loss could result in a loss to FFCA of both its capital investment and anticipated revenue from the affected property. FFCA 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. 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 material capital expenditures on properties for the six months ended June 30, 2000, and the years ended December 31, 1999 and 1997. Approximately 70% of revenues for the six months ended June 30, 2000 were derived from net lease equity real estate investments. The leases are generally twenty years in length and have been originated by FFCA and its predecessors since May 1981. The expiration schedule of the initial term of FFCA's leases extends through 2020, with a weighted life of the investments of 11.8 years as of June 30, 2000. Approximately 10% of FFCA's lease revenues are derived from leases which expire in 2019. In all other years the lease expirations are less than 10% of total lease revenues. As of June 30, 2000, all but 34 of FFCA's 5,308 properties were being leased or were performing under a mortgage loan agreement. All of the nonperforming properties are currently held for sale or lease. Vacant properties held for sale represent less than 1% of FFCA's total real estate investment portfolio. GEOGRAPHICAL DIVERSIFICATION. FFCA's portfolio is geographically diverse. As of June 30, 2000, FFCA owned or had financed 5,308 properties, not including mortgage loans which were sold, but are still serviced by FFCA, in all 50 states, Washington D.C. and Canada. No one property is a principal property of FFCA because each property represents less than one half of one percent of FFCA's total S-30 assets. Generally, the loans are first mortgage loans on the land, buildings and/or equipment of restaurants, convenience stores or automotive services and parts outlets. Based upon property revenues for the period from January 1, 2000 to June 30, 2000, FFCA's investments were located: 39% in the South; 20% in the East; 24% in the Midwest; and 17% in the West. Particular states of concentration include: Florida and Texas, each with 9% of property revenue; Georgia and Ohio, each with 6% of property revenue; and California with 5% of property revenue. No other state comprises more than 5% of property revenue. A map illustrating geographic distribution of FFCA's real estate investments is included in the inside front cover page of this prospectus supplement. The following table shows information regarding the diversification of FFCA's real estate investments by geographic region: GEOGRAPHIC DIVERSIFICATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 (DOLLARS IN THOUSANDS)
TOTAL PERCENT OF NUMBER OF PERCENT OF REGION REVENUES(1) TOTAL REVENUES PROPERTIES TOTAL PROPERTIES - ------ ----------- -------------- ---------- ---------------- EAST Mideast .................... $ 15,069 14% 782 15% Northeast .................. 7,183 6 467 9 MIDWEST East North Central ......... 19,099 17 1,009 19 West North Central ......... 8,062 7 357 7 SOUTH Southeast .................. 27,250 25 1,243 23 Southwest .................. 15,399 14 801 15 WEST Mountain ................... 11,617 10 382 7 Pacific .................... 7,559 7 264 5 CANADA ........................ 7 -- 3 -- -------- --- ----- --- $111,245 100% 5,308 100% ======== === ===== ===
- ------------ (1) Excludes other miscellaneous income. Industry Sector Diversification. FFCA's portfolio continues to become more diverse in terms of industry sectors, with interests in 3,395 chain restaurant properties, 1,554 convenience stores, 349 automotive services and parts stores and 10 other retail properties as of June 30, 2000. Chain restaurant properties represented 64% of FFCA's investments as of June 30, 2000, as compared to over 99% of the company's investments as of December 31, 1996. The following table shows information regarding the diversification of FFCA's real estate investments among different industry sectors: INDUSTRY SECTOR DIVERSIFICATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 (DOLLARS IN THOUSANDS)
TOTAL PERCENT OF NUMBER OF PERCENT OF SECTOR REVENUES(1) TOTAL REVENUES PROPERTIES TOTAL PROPERTIES - ------ ----------- -------------- ---------- ---------------- Restaurant ............................ $ 84,390 76% 3,395 64% Convenience Stores .................... 20,328 18 1,554 29 Automotive Services and Parts ......... 6,203 6 349 7 Other ................................. 324 -- 10 -- -------- --- ----- --- Total .............................. $111,245 100% 5,308 100% ======== === ===== ===
- ------------ (1) Excludes other miscellaneous income. S-31 Operator and Chain Diversification. FFCA's portfolio is diverse in terms of operators and chains with investments that were leased to, or owned by, over 490 national and regional operating companies as of June 30, 2000. Multi-unit operators are the predominant operators of FFCA's investments. Additionally, approximately 160 retail chains are represented in the portfolio. FFCA anticipates its portfolio will continue to become more diverse in terms of operators and chains as a result of future financings. The following table shows information regarding the diversification of FFCA's real estate investments by chain: CHAIN DIVERSIFICATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 (DOLLARS IN THOUSANDS)
TOTAL PERCENT OF NUMBER OF PERCENT OF CHAIN(1) REVENUES(2)(3) TOTAL REVENUES PROPERTIES TOTAL PROPERTIES - -------- -------------- -------------- ---------- ---------------- Burger King ................... $ 14,522 13.1% 494 9.3% Arby's ........................ 9,352 8.4 362 6.8 Wendy's ....................... 6,402 5.8 176 3.3 Long John Silver's ............ 5,942 5.3 406 7.6 Hardee's ...................... 5,576 5.0 337 6.4 Pizza Hut ..................... 5,309 4.8 291 5.5 Jack in the Box ............... 5,017 4.5 171 3.2 Clark/On the Go ............... 2,690 2.3 369 7.0 Taco Bell ..................... 2,554 2.3 86 1.6 Quincy's ...................... 2,544 2.3 112 2.1 E-Z Serve ..................... 2,526 2.3 144 2.7 Applebee's .................... 2,265 2.0 78 1.5 KFC ........................... 2,244 2.0 123 2.3 Dairy Mart .................... 2,228 2.0 40 0.8 7-Eleven ...................... 2,048 1.8 92 1.7 Denny's ....................... 1,859 1.7 48 0.9 Checker Auto Parts ............ 1,765 1.6 40 0.8 Fuddrucker's .................. 1,623 1.5 24 0.5 Popeye's ...................... 1,488 1.3 49 0.9 Max & Erma's .................. 1,463 1.3 15 0.3 Black-Eyed Pea ................ 1,409 1.3 24 0.5 Midas Muffler Shops ........... 1,303 1.2 54 1.0 Mrs. Winner's ................. 1,185 1.1 85 1.6 P.F. Changs ................... 1,105 1.0 5 0.1 Flying J Travel Plaza ......... 1,102 1.0 28 0.5 Other ......................... 25,724 23.1 1,655 31.1 -------- ----- ----- ----- Totals ..................... $111,245 100.0% 5,308 100.0% ======== ===== ===== =====
- ------------ (1) The names of the concepts are a trademark or service mark of their respective owners. (2) Excludes other miscellaneous income. (3) Includes revenues of the retained piece of the securitized mortgages. The chain distribution shown above does not represent concentration of specific operators under lease or mortgage loan agreements. These agreements are with the operators, not the chains. Among these operators RTM, Inc. and its affiliates, which together are the largest franchisee of Arby's restaurants and the owner and franchisor of the Mrs. Winner's and Lee's Famous Recipe concepts, contributed 7.2% of the company's total rental and mortgage loan interest revenues during 1999 and 7.7% for the six months ended June 30, 2000 (a portion of which is guaranteed by Arby's, Inc. and Triarc Companies, Inc.). RTM, Inc. accounted for 9.2% and 9.0% of the company's total rental and mortgage loan interest revenues during 1998 and 1997, respectively. Foodmaker, which predominantly operates Jack in the Box restaurants, contributed 6.5% of the company's total rental and mortgage loan interest revenues (generated from its investment portfolio) during 1999 and 4.5% for the six S-32 months ended June 30, 2000. Foodmaker accounted for 7.7% and 9.6% of the company's total rental and mortgage loan interest revenues during 1998 and 1997, respectively. Composition of Investments. As of June 30, 2000, fee-owned properties subject to lease agreements comprised approxomately 80% of the company's investments. The remainder of FFCA's investments are shown in the following table: TOTAL INVESTMENT MIX AS OF JUNE 30, 2000 (DOLLARS IN THOUSANDS) PERCENT OF GROSS INVESTMENT TOTAL INVESTMENTS ------------------ ------------------ Real estate investments, at cost ..... $1,489,708 80% Real estate investment securities .... 191,634 10 Mortgage loans held for sale ......... 112,097 6 Mortgage loan investments ............ 53,630 3 Other investments .................... 15,773 1 ---------- -- Total ............................... $1,862,842 100% ========== === INFORMATION SYSTEMS To enhance its investment evaluation and origination, FFCA has invested extensively in information systems that are specific to the chain store 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 nonperforming assets. FFCA publishes extensive research on the chain restaurant and convenience store industries, that include observations of industry issues and trends, areas of growth, and the economics of chain restaurant operation. 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, like high bandwidth Internet access, position FFCA to be able to take advantage of new and emerging technologies in communications and commerce. S-33 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 store concept 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 -- restaurants, bars, taverns, lodging, food contractors and other commercial; * institutional -- colleges, universities and hospitals; and * military. The food service 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, or "NRA," with the greatest growth in the other commercial and the full service restaurant segments. In real terms, or constant dollars, the industry grew 2.9%, outpacing inflation which was 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 was 5.3% 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 like Arizona, Nevada, Colorado and Texas, are expected to show the most growth in restaurant sales with an estimated 6.2% between 1999 and 2000, while the slow-growing Mid-Atlantic states like 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 S-34 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 on to 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, or 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 4.9%, or 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 decrease 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 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 and spread costs over more units, with many having both fast food and casual locations. 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 S-35 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 ("c-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 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. 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 some products, like 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 like Exxon, Mobil, BP Amoco, Shell, Texaco, and Chevron) to consolidate and streamline refining and marketing, or 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, like 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 like 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. 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 S-36 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%, which was the 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 exploration and production, or upstream, technology, and the United Nation's raising of Iraq's oil-for-food allowance. In March 1999, after gasoline prices hit inflation adjusted historic lows in February, 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 inflation adjusted levels in history to record highs, not adjusted for inflation, 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 reduced as they were prevented from passing along all of the wholesale price increase to consumers. Similar to many other retail industries, the c-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 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. 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. S-37 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/or; (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 functions like 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 Association, general repair shops and service stations, like 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 like 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 known as the do-it-yourselfer, or DIYer, and those that prefer to have a professional work on their vehicle known as the do-it-for-me, or DIFM. These two groups are not mutually exclusive. Many light DIY consumers, like 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. Of the 370,000 outlets that compete in the automotive aftermarket, 330,000 are service outlets, 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% S-38 of sales, while independent garages captured 58% of sales. By far, the largest group in the industry is independent repair shops. The top 50 companies in terms of units account for 9.0% 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 with 1-5 stores, rather than large franchise operators like those found in the restaurant industry. As a result, franchisees in this industry rely heavily on the franchisor for services like 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, like electrical and engine rebuilds, that chains choose not to 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, like 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 S-39 and industry averages, like higher resale value and giving their vehicle a longer useful life. On the other hand, neglecting regular maintenance can cost money, through problems like 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. The properties, which FFCA either purchases or finances, are subject to various requirements and potential liabilities under federal, state and local environmental laws and regulations. Some 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 the substances. Under various environmental laws, a lender may, under limited circumstances, be deemed to be an "owner" or "operator" of a property, thereby imposing liability upon the 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 (1) 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, (2) 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 the 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. However, FFCA is investigating the nature and extent of contamination, primarily trichloroethylene, tetrachloroethylene and hydrocarbons, in the soil and groundwater associated with a property FFCA owns in Buffalo, New York. The New York State Department of Environmental Conservation, or NYSDEC, has approved the workplan for the investigation, and the investigation is proceeding under NYSDEC's voluntary cleanup program. FFCA is currently unable to estimate the costs associated with the cleanup, but does not anticipate it will have a material adverse effect on FFCA's operations. 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. This insurance provides coverage for 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 some of the policies that were purchased prior to 1999, in the event of a loss, the insurer must pay the lesser of (1) the cost of remediation and other clean-up costs and expenses, or (2) 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 the property. The environmental insurance policy that is issued where FFCA purchases the property is for a term of 20 years, subject to renewals for ten-year periods. In assessing the environmental risk associated with the ownership of potentially contaminated real property, FFCA obtains from its insurer an environmental risk assessment upon S-40 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. INSURANCE FFCA believes that all of our 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. In most cases, specified types and amounts of insurance are required to be carried by each operator under the financing agreements with the company. There are, however, types of losses, like those resulting from wars or earthquakes, which may be either uninsurable or not economically insurable in some or all locations. An uninsured loss could result in a loss to FFCA of both its capital investment and anticipated profits from the affected property. LEGAL PROCEEDINGS FFCA is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against the company or its properties, other than routine litigation arising in the ordinary course of business. MANAGEMENT AND DIRECTORS OF THE COMPANY The directors and executive officers of the company are:
NAME OFFICE AGE ---- ------ --- Morton H. Fleischer ........... Director, Chairman of the Board and Chief Executive 63 Officer Christopher H. Volk ........... Director, President, Chief Operating Officer, Assistant 44 Secretary and Assistant Treasurer John R. Barravecchia .......... Executive Vice President, Chief Financial Officer, 45 Treasurer and Assistant Secretary Dennis L. Ruben ............... Executive Vice President, General Counsel and 47 Secretary Stephen G. Schmitz ............ Executive Vice President, Chief Investment Officer 46 and Assistant Secretary Catherine F. Long ............. Senior Vice President--Finance, Principal Accounting 44 Officer, Assistant Secretary and Assistant Treasurer Willie R. Barnes .............. Director 68 Kelvin L. Davis ............... Director 36 Kathleen H. Lucier ............ Director 46 Dennis E. Mitchem ............. Director 69 Louis P. Neeb ................. Director 61 Kenneth B. Roath .............. Director 64 Casey J. Sylla ................ Director 57 Shelby Yastrow ................ Director 64
The following is a description of the name, principal occupation or employment during the past five years and other directorships of the directors and executive officers of FFCA: Morton H. Fleischer is Director, Chairman of the Board and Chief Executive Officer of the company. Mr. Fleischer previously served as the President, Chief Executive Officer and director of Franchise Finance Corporation of America I, a Delaware corporation ("FFCA I") (a predecessor corporation of the company) since its formation in 1980. Mr. Fleischer has acted as an individual general partner (or general partner of the general partner) of the eleven public limited partnerships that were consolidated to form the company in 1994. In addition, he was a general partner (or general S-41 partner of the general partner) in the following public limited partnerships which invested in travel plazas and were liquidated in 1999: Participating Income Properties 1986, L.P., Participating Income Properties II, L.P.; and Participating Income Properties III Limited Partnership. Mr. Fleischer is currently the general partner of the general partner of Scottsdale Land Trust Limited Partnership, a publicly owned limited partnership involved in commercial land development. Christopher H. Volk is Director, President, Chief Operating Officer, Assistant Secretary and Assistant Treasurer of the company. Mr. Volk previously served as Executive Vice President of the company from July 28, 1995 to December 31, 1999, Senior Vice President-Underwriting and Research of the company from June 1, 1994 until July 28, 1995, and as Vice President-Research of FFCA I from October 1989 until June 1, 1994. John Barravecchia is Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of the company. Mr. Barravecchia previously served as Senior Vice President, Chief Financial Officer and Treasurer of the company from June 1, 1994 until July 28, 1995, and as Senior Vice President of FFCA I from October 1989 until June 1, 1994. Prior to joining FFCA I in March 1984, Mr. Barravecchia was associated with the international public accounting firm of Arthur Andersen LLP. Dennis L. Ruben is Executive Vice President, General Counsel and Secretary of the company. Mr. Ruben served as Senior Vice President and General Counsel of the company from June 1, 1994 to January 28, 1997. Mr. Ruben previously served as an attorney and counsel to FFCA I from March 1991 until June 1, 1994. Prior to joining FFCA I, Mr. Ruben was a partner with the national law firm of Kutak Rock LLP. Stephen G. Schmitz is Executive Vice President, Chief Investment Officer and Assistant Secretary of the company. Mr. Schmitz served as Senior Vice President-Corporate Finance from June 1, 1994 to January 28, 1997. Mr. Schmitz previously served in various other positions as an officer of FFCA I from 1986 to June 1, 1994. Catherine F. Long is Senior Vice President-Finance, Principal Accounting Officer, Assistant Secretary and Assistant Treasurer of the company. Ms. Long served as Vice President-Finance of the company from June 1, 1994 to January 28, 1997. Ms. Long previously served as Vice President-Finance of FFCA I from June 1990 until June 1, 1994. From 1978 to May 1990, Ms. Long was associated with the international public accounting firm of Arthur Andersen LLP. Willie R. Barnes, Esq. is a corporate and securities law attorney. Mr. Barnes has been a partner in the law firm of Musick, Peeler & Garrett since June 1992. He is a member of the Business Law Section of the American Bar Association, in addition to other committees. Mr. Barnes was appointed as the Commissioner of Corporations for the State of California in 1975 and is a member of the California Senate Commission on Corporate Governance, Shareholder Rights and Securities Transaction. He is currently a director and secretary of American Shared Hospital Services. Kelvin L. Davis is a partner in The Texas Pacific Group, an international private equity investment firm. Mr. Davis joined The Texas Pacific Group in March 2000. Prior to joining The Texas Pacific Group, Mr. Davis was the President and Chief Operating Officer of Colony Capital, Inc., an international real estate-related investment firm. Mr. Davis was employed with Colony since its formation in 1991. Prior to 1991, Mr. Davis was a principal of RMB Realty, Inc. Prior to that time he was employed by Goldman, Sachs & Co. and Trammell Crow Company. Mr. Davis is currently a director of Crestline Capital Corporation and a director of Harvey's Casino Resorts. Kathleen H. Lucier is Principal of Stiglich Lucier & Co., a strategic visioning firm focused on international and national banking, finance and retail enterprises. Ms. Lucier has been with Stiglich Lucier & Co. since its formation in August 1999. She previously served as Executive Vice President for the Southwest Region for Wells Fargo Bank with responsibility for Arizona and Nevada from November 1996 to November 1998. Prior to that time, she held various management, sales, marketing and operation positions at Wells Fargo. Dennis E. Mitchem has been the Director of Corporate Relations, Northern Arizona University since October 1998. Mr. Mitchem has also served as Executive Director of Habitat for Humanity, S-42 Valley of the Sun, from April 1996 to October 1998, and prior to that time was an independent management consultant for privatization and financial services projects. From March 1994 to December 1995, Mr. Mitchem worked in Moscow serving as a consultant to the Russian Privatization Center in the establishment of its local Privatization Centers. From July 1992 to February 1994, he was Managing Director of CAJV, a joint venture between Arthur Andersen and Castillo Company, Inc., and managed the Denver, Colorado financial processing center of the Resolution Trust Corporation. From 1954 to June 1993, he was employed by Arthur Andersen LLP, where he became a partner in 1967 and retired as a senior partner in June 1993. Louis P. Neeb has been Chairman of the Board and Chief Executive Officer of Mexican Restaurants, Inc. since October 1995. Mr. Neeb also serves as President of Neeb Enterprises, Inc., a restaurant consulting firm. He was President and Chief Executive Officer of Spaghetti Warehouse, Inc., from 1991 to January 1994 and President of Geest Foods USA from September 1989 to June 1991, prior to which he served as President and Chief Executive Officer of Taco Villa, Inc. Mr. Neeb spent ten years with the Pillsbury Company in various positions which included: Executive Vice President, Pillsbury; Chairman of the Board, Burger King; and President, Steak `N Ale Restaurants. Mr. Neeb is also a director of CEC Entertainment, Inc., (formerly ShowBiz Pizza Time, Inc.) and Silver Diner Development Inc. and was previously a director of On the Border Cafes, Inc. Kenneth B. Roath is the Chairman, President and Chief Executive Officer of Health Care Property Investors, Inc., a real estate investment trust organized in 1985 to invest, on a net lease basis, in health care properties. Mr. Roath is a director and chairman of the compensation committee of Arden Realty, Inc. (NYSE), a real estate investment trust. Mr. Roath is also the past Chairman and a past member of the executive committee of the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"). Mr. Roath is an Ex-Officio member of the Board of Governors of NAREIT. Casey J. Sylla is the Senior Vice President and Chief Investment Officer of Allstate Insurance Company. From 1992 until July 1995, Mr. Sylla was an Executive Officer and Vice President and head of the Securities Department of The Northwestern Mutual Life Insurance Company. Shelby Yastrow is an attorney and counsel to the law firm of Sonnenschein Nath & Rosenthal in Chicago, Illinois. He joined McDonald's Corporation in 1978 as Vice President, Chief Counsel of Litigation and Assistant Secretary. He was appointed Vice President, General Counsel of McDonald's Corporation in 1982 and Senior Vice President in 1988, before being named Executive Vice President in 1995. He retired from McDonald's Corporation in December 1997. Mr. Yastrow received his law degree from Northwestern University in 1959. DESCRIPTION OF THE NOTES The notes offered by this prospectus supplement and the accompanying prospectus constitute a separate series of debt securities, which are more fully described in the accompanying prospectus, to be issued under an indenture dated as of November 21, 1995, between FFCA and Wells Fargo Bank Arizona, National Association, as trustee, as supplemented by board resolutions and an officer's certificate establishing the terms of the notes. The following description of the particular terms of the notes supplements and replaces inconsistent provisions contained in the description of the general terms and provisions of the debt securities contained in the prospectus. Investors are directed to the description of the debt securities under "Description of Debt Securities" in the accompanying prospectus. The terms of the notes include provisions contained in the Trust Indenture Act of 1939, or the TIA, and holders of notes are referred to the indenture and the TIA for further information. The following summary of the provisions of the indenture is not complete and is qualified in its entirety by reference to the indenture, including the definitions in the indenture of terms used below. Copies of the indenture and the notes are available for inspection at the office of the trustee located at 100 West Washington, Phoenix, Arizona 85003. As used in this section, the "company" means Franchise Finance Corporation of America exclusive of its subsidiaries. S-43 GENERAL The notes will be limited in aggregate principal amount to $150,000,000. The notes will be direct, senior unsecured obligations of the company and will rank equally with all other senior unsecured indebtedness of the company from time to time outstanding. The notes will be effectively subordinated to mortgage and other secured indebtedness, if any, of the company and to indebtedness and other liabilities of the company's subsidiaries, as defined below. As of June 30, 2000, on a pro forma basis after giving effect to the sale of the notes offered in this prospectus supplement and the application of the net proceeds of the offering, the total outstanding indebtedness of the company and its subsidiaries would have been approximately $767.7 million. Subject to the limitations in the notes as described below, the indenture will permit the company and its subsidiaries to incur additional secured and unsecured indebtedness. The notes will be issued only as global securities in fully registered book-entry form without coupons, except under the limited circumstances described below. Reference is made to the section titled "Description of Debt Securities-Certain Covenants" in the accompanying prospectus and "-- Additional Covenants of the company" below for a description of the covenants applicable to the notes. Compliance with these covenants generally may not be waived by the trustee unless the holders of at least a majority in principal amount of outstanding notes consent to the waiver with respect to the affected series. However, the defeasance and covenant defeasance provisions of the indenture described in the accompanying prospectus will apply to the notes. Except as described under "Description of Debt Securities -- Merger, Consolidation or Sale of Assets" in the accompanying prospectus or "-- Additional Covenants of the Company" below, the indenture does not contain any other provisions that would give holders of the notes protection in the event of (1) a highly leveraged or similar transaction involving the company, (2) a change of control, or (3) a reorganization, restructuring, merger or similar transaction involving the company that may adversely affect the holders of the notes. In addition, subject to the limitations under "Description of Debt Securities -- Merger, Consolidation or Sale of Assets" in the accompanying prospectus, the company may, in the future, enter into transactions like the sale of all or substantially all of its assets or the merger or consolidation of the company with another entity that would increase the amount of the company's indebtedness or substantially reduce or eliminate the company's assets, which may have an adverse affect on the company's ability to service its indebtedness, including the notes. The company has no present intention of engaging in a highly leveraged or similar transaction involving the company. In addition, restrictions on ownership and transfers of the company's capital stock designed to preserve its status as a REIT may act to prevent or hinder any transaction of that type or a change of control. INTEREST AND MATURITY The notes will bear interest at the rate on the cover page of this prospectus supplement from the date of issuance or the most recent interest payment date, as defined below, to which interest has been paid or provided for, payable semi-annually on April 15 and October 15 of each year, each an interest payment date, beginning on April 15, 2001, to the person in whose name a note is registered at the close of business on April 1 or October 1, as the case may be, immediately before the interest payment date. The notes will mature on October 15, 2010. The notes are not subject to any sinking fund provisions. OPTIONAL REDEMPTION The notes will be redeemable, at the option of the company, in whole or in part at any time or from time to time, upon not less than 30 and not more than 60 days' notice, on any date prior to maturity, referred to as a "redemption date." The redemption price will be equal to 100% of the S-44 principal amount of the notes to be redeemed plus accrued interest to the redemption date, subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date, plus a make-whole premium, if any, together referred to as the "redemption price." The redemption price will never be less than 100% of the principal amount of the notes plus accrued interest to the redemption date. The amount of the make-whole premium with respect to any note, or portion of a note, to be redeemed will be equal to the excess, if any, of: (1) the sum of the present values, calculated as of the redemption date, of: (a) each interest payment that, but for the redemption, would have been payable on the note, or portion of a note, being redeemed on each interest payment date occurring after the redemption date, excluding any accrued interest for the period prior to the redemption date; and (b) the principal amount that, but for the redemption, would have been payable at the final maturity of the note, or portion of the note, being redeemed; over (2) the principal amount of the note, or portion of the note, being redeemed. The present values of interest and principal payments referred to in clause (1) above will be determined in accordance with generally accepted principles of financial analysis. The present values will be calculated by discounting the amount of each payment of interest or principal from the date that each payment would have been payable, but for the redemption, to the redemption date at a discount rate equal to the treasury yield, as defined below, plus 35 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the company; provided, that if the company fails to make this appointment at least 30 calendar days prior to the redemption date, or if the institution so appointed is unwilling or unable to make this calculation, the calculation will be made by Salomon Smith Barney Inc., or its affiliate, or, if Salomon is unwilling or unable to make the calculation, by an independent investment banking institution of national standing appointed by the trustee. For purposes of determining the make-whole premium, "treasury yield" means a rate of interest per annum equal to the weekly average yield to maturity of United States Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the notes, calculated to the nearest 1|M/12th of a year, referred to as the remaining term. The treasury yield will be determined as of the third business day immediately before the applicable redemption date. The weekly average yields of United States Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release. If the release contains a weekly average yield for United States Treasury Notes having a constant maturity that is the same as the Remaining Term, then the treasury yield will be equal to this weekly average yield. In all other cases, the treasury yield will be calculated by interpolation on a straight-line basis, between the weekly average yields on the United States Treasury Notes that have a constant maturity closest to and greater than the remaining term and the United States Treasury Notes that have a constant maturity closest to and less than the remaining term, in each case as shown in the release. Any weekly average yields so calculated by interpolation will be rounded to the nearest 1|M/100th of 1%, with any figure of 1|M/200th of 1% or above being rounded upward. If weekly average yields for United States Treasury Notes are not available in the release or otherwise, then the treasury yield will be calculated by interpolation of comparable rates selected by the independent investment banker. Any notice to the holders of notes of a redemption need not contain the redemption price of the notes but need only contain the calculation of the redemption price as described above. The redemption price, calculated as described above, will be shown in an Officers' Certificate (as defined in the indenture) delivered to the trustee no later than two business days before the redemption date. S-45 In the case of any partial redemption, selection of the notes for redemption will be made by the trustee on a pro rata basis, by lot or by any other method as the trustee in its sole discretion deems to be fair and appropriate, although no note of $1,000 in original principal amount or less will be redeemed in part. If any note is to be redeemed in part only, the notice of redemption relating to that note will state the portion of the principal amount of that note to be redeemed. A new note in a principal amount equal to the unredeemed portion will be issued in the holder's name upon cancellation of the original note. ADDITIONAL COVENANTS OF THE COMPANY Reference is made to the section titled "Description of Debt Securities" in the accompanying prospectus for a description of the covenants applicable to the notes. In addition to those covenants, the following covenants of the company will apply to the notes for the benefit of the holders of the notes: LIMITATION ON INCURRENCE OF TOTAL DEBT. The company will not, and will not permit any Subsidiary to, incur any Debt (as defined below) if, immediately after giving effect to the incurrence of the additional Debt and the application of the proceeds from the Debt, the aggregate principal amount of all outstanding Debt of the company and its Subsidiaries on a consolidated basis determined in accordance with generally accepted accounting principles is greater than 60% of the sum of (1) the company's Total Assets (as defined below) as of the end of the calendar quarter prior to the incurrence of the additional Debt and (2) the increase in Total Assets from the end of the quarter including, without limitation, any increase in Total Assets caused by the incurrence of the additional Debt. LIMITATION ON INCURRENCE OF SECURED DEBT. In addition to the above limitation on the incurrence of Debt, the company will not, and will not permit any Subsidiary to, incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security interest of any kind on any of its properties, and will not otherwise grant or convey any mortgage, charge, pledge, encumbrance or security interest of any kind, if immediately after giving effect to it, the aggregate principal amount of all outstanding Debt of the company and its Subsidiaries on a consolidated basis determined in accordance with generally accepted accounting principles which is secured by any mortgage, charge, pledge, encumbrance or security interest of any kind on property of the company or any Subsidiary is greater than 40% of the sum of (1) the company's Total Assets as of the end of the calendar quarter prior to the incurrence of the Debt, and (2) any increase in Total Assets from the end of the quarter including, without limitation, any increase in Total Assets caused by the incurrence of the additional Debt. DEBT SERVICE COVERAGE. In addition to the foregoing limitations on the incurrence of Debt, the company will not, and will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service (as defined below) to Annual Service Charge (as defined below) for the four consecutive calendar quarters most recently ended prior to the date on which the additional Debt is to be incurred is less than 1.5 to 1.0 on a pro forma basis after giving effect to the incurrence of the Debt and the application of the proceeds from the Debt. MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The company will maintain at all times Total Unencumbered Assets (as defined below) of not less than 150% of the aggregate outstanding principal amount of all outstanding unsecured Debt of the company and its Subsidiaries. As used in this section: "Annual Service Charge" means the interest expense of the company and its Subsidiaries for the four consecutive fiscal quarters 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. S-46 "Capitalized Lease" means any lease of property by the company or any Subsidiary as lessee that is reflected on the company's consolidated balance sheet as a capitalized lease in accordance with generally accepted accounting principles. "Consolidated Income Available for Debt Service" for any period means Consolidated Net Income (as defined below) of the company and its Subsidiaries plus amounts which have been deducted, and minus amounts which have been added, for (1) interest on Debt of the company and its Subsidiaries, (2) provision for taxes of the company and its Subsidiaries based on income, (3) amortization of debt discount, (4) provisions for gains and losses on properties, (5) depreciation, (6) the effect of any non-cash charge resulting from a change in accounting principles in determining Consolidated Net Income for the period and (7) amortization of deferred charges. "Consolidated Net Income" for any period means the amount of consolidated net income (or loss) of the company and its Subsidiaries for the period determined on a consolidated basis in accordance with generally accepted accounting principles. "Debt" means any indebtedness of the company or any Subsidiary, whether or not contingent, in respect of (1) borrowed money or evidenced by bonds, notes, debentures or similar instruments, (2) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or any security interest existing on property owned by the company or any Subsidiary, (3) letters of credit or amounts representing the balance deferred and unpaid of the purchase price of any property except any balance that constitutes an accrued expense or trade payable or (4) Capitalized Leases, in the case of items of indebtedness under (1) through (3) above to the extent that any of those items (other than letters of credit) would appear as liabilities on the company's consolidated balance sheet in accordance with generally accepted accounting principles, and also includes, to the extent not otherwise included, any obligation by the company or any Subsidiary 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 the company or any Subsidiary) (it being understood that Debt will be deemed to be incurred by the company or any Subsidiary whenever the company or the Subsidiary creates, assumes, guarantees or otherwise becomes liable in respect of the Debt). "Subsidiary" means (1) 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 the company or one or more of the other Subsidiaries of the company, and (2) any partnership or limited liability company in which the company or one or more of the other Subsidiaries of the company, directly or indirectly, possesses more than a 50% interest in the total capital or total income of the partnership or limited liability company. "Total Assets" as of any date means the sum of (1) Undepreciated Real Estate Assets and (2) all other assets of the company and its Subsidiaries determined in accordance with generally accepted accounting principles (but excluding accounts receivable and intangibles). "Total Unencumbered Assets" means Total Assets minus the value of any properties of the company and its Subsidiaries that are encumbered by any mortgage, charge, pledge, lien, security interest or other encumbrance of any kind, including the value of any stock of any Subsidiary that is so encumbered. For purposes of this definition, the value of each property will be equal to the purchase price or cost of the property and the value of any stock subject to any encumbrance will be determined by reference to the value of the properties owned by the issuer of the stock. "Undepreciated Real Estate Assets" as of any date means the amount of real estate assets of the company and its Subsidiaries on that date, before depreciation and amortization determined on a consolidated basis in accordance with generally accepted accounting principles. S-47 BOOK-ENTRY SYSTEM The notes will be issued in the form of a single fully registered note in book-entry form, referred to as a global security which will be deposited with, or on behalf of, the Depository Trust Company ("DTC") and registered in the name of DTC or its nominee. Unless and until it is exchanged in whole or in part for the individual notes represented, a global security may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee to a successor depository or any nominee of the successor. So long as DTC or its nominee is the registered owner of a global security, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the notes represented by a global security for all purposes under the indenture and the beneficial owners of the notes will be entitled only to those rights and benefits afforded to them in accordance with DTC's regular operating procedures. Except as provided below, owners of beneficial interest in a global security will not be entitled to have any of the individual notes registered in their names, will not receive or be entitled to receive physical delivery of any notes in definitive form and will not be considered the owners or holders of the notes under the indenture. The laws of some states require that purchasers of securities take physical delivery of the securities in definitive form. These laws may impair the ability to transfer beneficial interests in a global security. If any of the following occur, the company will issue individual notes in certificated form in exchange for a global security: * DTC is at any time unwilling or unable to continue as depository or if at any time DTC ceases to be a clearing agency registered under the Exchange Act, and a successor depository is not appointed by the company within 90 days; * an Event of Default under the indenture with respect to the notes has occurred and is continuing and the beneficial owners representing a majority in principal amount of the notes represented by a global security advise DTC to cease acting as depository; or * the company, in its sole discretion, determines at any time that the notes will no longer be represented by a global security. In any of these instances, an owner of a beneficial interest in a global security will be entitled to physical delivery of individual notes in certificated form of like tenor, equal in principal amount to their beneficial interest and to have the notes in certificated form registered in its name. Notes issued in certificated form will be issued in denominations of $1,000 or any integral multiple thereof, and will be issued in registered form only, without coupons. DTC has advised the company of the following information regarding DTC: DTC is: * a limited-purpose trust company organized under the New York Banking Law; * a "banking organization" within the meaning of the New York Banking Law; * a member of the Federal Reserve System; * a "clearing corporation" within the meaning of the New York Uniform Commercial Code; and * a "clearing agency" registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants deposit with DTC. DTC also facilitates the settlement among its participants of securities transactions, like transfers and pledges, in deposited securities through electronic computerized book-entry changes in its participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants of DTC include securities brokers and dealers, banks, trust companies, clearing corporations and other organizations. DTC is owned by a number of its direct participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others like S-48 securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to DTC and its participants are on file with the SEC. Purchases of notes under the DTC system must be made by or through direct participants, which will receive a credit for the notes on DTC's records. The ownership interest of each actual purchaser of each note, known as a beneficial owner, is in turn recorded on the direct and indirect participants' records. A beneficial owner does not receive written confirmation from DTC of its purchase. The beneficial owner is expected to receive a written confirmation providing details of the transaction, as well as periodic statements of its holdings, from the direct or indirect participant through which the beneficial owner entered into the transaction. Transfers of ownership interests in notes are accomplished by entries made on the books of participants acting on behalf of beneficial owners. The beneficial owners do not receive certificates representing their ownership interests in notes, except in the event that use of the book-entry system for the notes is discontinued. To facilitate subsequent transfers, the notes are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of the notes with DTC and their registration in the name of Cede & Co. effects no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the notes; DTC records reflect only the identity of the direct participants to whose accounts notes are credited, which may or may not be the beneficial owners. The participants remain responsible for keeping account of their holdings on behalf of their customers. Delivery of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to beneficial owners are governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to Cede & Co. If less than all of the notes represented by a global security are to be redeemed, DTC's practice is to determine by lot the amount of the interest of each direct participant to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the notes. Under its usual procedures, DTC mails a proxy, known as an omnibus proxy, to the issuer as soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct participants to whose accounts the notes are credited on the record date, which is identified on a list attached to the omnibus proxy. Principal and interest payments on the notes will be made by the company to the trustee and from the trustee to DTC. DTC's practice is to credit direct participant's accounts on the payable date in accordance with their respective holdings as shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of the participant and not of DTC, the trustee or the company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the company or the trustee, disbursement of the payments to direct participants is the responsibility of DTC, and disbursement of the payments to the beneficial owners is the responsibility of direct and indirect participants. DTC may discontinue providing its services as securities depository with respect to the notes at any time by giving reasonable notice to the company or the trustee. Under these circumstances, in the event that a successor securities depository is not appointed, note certificates are required to be printed and delivered. The company may decide to discontinue use of the system of book-entry transfers through DTC, or a successor securities depository. In that event, note certificates will be printed and delivered. S-49 None of the company, the trustee, any paying agent, the security registrar or the underwriters will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a global security for any notes or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests or for any other aspect of the relationship between DTC and its participants or the relationship between the participants and the owners of beneficial interests in a global security owned through the participants. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS FFCA is a real estate investment trust. Recently, legislation was enacted that modifies some of the rules that apply to REITs. Specifically, the legislation includes a provision that limits, in some cases, a REIT's ability to own more than 10%, by vote or value, of the stock of another corporation. In general, a REIT cannot currently own more than 10% of the outstanding voting securities of any one issuer. The legislation allows a REIT to own any percentage of the voting stock and value of a taxable REIT subsidiary, provided all of the REIT's taxable REIT subsidiaries do not represent more than 20% of the REIT's total assets and at least 75% of the REIT's total assets are real estate assets or other qualifying assets. This legislation may require FFCA to restructure its interest in FFCA Funding because FFCA is considered to own more than 10% of the value of FFCA Funding. Additionally, the legislation includes a provision that prevents a taxable REIT subsidiary from deducting interest on debt funded directly or indirectly by a REIT if tests regarding the taxable REIT subsidiary's debt to equity ratio and interest expense are satisfied. The legislation also includes a provision that reduces the REIT distribution requirement from 95% to 90% of a REIT's taxable income as described in the prospectus. The provisions discussed above are generally effective for taxable years ending after December 31, 2000. In addition, the legislation includes a provision that provides transition rules to allow C corporations, like FFCA Funding, to convert into "taxable REIT subsidiaries" tax free. The Treasury Department recently published temporary regulations that include rules that are similar to the rules contained in Internal Revenue Service Notice 88-19. The temporary regulations provide that a REIT must file an election to be subject to the rules of Section 1374 of the Internal Revenue Code and regulations thereunder with respect to the net built-in-gain of C corporation assets that become assets of a REIT, by the qualification of the C corporation as a REIT or by the transfer of the assets of a C corporation to a REIT in a transaction in which the assets have a carryover basis in the hands of the REIT, if the C corporation is to avoid the recognition of any gain arising from the qualification or transaction. For additional federal income tax considerations, see the section entitled "Certain Federal Income Tax Considerations" in the accompanying prospectus. UNDERWRITING Subject to the terms and conditions contained in the underwriting agreement dated the date of this prospectus supplement, FFCA has agreed to sell to each of the underwriters named below, and each of the underwriters has severally agreed to purchase from FFCA, the principal amount of the notes shown opposite its name below: Principal Amount of Underwriter the Notes Salomon Smith Barney Inc. ................................... $ 80,000,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated .................................... 40,000,000 Donaldson, Lufkin & Jenrette Securities Corporation ......... 20,000,000 Banc of America Securities LLC .............................. 10,000,000 ------------ Total ...................................................... $150,000,000 In the underwriting agreement, the several underwriters have agreed, subject to the terms and conditions in the agreement, to purchase all of the notes offered in this prospectus supplement if any notes are purchased. S-50 The underwriters have advised FFCA that they propose initially to offer the notes to the public at the public offering price shown on the cover page of this prospectus supplement, and to selected dealers at this price less a concession not in excess of .40% of the principal amount of the notes. The underwriters may allow, and the dealers may reallow, a concession to other dealers not in excess of .25% of the principal amount of the notes. After the initial public offering, the public offering prices and concessions may be changed from time to time. FFCA has agreed to indemnify the underwriters against various liabilities, including liabilities under the Securities Act, or contribute to payments which the underwriters may be required to make in respect of those liabilities. The underwriters have advised FFCA that they intend to make a market in the notes after the completion of the offering; however, the underwriters are not obligated to do so, and any market-making, if begun, may be terminated at any time without notice. No assurance can be given as to the liquidity of the trading market, if any, for the notes. SOME PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING PURCHASES OF THE NOTES TO STABILIZE THEIR MARKET PRICES, PURCHASES OF THE NOTES TO COVER SOME OR ALL OF A SHORT POSITION IN THE NOTES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. Until the distribution of the notes is completed, rules of the SEC may limit the ability of the underwriters and selling group members to bid for and purchase the notes. As an exception to these rules, the underwriters are permitted to engage in transactions that stabilize the price of the notes. These transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the notes. If the underwriters create a short position in the notes in connection with this offering, the underwriters may reduce that short position by purchasing notes in the open market. A short position would occur if the underwriters sell more notes than are shown on the cover page of this prospectus supplement. The underwriters may also impose a penalty bid on selling group members. This means that if the underwriters purchase notes in the open market to reduce the underwriters' short position or to stabilize the price of the notes, they may reclaim the amount of the selling concession from the selling group members who sold those notes as part of the offering. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of those purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither FFCA nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the notes. In addition, neither FFCA nor any of the underwriters makes any representation that the underwriters will engage in those transactions or that those transactions, once commenced, will not be discontinued without notice. The underwriters and their respective affiliates have from time to time, provided investment banking and commercial banking services to FFCA, for which they received customary fees. In addition, the underwriters and their affiliates may provide, in the future, these services to FFCA. An affiliate of Banc of America Securities LLC is a lender under FFCA's credit facility. FFCA intends to use the net proceeds from the sale of the notes to repay amounts outstanding under the credit facility. S-51 LEGAL MATTERS The legality of the notes to be issued in connection with this offering is being passed upon for FFCA by the law firm of Kutak Rock LLP, Denver, Colorado. Various legal matters relating to this offering are being passed upon for the underwriters by the law firm of Latham & Watkins, Los Angeles, California. Members and attorneys of Kutak Rock LLP own an aggregate of approximately 35,000 shares of common stock of FFCA. S-52 PROSPECTUS FRANCHISE FINANCE CORPORATION OF AMERICA $1,000,000,000 DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK Franchise Finance Corporation of America (the "Company") may from time to time offer in one or more series (i) its debt securities (the "Debt Securities"), or (ii) shares of its preferred stock (the "Preferred Stock"), or (iii) shares of its Common Stock, par value $.01 per share (the "Common Stock"), with an aggregate public offering price of up to $1,000,000,000 on terms to be determined at the time of offering. The Debt Securities, the Preferred Stock and the Common Stock (collectively, the "Securities") may be offered, separately or together, in separate series, in amounts, at prices and on terms to be set forth in one or more supplements to this Prospectus (each, a "Prospectus Supplement"). The specific terms of the Securities in respect of which this Prospectus is being delivered will be set forth in the applicable Prospectus Supplement and will include, where applicable: (i) in the case of Debt Securities, the specific title, aggregate principal amount, currency, form (which may be registered or bearer, or certificated or global), authorized denominations, maturity, rate (or manner of calculation thereof) and time of payment of interest, terms for redemption at the Company's option or repayment at the holder's option, terms for sinking fund payments, terms for conversion into Preferred Stock or Common Stock, covenants and any initial public offering price; and (ii) in the case of Preferred Stock, the specific designation and stated value, any dividend, liquidation, redemption, conversion, voting and other rights, and any initial public offering price; and (iii) in the case of Common Stock, any initial public offering price. In addition, such specific terms may include limitations on actual or constructive ownership and restrictions on transfer of the Securities, in each case as may be appropriate to preserve the status of the Company as a real estate investment trust ("REIT") for federal income tax purposes. See "Restrictions on Transfers of Capital Stock." The applicable Prospectus Supplement will also contain information, where applicable, about certain United States federal income tax considerations relating to, and any listing on a securities exchange of, the Securities covered by such Prospectus Supplement. The Securities may be offered directly, through agents designated from time to time by the Company, or to or through underwriters or dealers. If any agents or underwriters are involved in the sale of any of the Securities, their names, and any applicable purchase price, fee, commission or discount arrangement between or among them, will be set forth, or will be calculable from the information set forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No Securities may be sold without delivery of the applicable Prospectus Supplement describing the method and terms of the offering of such series of Securities. ------------------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------------------ The date of this Prospectus is April 16, 1998 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The registration statement on Form S-3 (of which this Prospectus is a part) (the "Registration Statement"), the exhibits and schedules forming a part thereof and the reports, proxy statements and other information filed by the Company with the Commission in accordance with the Exchange Act can be inspected and copied at the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company makes its filings electronically. The Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically, which information can be accessed at http://www.sec.gov. In addition, the Common Stock is listed on the New York Stock Exchange and similar information concerning the Company can be inspected and copied at the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The Company has filed with the Commission the Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Securities. This Prospectus does not contain all the information set forth in the Registration Statement, certain portions of which have been omitted as permitted by the Commission's rules and regulations. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference and the exhibits and schedules thereto. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission are incorporated in this Prospectus by reference: (i) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (ii) the Company's Current Report on Form 8-K dated January 27, 1998; (iii) the Company's Current Report on Form 8-K dated February 17, 1998; and (iv) the description of the Common Stock contained in the Company's Registration Statement on Form 8-A filed June 28, 1994. All documents filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to termination of the offering of the Securities, shall be deemed to be incorporated by reference in this Prospectus from the date of the filing of such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference in this Prospectus shall be deemed to be modified or superseded to the extent that a statement contained in this Prospectus or in any document filed after the date of this Prospectus which is deemed to be incorporated by reference in this Prospectus modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, on the written or oral request of such person, a copy of any or all of the documents incorporated by reference in this Prospectus (not including exhibits to the documents that have been incorporated herein by reference unless the exhibits are themselves specifically incorporated by reference). Such written or oral request should be directed to the Corporate Secretary at 17207 North Perimeter Drive, Scottsdale, Arizona 85255, telephone number (602) 585-4500. 2 THE COMPANY Franchise Finance Corporation of America (the "Company") is a specialty retail finance company dedicated primarily to providing real estate financing to the chain restaurant industry, as well as to the convenience store and automotive parts and service industries. The Company's primary strategy is to provide all necessary financing for multi-unit operators and franchisors who operate retail properties in which the Company invests. The Company's investments are diversified by geographic region, operator and chain. The Company's Common Stock trades on the New York Stock Exchange (the "NYSE") under the symbol FFA. The Company is a Delaware corporation and maintains its corporate offices at 17207 North Perimeter Drive, Scottsdale, Arizona 85255 and its telephone number is (602) 585-4500. USE OF PROCEEDS Unless otherwise described in the applicable Prospectus Supplement, the Company intends to use the net proceeds from the sale of the Securities for general corporate purposes, which may include investment in additional properties, the expansion and improvement of certain properties in the Company's portfolio and the repayment of indebtedness. RATIOS OF EARNINGS TO FIXED CHARGES The following table sets forth ratios of earnings to fixed charges for the periods shown. The ratio shown for the year ended December 31, 1993 is derived from the combined historical financial information of Franchise Finance Corporation of America I, a Delaware corporation, and eleven real estate limited partnerships, the predecessors to the Company (the "Combined Predecessors"). The ratio shown for the year ended December 31, 1994 is derived from the financial information of both the Combined Predecessors and the Company. The ratios shown for the years ended December 31, 1995, 1996 and 1997 are for the Company. The Company commenced operations on June 1, 1994 as a result of the merger of the Combined Predecessors. The information for the periods prior to that date is, in effect, a restatement of the historical operating results of Franchise Finance Corporation of America I and eleven real estate limited partnerships as if they had been consolidated since January 1, 1993. The predecessor companies were primarily public real estate limited partnerships which were prohibited from borrowing for real estate acquisitions and had no opportunity for growth through acquisitions; therefore, the investment objectives of the Company are different than the objectives of the Combined Predecessors, and the information presented below does not necessarily present the ratios of earnings to fixed charges as they would have been had the Company operated as a REIT for all periods presented. Year Ended December 31, ---------------------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- 43.73 16.78 4.16 3.54 3.04 The ratios of earnings to fixed charges were computed by dividing earnings by fixed charges. For this purpose, earnings consist of income (including gain or loss on the sale of property) before REIT transaction related costs plus fixed charges. Fixed charges consist of interest expense (including interest costs capitalized, if any) and the amortization of debt issuance costs. To date, the Company has not issued any Preferred Stock; therefore, the ratios of earnings to combined fixed charges and preferred share dividends are the same as the ratios presented above. 3 DESCRIPTION OF DEBT SECURITIES GENERAL The Debt Securities will be direct obligations of the Company, which may be secured or unsecured, and which may be senior or subordinated indebtedness of the Company. An unqualified opinion of counsel as to legality of the Debt Securities will be obtained by the Company and filed by means of a post-effective amendment or Form 8-K prior to the time any sales of the Debt Securities are made. The Debt Securities will be issued under an indenture, dated as of November 21, 1995, subject to such amendments or supplements as may be adopted from time to time (the "Indenture") between the Company and Norwest Bank Arizona, National Association, as trustee (the "Trustee"). The Indenture will be subject to, and governed by, the Trust Indenture Act of 1939, as amended. The statements made hereunder relating to the Indenture and the Debt Securities to be issued thereunder are summaries of certain provisions thereof, do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Indenture and such Debt Securities. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Indenture. TERMS The particular terms of the Debt Securities offered by a Prospectus Supplement will be described in the particular Prospectus Supplement, along with any applicable modifications of or additions to the general terms of the Debt Securities as described herein and in the applicable Indenture and any applicable material federal income tax considerations. Accordingly, for a description of the terms of any series of Debt Securities, reference must be made to both the Prospectus Supplement relating thereto and the description of the Debt Securities set forth in this Prospectus. The Indenture provides that the Debt Securities may be issued without limits as to aggregate principal amount, in one or more series, in each case as established from time to time by the Company's Board of Directors or as established in one or more indentures supplemental to the Indenture. All Debt Securities of one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the holders (the "Holders") of the Debt Securities of such series, for issuances of additional Debt Securities of such series. The Indenture will provide that the Company may, but need not, designate more than one Trustee thereunder, each with respect to one or more series of Debt Securities. Any Trustee under the Indenture may resign or be removed with respect to one or more series of Debt Securities, and a successor Trustee may be appointed to act with respect to such series. If two or more persons are acting as Trustee with respect to different series of Debt Securities, each such Trustee shall be a Trustee of a trust under the Indenture separate and apart from the trust administered by any other Trustee and, except as otherwise indicated herein, any action described herein to be taken by a Trustee may be taken by each such Trustee with respect to, and only with respect to, the one or more series of Debt Securities for which it is Trustee under the Indenture. Reference is made to the Prospectus Supplement relating to the series of Debt Securities offered thereby for the specific terms thereof, including: (a) the title of such Debt Securities; (b) the aggregate principal amount of such Debt Securities and any limit on such aggregate principal amount (subject to certain exceptions described in the Indenture); (c) the price (expressed as a percentage of the principal amount thereof or otherwise) at which such Debt Securities will be issued and, if other than the principal amount thereof, the portion of the principal amount thereof payable upon declaration of acceleration of the maturity thereof, or (if applicable) the portion of the principal amount of such Debt Securities that is convertible into Common Stock or Preferred Stock or the method by which any such portion shall be determined; (d) if convertible into Common Stock, Preferred Stock, or both, the terms on which such Debt Securities are convertible (including the initial conversion price or rate and conversion period) and, in connection 4 with the preservation of the Company's status as a REIT, any applicable limitations on conversion or on the ownership or transferability of the Common Stock or the Preferred Stock into which such Debt Securities are convertible; (e) the date or dates, or the method for determining such date or dates, on which the principal of such Debt Securities will be payable; (f) the rate or rates, at which such Debt Securities will bear interest, if any, or the method by which such rate or rates shall be determined, the date or dates, or the method for determining such date or dates, from which any interest will accrue, the dates upon which any such interest will be payable, the record dates for payment of such interest, or the method by which any such dates shall be determined, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (g) the place or places where the principal of (and premium, if any) and interest, if any, on such Debt Securities will be payable, where such Debt Securities may be surrendered for conversion, registration of transfer, or exchange (each to the extent applicable), and where notices or demands to or upon the Company in respect of such Debt Securities and the Indenture may be served; (h) the period or periods, if any, within which, the price or prices at which, and the terms and conditions upon which such Debt Securities may be redeemed, as a whole or, in part, at the Company's option (if the Company has the option to redeem); (i) the obligation, if any, of the Company to redeem, repay or purchase such Debt Securities pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which, the price or prices at which and the terms and conditions upon which such Debt Securities will be redeemed, repaid or purchased, as a whole or in part, pursuant to such obligation; (j) if other than U.S. dollars, the currency or currencies in which such Debt Securities are denominated and payable, which may be a foreign currency, currency unit, or a composite currency or currencies, and the terms and conditions relating thereto; (k) whether the amount of payments of principal of (and premium, if any) or interest, if any, on such Debt Securities may be determined with reference to an index, formula or other method (which index, formula or method may, but need not, be based on a currency, currencies, currency unit or units or composite currency or currencies) and the manner in which such amounts shall be determined; (l) whether such Debt Securities will be issued in certificated and/or book-entry form, and the identity of any applicable depositary for such Debt Securities; (m) whether such Debt Securities will be in registered or bearer form and, if in registered form, the denominations thereof if other than $1,000 and any integral multiple thereof and, if in bearer form, the denominations thereof and terms and conditions relating thereto; (n) the applicability, if any, of the defeasance and covenant defeasance provisions described herein or set forth in the applicable Indenture, or any modification thereof or addition thereto; (o) any deletions from, modifications of or additions to the events of default or covenants of the Company, described herein or in the Indenture with respect to such Debt Securities, and any change in the right of any Trustee or any of the Holders to declare the principal amount of any such Debt Securities due and payable; (p) whether and under what circumstances the Company will pay any additional amounts on such Debt Securities in respect of any tax, assessment or governmental charge to Holders that are not United States persons, and, if so, whether the Company will have the option to redeem such Debt Securities in lieu of making such payment (and the terms of any such option); (q) the subordination provisions, if any, relating to such Debt Securities; (r) the provisions, if any, relating to any security provided for such Debt Securities; and 5 (s) any other terms of such Debt Securities not inconsistent with the provisions of the Indenture. If so provided in the applicable Prospectus Supplement, the Debt Securities may be issued at a discount below their principal amount and provide for less than the entire principal amount thereof to be payable upon declaration of acceleration of the maturity thereof ("Original Issue Discount Securities"). In such cases, any special U.S. federal income tax, accounting and other considerations applicable to Original Issue Discount Securities will be described in the applicable Prospectus Supplement. Except as may be set forth in any Prospectus Supplement, the Debt Securities will not contain any provisions that would limit the Company's ability to incur indebtedness or that would afford Holders of Debt Securities protection in the event of a highly leveraged or similar transaction involving the Company or in the event of a change of control. Certain existing restrictions on ownership and transfers of the Common Stock and Preferred Stock are, however, designed to preserve the Company's status as a REIT and, therefore, may act to prevent or hinder a change of control. See "Restrictions on Transfers of Capital Stock." Reference is made to the applicable Prospectus Supplement for information with respect to any deletions from, modifications of or additions to the events of default or covenants of the Company that are described below, including any addition of a covenant or other provision providing event risk or similar protection. DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER Unless otherwise described in the applicable Prospectus Supplement, the Debt Securities of any series will be issuable in denominations of $1,000 and integral multiples thereof. Unless otherwise described in the applicable Prospectus Supplement, the principal of (and applicable premium, if any) and interest on any series of Debt Securities will be payable at the applicable Trustee's corporate trust office, the address of which will be set forth in the applicable Prospectus Supplement; provided, however, that, at the Company's option, payment of interest may be made by check mailed to the address of the person entitled thereto as it appears in the applicable register for such Debt Securities or by wire transfer of funds to such person at an account maintained within the United States. Subject to certain limitations imposed on Debt Securities in the Indenture, the Debt Securities of any series will be exchangeable for any authorized denomination of other Debt Securities of the same series and of a like aggregate principal amount and tender upon surrender of such Debt Securities at the applicable Trustee's corporate trust office or at the applicable office of any agency of the Company. In addition, subject to certain limitations imposed on Debt Securities in the Indenture, the Debt Securities of any series may be surrendered for registration by transfer thereof at the applicable Trustee's corporate trust office or at the applicable office of any agency of the Company. Every Debt Security surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer and evidence of title and identity satisfactory to the Trustee, the Company, or its transfer agent, as applicable. No service charge will be made for any registration of transfer or exchange of any Debt Securities. However, (with certain exceptions) the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. If the applicable Prospectus Supplement refers to any transfer agent (in addition to the applicable Trustee) initially designated by the Company with respect to any series of Debt Securities, the Company may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, except that the Company will be required to maintain a transfer agent in each place of payment for such series. The Company may at any time designate additional transfer agents with respect to any series of Debt Securities. Neither the Company nor any Trustee shall be required to (a) issue, register the transfer of or exchange Debt Securities of any series during a period beginning at the opening of business 15 days before the day of mailing of notice of redemption of any Debt Securities of that series that may be selected for redemption and ending at the close of business on the day of mailing the relevant notice of redemption (or publication of such notice with respect to bearer securities); (b) register the transfer of or exchange any Debt Security, or portion thereof, so selected for redemption, in whole or in part, except the 6 unredeemed portion of any Debt Security being redeemed in part; or (c) issue, register the transfer of or exchange any Debt Security that has been surrendered for repayment at the Holder's option, except the portion, if any, of such Debt Security not to be so repaid. MERGER, CONSOLIDATION OR SALE OF ASSETS The Indenture will provide that the Company may, with or without the consent of the Holders of any outstanding Debt Securities, consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into, any other entity, provided that (a) either the Company shall be the continuing entity, or the successor entity (if other than the Company) formed by or resulting from any such consolidation or merger or which shall have received the transfer of such assets shall be an entity organized and existing under the laws of the United States or a state thereof and such successor entity shall expressly assume the Company's obligation to pay the principal of (and premium, if any) and interest on all the Debt Securities and shall also assume the due and punctual performance and observance of all the covenants and conditions contained in the Indenture; (b) immediately after giving effect to such transaction and treating any indebtedness that becomes an obligation of such successor entity, the Company or any subsidiary as a result thereof as having been incurred by such successor entity, the Company or such subsidiary at the time of such transaction, no event of default under the Indenture, and no event that, after notice or the lapse of time, or both, would become such an event of default, shall have occurred and be continuing; and (c) an officers' certificate and legal opinion covering such conditions shall be delivered to each Trustee. CERTAIN COVENANTS EXISTENCE. Except as permitted under "Merger, Consolidation or Sale of Assets," the Indenture will require the Company to do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, material rights (by certificate of incorporation, bylaws and statute) and material franchises; provided, however, that the Company shall not be required to preserve any right or franchise if its Board of Directors determines that the preservation thereof is no longer desirable in the conduct of its business. MAINTENANCE OF PROPERTIES. The Indenture will require the Company to cause all of its material properties used or useful in the conduct of its business or the business of any subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and to cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the Company's judgment may be necessary so that the business carried on or in connection therewith may be properly and advantageously conducted at all times; provided, however, that the Company and its subsidiaries shall not be prevented from selling or otherwise disposing of their properties for value in the ordinary course of business. INSURANCE. The Indenture will require the Company to, and to cause each of its subsidiaries to, keep in force upon all of its properties and operations policies of insurance carried with responsible companies in such amounts and covering all such risks as shall be customary in the industry in accordance with prevailing market conditions and availability. PAYMENT OF TAXES AND OTHER CLAIMS. The Indenture will require the Company to pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed on it or any subsidiary or on the income, profits or property of the Company or any subsidiary and (b) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien upon the property of the Company or any subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings. PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject to Section 13 or 15(d) of the Exchange Act, the Indenture will require the Company, within 15 days after each of the respective dates by which the Company would have been required to file annual reports, quarterly reports and other 7 documents with the Commission if the Company were so subject, (a) to transmit by mail to all Holders of Debt Securities, as their names and addresses appear in the applicable register for such Debt Securities, without cost to such Holders, copies of the annual reports, quarterly reports and other documents that the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject to such Sections, (b) to file with the Trustee copies of the annual reports, quarterly reports and other documents that the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject to such Sections, and (c) to supply, promptly upon written request and payment of the reasonable cost of duplication and delivery, copies of such documents to any prospective Holder of Debt Securities. ADDITIONAL COVENANTS. Any additional covenants of the Company with respect to any of the series of Debt Securities will be set forth in the Prospectus Supplement relating thereto. EVENTS OF DEFAULT, NOTICE AND WAIVER Unless otherwise provided in the applicable Prospectus Supplement, the following events are "events of default" with respect to any series of Debt Securities issued under the Indenture: (a) default for 30 days in the payment of any installment of interest on any Debt Security of such series; (b) default in the payment of the principal of (or premium, if any, on) any Debt Security of such series at its Maturity; (c) default in making any sinking fund payment as required for any Debt Security of such series; (d) default in the performance or breach of any other covenant or warranty of the Company contained in the Indenture (other than a covenant or warranty a default in the performance of which or the breach of which is elsewhere in this paragraph specifically dealt with), continued for 60 days after written notice as provided in the applicable Indenture; (e) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or any of its subsidiaries (including obligations under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles), in an aggregate principal amount in excess of $10 million or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries (including such leases), in an aggregate principal amount in excess of $10 million, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable or such obligations being accelerated, without such acceleration having been rescinded or annulled; (f) certain events of bankruptcy, insolvency or reorganization, or court appointment of a receiver, liquidator or trustee of the Company or any Significant Subsidiary of the Company; and (g) any other Event of Default as defined with respect to a particular series of Debt Securities. The term "Significant Subsidiary" has the meaning ascribed to such term in Regulation S-K promulgated under the Securities Act. If an event of default under the Indenture with respect to Debt Securities of any series at the time outstanding occurs and is continuing, then in every such case the applicable Trustee or the holders of not less than 25% in principal amount of the outstanding Debt Securities of that series may declare the principal amount (or, if the Debt Securities of that series are Original Issue Discount Securities or indexed securities, such portion of the principal amount as may be specified in the terms thereof) of all the Debt Securities of that series to be due and payable immediately by written notice thereof to the Company (and to the applicable Trustee if given by the holders). However, at any time after such a declaration of acceleration with respect to Debt Securities of such series has been made, but before a judgment or decree for payment of the money due has been obtained by the applicable Trustee, the holders of not less than a majority of the principal amount of the outstanding Debt Securities of such series may rescind and annul such declaration and its consequences if (a) the Company shall have deposited with the applicable Trustee all required payments of the principal of (and premium, if any) and overdue interest on the Debt Securities of such series, plus certain fees, expenses, disbursements and advances of the applicable Trustee and (b) all events of default, other than the nonpayment of accelerated principal (or specified portion thereof), with respect to Debt Securities of such series have been cured or waived as provided in the Indenture. The Indenture will also provide that the holders of not less than a majority in principal amount of the outstanding Debt Securities of any series may waive any past default with respect to such series and 8 its consequences, except a default (y) in the payment of the principal of (or premium, if any) or interest on any Debt Security of such series or (z) in respect of a covenant or provision contained in the Indenture that cannot be modified or amended without the consent of the holder of each outstanding Debt Security affected thereby. The Indenture will require each Trustee to give notice to the holders of Debt Securities within 90 days of a default under the Indenture unless such default shall have been cured or waived; provided, however, that such Trustee may withhold notice to the holders of any series of Debt Securities of any default with respect to such series (except a default in the payment of the principal of (or premium, if any) or interest on any Debt Security of such series or in the payment of any sinking fund installment in respect of any Debt Security of such series) if specified responsible officers of the Trustee consider such withholding to be in such holders' interest. The Indenture will provide that no holders of Debt Securities of any series may institute any proceedings, judicial or otherwise, with respect to the Indenture or for any remedy thereunder, except in the case of failure of the Trustee, for 60 days, to act after it has received a written request to institute proceedings in respect of an event of default from the holders of not less than 25% in principal amount of the outstanding Debt Securities of such series, as well as an offer of indemnity reasonably satisfactory to it and no contrary directions from the holders of more than 50% of the outstanding Debt Securities of such series. This provision will not prevent, however, any holder of Debt Securities from instituting suit for the enforcement of payment of the principal of (and premium, if any) and interest on such Debt Securities at the respective due dates thereof. The Indenture will provide that the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any holders of any series of Debt Securities then outstanding under the Indenture, unless such holders shall have offered to the Trustee reasonable security or indemnity. The holders of not less than a majority in principal amount of the outstanding Debt Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or of exercising any trust or power conferred upon the Trustee. The Trustee may, however, refuse to follow any direction that is in conflict with any law or the Indenture or that may involve the Trustee in personal liability or that may be unduly prejudicial to the holders of Debt Securities of such series not joining therein. MODIFICATION OF THE INDENTURE Modifications and amendments of the Indenture with respect to any series will be permitted only with the consent of the holders of not less than a majority in principal amount of all outstanding Debt Securities of such series; provided, however, that no such modification or amendment may, without the consent of the holder of each Debt Security of such series, (a) change the Stated Maturity of the principal of (or premium, if any, on), or any installment of principal of or interest on any such Debt Security; (b) reduce the principal amount of, or the rate or amount of interest on, or any premium payable on redemption of, any such Debt Security, or reduce the amount of principal of an Original Issue Discount Security that would be due and payable upon declaration of acceleration of the Maturity thereof or would be provable in bankruptcy, or adversely affect any right of repayment of the holder of any such Debt Security; (c) change the place of payment, or the coin or currency, for payment of principal of (or premium, if any), or interest on any such Debt Security; (d) impair the right to institute suit for the enforcement of any payment on or with respect to any such Debt Security on or after the Stated Maturity or redemption date thereof; (e) reduce the above-stated percentage of Outstanding Debt Securities of any series necessary to modify or amend the Indenture, to waive compliance with certain provisions thereof or certain defaults and consequences thereunder or to reduce the quorum or voting requirements set forth in the Indenture; or (f) modify any of the foregoing provisions or any of the provisions relating to the waiver of certain past defaults or certain covenants, except to increase the required percentage to effect such action or to provide that certain other provisions may not be modified or waived without the consent of the holder of such Debt Security. The holders of a majority in aggregate principal amount of outstanding Debt Securities of each series may, on behalf of all holders of Debt Securities of that series waive, insofar as that series is concerned, compliance by the Company with certain restrictive covenants in the Indenture. 9 Modifications and amendments of the Indenture will be permitted to be made by the Company and the Trustee without the consent of any holder of Debt Securities for any of the following purposes: (a) to evidence the succession of another person to the Company as obligor under the Indenture; (b) to add to the covenants of the Company for the benefit of the holders of all or any series of Debt Securities or to surrender any right or power conferred upon the Company in the Indenture; (c) to add additional events of default for the benefit of the holders of all or any series of Debt Securities; (d) to add or change certain provisions of the Indenture to facilitate the issuance of, or to liberalize certain terms of, Debt Securities in bearer form, or to permit or facilitate the issuance of Debt Securities in uncertificated form, provided that such action shall not adversely affect the interests of the holders of the Debt Securities of any series in any material respect; (e) to change or eliminate any provisions of the Indenture, provided that any such change or elimination shall become effective only when there are no Debt Securities outstanding of any series created prior thereto that are entitled to the benefit of such provision; (f) to secure the Debt Securities; (g) to establish the form or terms of Debt Securities of any Series, including the provisions and procedures, if applicable, for the conversion of such Debt Securities into Common Stock or Preferred Stock; (h) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trusts under the Indenture by more than one Trustee; (i) to cure any ambiguity, defect or inconsistency in the Indenture; provided, however, that such action shall not adversely affect the interests of holders of Debt Securities of any series in any material respect; or (j) to supplement any of the provisions of the Indenture to the extent necessary to permit or facilitate defeasance and discharge of any series of such Debt Securities, provided, however, that such action shall not adversely affect the interests of the holders of the Debt Securities of any series in any material respect. The Indenture provides that in determining whether the holders of the requisite principal amount of outstanding Debt Securities of a series have given any request, demand, authorization, direction, notice, consent or waiver thereunder or whether a quorum is present at a meeting of holders of Debt Securities, (a) the principal amount of an Original Issue Discount Security that shall be deemed to be outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon declaration of acceleration of the maturity thereof, (b) the principal amount of any Debt Security denominated in a foreign currency that shall be deemed outstanding shall be the U.S. dollar equivalent, determined on the issue date for such Debt Security, of the principal amount (or, in the case of an Original Issue Discount Security, the U.S. dollar equivalent on the issue date of such Debt Security of the amount determined as provided in (a) above), (c) the principal amount of an indexed security that shall be deemed outstanding shall be the principal face amount of such indexed security at original issuance, unless otherwise provided with respect to such indexed security in the applicable Indenture, and (d) Debt Securities owned by the Company or any other obligor upon the Debt Securities or any affiliate of the Company or of such other obligor shall be disregarded. The Indenture contains provisions for convening meetings of the holders of Debt Securities of a series. A meeting may be permitted to be called at any time by the Trustee, and also, upon request, by the Company or the holders of at least 10% in principal amount of the outstanding Debt Securities of such series, in any such case upon notice given as provided in the Indenture. Except for any consent that must be given by the holder of each Debt Security affected by certain modifications and amendments of the Indenture, any resolution presented at a meeting or adjourned meeting duly reconvened at which a quorum is present may be adopted by the affirmative vote of the holders of a majority in principal amount of the outstanding Debt Securities of that series; provided, however, that, except as referred to above, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that may be made, given or taken by the holders of a specified percentage, which is less than a majority, in principal amount of the outstanding Debt Securities of a series may be adopted at a meeting or adjourned meeting duly reconvened at which a quorum is present by the affirmative vote of the holders of such specified percentage in principal amount of the outstanding Debt Securities of that series. Any resolution passed or decision taken at any meeting of holders of Debt Securities of any series duly held in accordance with the Indenture will be binding on all holders of Debt Securities of that series. The quorum at any meeting called to adopt a resolution, and at any reconvened meeting, will be persons holding or representing a majority in principal amount of the outstanding Debt Securities of a series; provided, however, that if any action is to be taken at such meeting with respect to a consent or waiver that may be 10 given by the holders of not less than a specified percentage in principal amount of the outstanding Debt Securities of a series, the persons holding or representing such specified percentage in principal amount of the outstanding Debt Securities of such series will constitute a quorum. Notwithstanding the foregoing provisions, the Indenture provides that if any action is to be taken at a meeting of holders of Debt Securities of any series with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that the Indenture expressly provides may be made, given or taken by the holders of a specified percentage in principal amount of all outstanding Debt Securities affected thereby, or of the holders of such series and one or more additional series: (a) there shall be no minimum quorum requirement for such meeting and (b) the principal amount of the outstanding Debt Securities of such series that vote in favor of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under the Indenture. DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE If provided for in the applicable Prospectus Supplement, the Company will be permitted, at its option, to discharge certain obligations to holders of any series of Debt Securities by irrevocably depositing with the applicable Trustee, in trust, funds in such currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are payable in an amount sufficient to pay the entire indebtedness on such Debt Securities in respect of principal (and premium, if any) and interest. If provided for in the applicable Prospectus Supplement, the Company may elect either to (a) defease and be discharged from any and all obligations with respect to any series of Debt Securities (except for the obligation to pay additional amounts, if any, upon the occurrence of certain events of tax, assessment or governmental charge with respect to payments on such Debt Securities and the obligations to register the transfer or exchange of such Debt Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or agency in respect of such Debt Securities and to hold money for payment in trust) ("defeasance") or (b) be released from certain obligations with respect to such Debt Securities under the applicable Indenture (generally being the restrictions described under "Certain Covenants", herein) or, if provided in the applicable Prospectus Supplement, its obligations with respect to any other covenant, and any omission to comply with such obligations shall not constitute a default or an event of default with respect to such Debt Securities ("covenant defeasance"), in either case upon the irrevocable deposit by the Company with the applicable Trustee, in trust, of an amount, in such currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are payable at Stated Maturity, or Government Obligations (as defined below), or both, applicable to such Debt Securities that through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal of (and premium, if any) and interest on such Debt Securities, and any mandatory sinking fund or analogous payments thereon, on the scheduled due dates therefor. Such a trust may only be established if, among other things, the Company has delivered to the applicable Trustee an opinion of counsel (as specified in the applicable indenture) to the effect that the holders of such Debt Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred, and such opinion of counsel, in the case of defeasance, must refer to and be based on a ruling of the Internal Revenue Service (the "IRS") or a change in applicable U.S. federal income tax law occurring after the date of the Indenture. In the event of such defeasance, the holders of such Debt Securities would thereafter be able to look only to such trust fund for payment of principal (and premium, if any) and interest. "Government Obligations" means securities that are (a) direct obligations of the United States of America or the government which issued the foreign currency in which the Debt Securities of a particular series are payable, for the payment of which its full faith and credit is pledged, or (b) obligations of 11 a person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government which issued the foreign Currency in which the Debt Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit Obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt. Unless otherwise provided in the applicable Prospectus Supplement, if after the Company has deposited funds and/or Government Obligations to effect defeasance or covenant defeasance with respect to Debt Securities of any series, (a) the holder of a Debt Security of such series is entitled to, and does, elect pursuant to the applicable Indenture or the terms of such Debt Security to receive payment in a currency, currency unit or composite currency other than that in which such deposit has been made in respect of such Debt Security or (b) a Conversion Event (as defined below) occurs in respect of the currency, currency unit or composite currency in which such deposit has been made, the indebtedness represented by such Debt Security will be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any) and interest on such Debt Security as they become due out of the proceeds yielded by converting the amount so deposited in respect of such Debt Security into the currency, currency unit or composite currency in which such Debt Security becomes payable as a result of such election or Conversion Event based on the applicable market exchange rate. "Conversion Event" means the cessation of use of (i) a currency, currency unit or composite currency both by the government of the country which issued such currency and for the settlement of transactions by a central bank or other public institution of or within the international banking community, (ii) the ECU both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities, or (iii) any currency unit or composite currency other than the ECU for the purposes for which it was established. Unless otherwise provided in the applicable Prospectus Supplement, all payments of principal of (and premium, if any) and interest on any Debt Security that is payable in a foreign currency that ceases to be used by its government of issuance shall be made in U.S. dollars. In the event the Company effects covenant defeasance with respect to any Debt Securities and such Debt Securities are declared due and payable because of the occurrence of any event of default other than the event of default described in clause (d) under "Events of Default, Notice and Waiver" with respect to the specified sections of the applicable Indenture (which sections would no longer be applicable to such Debt Securities) or clause (g) thereunder with respect to any other covenant as to which there has been covenant defeasance, the amount in such currency, currency unit or composite currency in which such Debt Securities are payable, and Government Obligations on deposit with the applicable Trustee, will be sufficient to pay amounts due on such Debt Securities at the time of their stated maturity, but may not be sufficient to pay amounts due on such Debt Securities at the time of the acceleration resulting from such event of default. The Company would, however, remain liable to make payment of such amounts due at the time of acceleration. The applicable Prospectus Supplement may further describe the provisions, if any, permitting such defeasance or covenant defeasance, including any modifications to the provisions described above, with respect to the Debt Securities of or within a particular series. CONVERSION RIGHTS The terms and conditions, if any, upon which the Debt Securities are convertible into Common Stock or Preferred Stock will be set forth in the applicable Prospectus Supplement relating thereto. Such terms will include whether such Debt Securities are convertible into Common Stock or Preferred Stock, the conversion price (or manner of calculation thereof), the conversion period, provisions as to whether 12 conversion will be, at the option of the holders or the Company, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such Debt Securities and any restrictions on conversion, including restrictions directed at maintaining the Company's REIT status. PAYMENT Unless otherwise specified in the applicable Prospectus Supplement, the principal of (and applicable premium, if any) and interest on any Series of Debt Securities will be payable at the Trustee's corporate trust office, the address of which will be stated in the applicable Prospectus Supplement; provided, however, that, at the Company's option, payment of interest may be made by check mailed to the address of the person entitled thereto as it appears in the applicable register for such Debt Securities or by wire transfer of funds to such person at an account maintained within the United States. All amounts paid by the Company to a paying agent or a Trustee for the payment of the principal of or any premium or interest on any Debt Security that remain unclaimed at the end of two years after such principal, premium or interest has become due and payable will be repaid to the Company, and the holder of such Debt Security thereafter may look only to the Company for payment thereof, subject to applicable state escheat laws. GLOBAL SECURITIES The Debt Securities of a series may be issued in whole or in part in the form of one or more global securities (the "Global Securities") that will be deposited with, or on behalf of, a depositary identified in the applicable Prospectus Supplement relating to such series. Global Securities may be issued in either registered or bearer form and in either temporary or permanent form. The specific terms of the depositary arrangement with respect to a series of Debt Securities will be described in the applicable Prospectus Supplement relating to such Series. DESCRIPTION OF COMMON STOCK The Company has authority to issue 200,000,000 shares of Common Stock, par value $.01 per share (the "Common Stock"). At March 13, 1998, the Company had outstanding 47,885,524 shares of Common Stock. GENERAL The following description of the Common Stock sets forth certain general terms and provisions of the Common Stock to which any Prospectus Supplement may relate, including a Prospectus Supplement providing that the Common Stock will be issuable upon conversion of Debt Securities or Preferred Stock. An unqualified opinion of counsel as to legality of the Common Stock will be obtained by the Company and filed by means of a post-effective amendment or Form 8-K prior to the time any sales of Common Stock are made. The statements below describing the Common Stock are in all respects subject to and qualified in their entirety by reference to the applicable provisions of the Company's Second Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") and Bylaws. TERMS Subject to the preferential rights of any other shares or series of stock, holders of Common Stock will be entitled to receive dividends when, as and if declared by the Company's Board of Directors out of funds legally available therefor. Payment and declaration of dividends on the Common Stock and purchases of shares thereof by the Company will be subject to certain restrictions if the Company fails to pay dividends on the Preferred Stock, if any. See "Description of Preferred Stock." Upon any liquidation, dissolution or winding up of the Company, holders of Common Stock will be entitled to share equally and ratably in any assets available for distribution to them, after payment or provision for payment of the debts and other liabilities of the Company and the preferential amounts owing with respect to any outstanding Preferred Stock. The Common Stock will possess ordinary voting rights for the election of directors and in respect 13 of other corporate matters, each share entitling the holder thereof to one vote. Holders of Common Stock will not have cumulative voting rights in the election of directors, which means that holders of more than 50% of all the shares of the Company's Common Stock voting for the election of directors can elect all the directors if they choose to do so and the holders of the remaining shares of Common Stock cannot elect any directors. Holders of shares of Common Stock will not have preemptive rights, which means they have no right to acquire any additional shares of Common Stock that may be issued by the Company at a subsequent date. All shares of Common Stock now outstanding are, and additional shares of Common Stock offered will be when issued, fully paid and nonassessable; and no shares of Common Stock are or will be subject to any exchange or conversion rights. RESTRICTIONS ON OWNERSHIP For the Company to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in value of its outstanding capital stock may be owned, actually or constructively, by five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year. To assist the Company in meeting this requirement, the Company may take certain actions to limit the beneficial ownership, actually or constructively, by a single person or entity of the Company's outstanding equity securities. See "Restrictions on Transfers of Capital Stock." TRANSFER AGENT The registrar and transfer agent for the Common Stock is Gemisys Transfer Agents, 7103 South Revere Parkway, Englewood, CO 80112. DESCRIPTION OF PREFERRED STOCK The Company has authority to issue up to 10,000,000 shares of Preferred Stock as described below. At March 13, 1998, there were no shares of Preferred Stock issued or outstanding. GENERAL The following description of the Preferred Stock sets forth certain general terms and provisions of the Preferred Stock to which any Prospectus Supplement may relate. An unqualified opinion of counsel as to legality of the Preferred Stock will be obtained by the Company and filed by means of a post-effective amendment or Form 8-K prior to the time any sales of Preferred Stock are made. The statements below describing the Preferred Stock are in all respects subject to and qualified in their entirety by reference to the applicable provisions of the Certificate of Incorporation (including the applicable Certificate of Designations) and Bylaws. Shares of Preferred Stock may be issued from time to time in one or more series as authorized by the Company's Board of Directors. Subject to limitations prescribed by the Delaware General Corporation Law and the Certificate of Incorporation, the Company's Board of Directors is authorized to fix the number of shares constituting each series of Preferred Stock and the designations and powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including such provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and such other subjects or matters as may be fixed by resolution by the Board of Directors or a duly authorized committee thereof. Notwithstanding the foregoing (i) any series of Preferred Stock may be voting or non-voting, provided that the voting rights of any voting shares of Preferred Stock will be limited to no more than one vote per share on matters voted upon by the holders of such series, and (ii) in the event any person acquires 20% or more of the outstanding shares of Common Stock and/or Preferred Stock, the Board of Directors cannot issue any series of Preferred Stock unless such issuance is approved by the vote of holders of at least 50% of the outstanding shares of Common Stock. The Preferred Stock will, when issued, be fully paid and nonassessable and will have no preemptive rights. 14 Reference is made to the Prospectus Supplement relating to the Preferred Stock offered thereby for specific terms, including: (a) the title and stated value of such Preferred Stock; (b) the number of shares of such Preferred Stock offered, the liquidation preference per share and the offering price of such Preferred Stock; (c) the dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof applicable to such Preferred Stock; (d) the date from which dividends on such Preferred Stock shall accumulate; (e) the procedures for any auction and remarketing, if any, for such Preferred Stock; (f) the provision for a sinking fund, if any, for such Preferred Stock; (g) any voting rights of such Preferred Stock; (h) the provision for redemption, if applicable, of such Preferred Stock; (i) any listing of such Preferred Stock on any securities exchange; (j) the terms and conditions, if applicable, upon which such Preferred Stock will be convertible into Common Stock, including the conversion price (or manner of calculation thereof); (k) a discussion of material federal income tax considerations applicable to such Preferred Stock; (l) any limitations on actual, beneficial or constructive ownership and restrictions on transfer, in each case as may be appropriate to preserve the Company's REIT status; (m) the relative ranking and preferences of such Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; (n) any limitations on issuance of any series of Preferred Stock ranking senior to or on a parity with such series of Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; and (o) any other specific terms, preferences, rights, limitations or restrictions of such Preferred Stock. RANK Unless otherwise specified in the applicable Prospectus Supplement, the Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company, rank (a) senior to all Common Stock and to all equity or other securities ranking junior to such Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company; (b) on a parity with all equity securities issued by the Company the terms of which specifically provide that such equity securities rank on a parity with the Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the affairs of the Company; and (c) junior to all equity securities issued by the Company the terms of which specifically provide that such equity securities rank senior to the Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the affairs of the Company. For these purposes, the term "equity securities" does not include convertible debt securities. DIVIDENDS Holders of shares of the Preferred Stock of each series shall be entitled to receive, when, as and if declared by the Company's Board of Directors, out of the Company's assets legally available for payment, cash dividends at such rates and on such dates as will be set forth in the applicable Prospectus Supplement. Each such dividend shall be payable to holders of record as they appear on the Company's stock transfer books on such record dates as shall be fixed by the Company's Board of Directors. 15 Dividends on any series of Preferred Stock will be cumulative. Dividends will be cumulative from and after the date set forth in the applicable Prospectus Supplement. If any shares of Preferred Stock of any series are outstanding, full dividends shall not be declared or paid or set apart for payment on the Preferred Stock of any other series ranking, as to dividends, on a parity with or junior to the Preferred Stock of such series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Preferred Stock of such series for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the shares of Preferred Stock of any series and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the Preferred Stock of such series, all dividends declared on shares of Preferred Stock of such series and any other series of Preferred Stock ranking on a parity as to dividends of such Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on the Preferred Stock of such series and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of Preferred Stock of such series and such other series of Preferred Stock bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Preferred Stock of such series that may be in arrears. Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than in the Common Stock or other capital stock of the Company ranking junior to the Preferred Stock of such series as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made on the Common Stock or any other capital stock of the Company ranking junior to or on a parity with the Preferred Stock of such series as to dividends or upon liquidation, nor shall the Common Stock or any other capital stock of the Company ranking junior to or on a parity with the Preferred Stock of such series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any amounts be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for other capital stock of the Company ranking junior to the Preferred Stock of such series as to dividends and upon liquidation). Any dividend payment made on shares of a series of Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of such series that remains payable. REDEMPTION If so provided in the applicable Prospectus Supplement, the shares of Preferred Stock will be subject to mandatory redemption or redemption at the Company's option, as a whole or in part, in each case on the terms, at the times and at the redemption prices set forth in such Prospectus Supplement. The Prospectus Supplement relating to a series of Preferred Stock that is subject to mandatory redemption will specify the number of shares of such Preferred Stock that shall be redeemed by the Company in each year commencing after a date to be specified, at a redemption price per share to be specified, together with an amount equal to all accumulated and unpaid dividends thereon to the date of redemption. The redemption price may be payable in cash or other property, as specified in the applicable Prospectus Supplement. If the redemption price for Preferred Stock of any series is payable only from the net proceeds of the issuance of capital stock of the Company, the terms of such Preferred Stock may provide that, if no such capital stock shall have been issued or to the extent the net proceeds from any issuance are insufficient to pay in full the aggregate redemption price then due, such Preferred Stock shall automatically and mandatorily be converted into shares of the applicable capital stock of the Company pursuant to conversion provisions specified in the applicable Prospectus Supplement. Notwithstanding the foregoing, unless full cumulative dividends on all shares of such series of Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current 16 dividend period, no shares of such series of Preferred Stock shall be redeemed unless all outstanding shares of Preferred Stock of such series are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Preferred Stock of such series to preserve the Company's REIT status or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Preferred Stock of such series. In addition, unless full cumulative dividends on all outstanding shares of such series of Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, the Company shall not purchase or otherwise acquire directly or indirectly any shares of Preferred Stock of such series (except by conversion into or exchange for capital stock of the Company ranking junior to the Preferred Stock of such series as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Preferred Stock of such series to preserve the Company's REIT status or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Preferred Stock of such series. If fewer than all the outstanding shares of Preferred Stock of any series are to be redeemed, the number of shares to be redeemed will be determined by the Company and such shares may be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or any other equitable method determined by the Company that is consistent with the Certificate of Incorporation. Notice of redemption will be mailed at least 30, but not more than 60, days before the redemption date to each holder of record of a share of Preferred Stock of any series to be redeemed at the address shown on the Company's stock transfer books. Each notice shall state: (a) the redemption date; (b) the number of shares and series of the Preferred Stock to be redeemed; (c) the redemption price; (d) the place or places where certificates for such Preferred Stock are to be surrendered for payment of the redemption price; (e) that dividends on the shares to be redeemed will cease to accumulate on such redemption date; and (f) the date on which the holder's conversion rights, if any, as to such shares shall terminate. If fewer than all the shares of Preferred Stock of any series are to be redeemed, the notice mailed to each such holder thereof shall also specify the number of shares of Preferred Stock to be redeemed from each such holder and, upon redemption, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. If notice of redemption of any shares of Preferred Stock has been given and if the funds necessary for such redemption have been set aside by the Company in trust for the benefit of the holders of any shares of Preferred Stock so called for redemption, then from and after the redemption date dividends will cease to accrue on such shares of Preferred Stock, such shares of Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. In order to facilitate the redemption of shares of Preferred Stock of any series, the Board of Directors may fix a record date for the determination of shares of such series of Preferred Stock to be redeemed. Subject to applicable law and the limitation on purchases when dividends on a series of Preferred Stock are in arrears, the Company may, at any time and from time to time purchase any shares of such series of Preferred Stock in the open market, by tender or by private agreement. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, then, before any distribution or payment shall be made to the holders of the Common Stock or any other class or series of capital stock of the Company ranking junior to any series of the Preferred Stock in the distribution of assets upon any liquidation, dissolution or winding up of the affairs of the Company, the holders of such series of Preferred Stock shall be entitled to receive out of assets of the Company legally available for distribution to shareholders liquidating distributions in the amount of the liquidation preference per share (set forth in the applicable Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid thereon. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Preferred Stock will have no right or claim to any of the remaining assets of the Company. If, upon any such voluntary or involuntary liquidation, dissolution or winding up, the legally available assets of the Company are insufficient to pay the amount of the liquidating 17 distributions on all outstanding shares of any series of Preferred Stock and the corresponding amounts payable on all shares of other classes or series of capital stock of the Company ranking on a parity with such series of Preferred Stock in the distribution of assets upon liquidation, dissolution or winding up, then the holders of such series of Preferred Stock and all other such classes or series of capital stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. If liquidating distributions shall have been made in full to all holders of any series of Preferred Stock, the remaining assets of the Company shall be distributed among the holders of any other classes or series of capital stock ranking junior to such series of Preferred Stock upon liquidation, dissolution or winding up, according to their respective rights and preferences and in each case according to their respective number of shares. For such purposes, the consolidation or merger of the Company with or into any other entity, or the sale, lease, transfer or conveyance of all or substantially all of the Company's property or business, shall not be deemed to constitute a liquidation, dissolution or winding up of the affairs of the Company. VOTING RIGHTS Holders of the Preferred Stock will not have any voting rights, except as set forth below or as otherwise from time to time required by law or as indicated in the applicable Prospectus Supplement. Unless provided otherwise for any series of Preferred Stock, so long as any shares of Preferred Stock of a series remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of such series of Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (a) authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking prior to such series of Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any authorized capital stock of the Company into any such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (b) amend, alter or repeal the provisions of the Certificate of Incorporation or the Certificate of Designations for such series of Preferred Stock, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of such series of Preferred Stock or the holders thereof; provided, however, that any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other series of Preferred Stock, or any increase in the amount of authorized shares of such series or any other series of Preferred Stock, in each case ranking on a parity with or junior to the Preferred Stock of such series with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series of Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. Under Delaware law, notwithstanding anything to the contrary set forth above, holders of each series of Preferred Stock will be entitled to vote as a class upon a proposed amendment to the Certificate of Incorporation, whether or not entitled to vote thereon by the Restated Certificate of Incorporation, if the amendment would increase or decrease the aggregate number of authorized shares of such series, increase or decrease the par value of the shares of such series, or alter or change the powers, preferences or special rights of the shares of such series so as to affect them adversely. CONVERSION RIGHTS The terms and conditions, if any, upon which shares of any series of Preferred Stock are convertible into Common Stock will be set forth in the applicable Prospectus Supplement relating thereto. Such terms will include the number of shares of Common Stock into which the Preferred Stock is convertible, the conversion price or manner of calculation thereof, the conversion period, 18 provisions as to whether conversion will be at the option of the holders of the Preferred Stock or the Company, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such Preferred Stock. RESTRICTIONS ON OWNERSHIP For the Company to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital stock may be owned, actually or constructively, by five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year. To assist the Company in meeting this requirement, the Company may take certain actions to limit the beneficial ownership, actually or constructively, by a single person or entity of the Company's outstanding equity securities. See "Restrictions on Transfers of Capital Stock." TRANSFER AGENT The transfer agent and registrar for any series of Preferred Stock will be set forth in the applicable Prospectus Supplement. RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK For the Company to qualify as a REIT under the Code, among other things, not more than 50% in value of its outstanding capital stock may be owned, actually or constructively, by five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year, and such capital stock must be beneficially owned by 100 or more persons during at least 355 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. To ensure that the Company remains qualified as a REIT, the Certificate of Incorporation, subject to certain exceptions, provides that a transfer of Common Stock is void if it would result in Beneficial Ownership (as defined below) of the Common Stock in excess of the Ownership Limit (as defined below) or would result in the Common Stock being beneficially owned by less than 100 persons. "Transfer" generally means any sale, transfer, gift, assignment, devise or other disposition of Common Stock, whether voluntary or involuntary, whether of record or beneficially and whether by operation of law or otherwise. "Beneficial Ownership" generally means ownership of Common Stock by a person who would be treated as an owner of such shares of Common Stock either actually or constructively through the application of Section 544 of the Internal Revenue Code of 1986, as modified by Section 856(h)(1)(B) of the Internal Revenue Code of 1986. "Ownership Limit" generally means 9.8% of the outstanding Common Stock of the Company and, after certain adjustments pursuant to the Certificate of Incorporation, means such greater percentage of the outstanding Common Stock as so adjusted. The Board of Directors may, in its discretion, adjust the Ownership Limit of any Person provided that after such adjustment, the Ownership Limit of all other persons shall be adjusted such that in no event may any five persons Beneficially Own more than 49% of the Common Stock. Any class or series of Preferred Stock may be subject to these restrictions if so stated in the resolutions providing for the issuance of such Preferred Stock. The Restated Certificate of Incorporation provides certain remedies to the Board of Directors in the event the restrictions on Transfer are not met. All certificates of Common Stock, any other series of the Company's Common Stock and any class or series of Preferred Stock will bear a legend referring to the restrictions described above and as described in the certificate of designation relating to any issuance of Preferred Stock. All persons who have Beneficial Ownership or who are a shareholder of record of a specified percentage (or more) of the outstanding capital stock of the Company must file a notice with the Company containing information regarding their ownership of stock as set forth in the Treasury Regulations. Under current Treasury Regulations, the percentage is set between .5% and 5%, depending on the number of record holders of capital stock. This ownership limitation may have the effect of precluding acquisition of control of the Company by a third party unless the Board of Directors determines that maintenance of REIT status is no longer in the best interests of the Company. 19 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS GENERAL The provisions of the Code pertaining to REITs are highly technical and complex. The following is a summary of the material provisions which govern the federal income tax treatment of the Company. The summary is based on current law, is for general information only, and is not tax advice. The tax treatment of a holder of any of the Securities will vary depending on the terms of the specific Securities acquired by such holder, as well as his or her particular situation. This discussion does not attempt to address any aspects of federal income taxation relating to holders of Securities. Certain federal income tax considerations relevant to a holder of Securities will be provided in the Prospectus Supplement relating thereto. EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS WELL AS HIS OR HER OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE LAWS. QUALIFICATION OF THE COMPANY AS A REIT; OPINION OF COUNSEL The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with its fiscal year ended December 31, 1994. The election to be taxed as a REIT will continue until it is revoked or otherwise terminated. The most important consequence to the Company of being treated as a REIT for federal income tax purposes is that it will not be subject to federal corporate income taxes on net income that is currently distributed to its stockholders. This treatment substantially eliminates the "double taxation" (at the corporate and stockholder levels) that typically results when a corporation earns income and distributes that income to stockholders in the form of a dividend. Accordingly, if the Company at any time fails to qualify as a REIT, the Company will be taxed on its distributed income, thereby reducing the amount of cash available for distribution to its stockholders. In the opinion of Kutak Rock, counsel to the Company, commencing with the taxable year ended December 31, 1994, the Company has been organized in conformity with the requirements for qualification as a REIT and its proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code. This opinion is based on various assumptions and is conditioned upon the representations of the Company as to factual matters. Moreover, continued qualification and taxation as a REIT will depend on the Company's ability to satisfy on a continuing basis certain distribution levels, diversity of stock ownership and various income and asset limitations, including certain limitations concerning the ownership of securities, imposed by the Code as summarized below. While the Company intends to operate so that it will continue to qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in the circumstances of the Company, no assurance can be given by counsel or the Company that the Company will so qualify for any particular year. Kutak Rock will not review compliance with these tests on a continuing basis, and will not undertake to update its opinion subsequent to the date hereof. TAXATION OF THE COMPANY AS A REIT If the Company qualifies for taxation as a REIT, it generally will not be subject to federal income tax on net income that is currently distributed to its stockholders. The Company may, however, be subject to certain federal taxes based on the amount of its distributions or its inability to meet certain REIT qualification requirements. These taxes are the following: TAX ON UNDISTRIBUTED INCOME. First, if the Company does not distribute all of its net taxable income, including any net capital gain, the Company would be taxed at regular corporate rates on the undistributed income or gains. The Company may elect to retain and pay tax on its capital gains. 20 TAX ON PROHIBITED TRANSACTIONS. Second, if the Company has net income from certain prohibited transactions, including sales or dispositions of property held primarily for sale to customers in the ordinary course of business, such net income would be subject to a 100% confiscatory tax. TAX ON FAILURE TO MEET GROSS INCOME REQUIREMENTS. Third, if the Company should fail to meet either the 75% or 95% gross income test as described below but still qualify for REIT status because, among other requirements, it was able to show that such failure was due to reasonable cause, it will be subject to a 100% tax on an amount equal to (a) the gross income attributable to the greater of the amount, if any, by which the Company failed either the 75% or the 95% gross income test, multiplied by (b) a fraction intended to reflect the Company's profitability. TAX ON FAILURE TO MEET DISTRIBUTION REQUIREMENTS. Fourth, if the Company should fail to distribute during each calendar year at least the sum of (a) 85% of its REIT ordinary income for such year, (b) 95% of its REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, the Company would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. ALTERNATIVE MINIMUM TAX. Fifth, the Company may be subject to alternative minimum tax on certain items of tax preference. TAX ON FORECLOSURE PROPERTY. Sixth, if the Company has (a) net income from the sale or other disposition of foreclosure property that is held primarily for sale to customers in the ordinary course of business or (b) other nonqualifying income from foreclosure property, it will be subject to tax at the highest corporate rate on such income. TAX ON BUILT-IN GAIN. Seventh, if during the 10-year period (the "Recognition Period") beginning on the date that the Company's corporate predecessor merged with and into the Company, the Company recognizes gain on the disposition of any asset acquired by the Company from the corporate predecessor, then to the extent of the excess of (a) the fair market value of such asset as of the beginning of such Recognition Period over (b) the Company's adjusted basis in such asset as of the beginning of such Recognition Period, such gain will be subject to tax at the highest regular corporate rate pursuant to IRS regulations that have not yet been promulgated. OVERVIEW OF REIT QUALIFICATION RULES The following summarizes the basic requirements for REIT status: (a) The Company must be a corporation, trust or association that is managed by one or more trustees or directors. (b) The Company's stock or beneficial interests must be transferable and held by more than 100 stockholders, and no more than 50% of the value of the Company's stock may be held, actually or constructively, by five or fewer individuals (defined in the Code to include certain entities). (c) Generally, 75% (by value) of the Company's investments must be in real estate, mortgages secured by real estate, cash or government securities. (d) The Company must meet three gross income tests: (i) First, at least 75% of the gross income must be derived from specific real estate sources; (ii) Second, at least 95% of the gross income must be from the real estate sources includable in the 75% test, or from dividends, interest or gains from the sale or disposition of stock and securities; and (iii) Third, for taxable years beginning on or before August 5, 1997, less than 30% of the gross income may be derived from the sale of real estate assets held for less than four years, from the sale of certain "dealer" properties or from the sale of stock or securities having a short-term holding period. (e) The Company must distribute to its stockholders in each taxable year an amount at least equal to 95% of the Company's "REIT taxable income" (which is generally equivalent to taxable ordinary income and is defined below). 21 The discussion set forth below explains these REIT qualification requirements in greater detail. It also addresses how these highly technical rules may be expected to impact the Company in its operations, noting areas of uncertainty that perhaps could lead to adverse consequences to the Company and its stockholders. SHARE OWNERSHIP. The Company's shares of stock are fully transferable and are subject to transfer restrictions set forth in its Certificate of Incorporation. Furthermore, the Company has more than 100 shareholders and its Certificate of Incorporation, as a general matter, provides, to decrease the possibility that the Company will ever be closely held, that no individual, corporation or partnership is permitted to actually or constructively own more than 9.8% of the number of outstanding shares of Common Stock. The Ownership Limit may be adjusted, however, by the Company's Board of Directors in certain circumstances. Purported transfers which would violate the Ownership Limit will be void. In addition, shares of Common Stock acquired in excess of the Ownership Limit may be redeemed by the Company. The ownership and transfer restrictions pertaining generally to a particular issue of Preferred Stock will be described in the Prospectus Supplement relating to such issue. In the case of a REIT which solicits certain required information from its shareholders, the failure to satisfy the closely held requirement described above will result in disqualification only if the REIT had knowledge or upon the exercise of reasonable diligence would have known of the failure to satisfy such requirement. NATURE OF ASSETS. On the last day of each calendar quarter, at least 75% of the value of the Company's total assets must consist of (a) real estate assets (including interests in real property and mortgages on loans secured by real property), (b) cash and cash items (including receivables), and (c) government securities (collectively, the "real estate assets"). Except for certain partnerships and "qualified REIT subsidiaries," as described below, the securities of any issuer, other than the United States government, may not represent more than 5% of the value of the Company's total assets or 10% of the outstanding voting securities of any one issuer. While, as noted above, a REIT cannot own more than 10% of the outstanding voting securities of any single issuer, an exception to this rule permits REITs to own "qualified REIT subsidiaries." A "qualified REIT subsidiary" is any corporation in which 100% of its stock is owned by the REIT. The Company owns the stock or beneficial interests of several entities which will be treated as "qualified REIT subsidiaries" and will not adversely affect the Company's qualification as a REIT. The Company may acquire interests in partnerships that directly or indirectly own and operate properties similar to those currently owned by the Company. The Company, for purposes of satisfying its REIT asset and income tests, will be treated as if it owns a proportionate share of each of the assets of these partnerships attributable to such interests. For these purposes, the Company's interest in each of the partnerships will be determined in accordance with its capital interest in such partnership. The character of the various assets in the hands of the partnership and the items of gross income of the partnership will remain the same in the Company's hands for these purposes. Accordingly, to the extent the partnership receives qualified real estate rentals and holds real property, a proportionate share of such qualified income and assets, based on the Company's capital interest in the partnerships, will be treated as qualified rental income and real estate assets of the Company for purposes of determining its REIT characterization. It is expected that substantially all the properties of the partnerships will constitute real estate assets and generate qualified rental income for these REIT qualification purposes. This treatment for partnerships is conditioned on the treatment of these entities as partnerships for federal income tax purposes (as opposed to associations taxable as corporations). If any of the partnerships were treated as an association (or, in some cases, a publicly traded partnership), it would be taxable as a corporation. In such situation, if the Company's ownership in any of the partnerships exceeded 10% of the partnership's voting interests or the value of such interest exceeded 5% of the value of the Company's assets, the Company would cease to qualify as a REIT. Furthermore, in such a situation, distributions from any of the partnerships to the Company would be treated as dividends, which are not taken into account in satisfying the 75% gross income test described below and which could therefore make it more difficult for the Company to qualify as a REIT for the taxable year in which such distribution was received. In addition, in such a situation, the interest in any of the partnerships held by the Company would not qualify as "real estate assets," 22 which could make it more difficult for the Company to meet the 75% asset test described above. Finally, in such a situation, the Company would not be able to deduct its share of any losses generated by the partnerships in computing its taxable income. The Company will take all steps reasonably necessary to ensure that any partnership in which it acquires an interest will be treated for tax purposes as a partnership (and not as an association taxable as a corporation). However, there can be no assurance that the IRS may not successfully challenge the tax status of any such partnership. INCOME TESTS. To maintain its qualification as a REIT, the Company must meet three gross income requirements that must be satisfied annually. First, at least 75% of the REIT's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property (including "rents from real property" and, in certain circumstances, interest) or from certain types of temporary investments. Second, at least 95% of the REIT's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from such real property investments, and from dividends, interest and gain from the sale or disposition of stock or securities, from any combination of the foregoing or from certain hedging agreements entered into to reduce interest rate risks. Third, for taxable years commencing on or before August 5, 1997, short-term gain from the sale or other disposition of stock or securities, gain from prohibited transactions and gain from the sale or other disposition of real property held for less than four years (apart from involuntary conversions and sales of foreclosure property) must represent less than 30% of the REIT's gross income (including gross income from prohibited transactions) for each taxable year. Rents received by the Company on the lease of its properties will qualify as "rents from real property" in satisfying the gross income requirements for a REIT described above only if several conditions are met. First, the amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "rents from real property" solely by reason of being based on a fixed percentage or percentages of receipts or sales. Second, the Code provides that rents received from a tenant will not qualify as "rents from real property" in satisfying the gross income test if the Company, or an owner of 10% or more of the Company, actually or constructively owns 10% or more of such tenant (a "Related-Party Tenant"). Third, if rent attributable to personal property leased in connection with the lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property." The Company does not anticipate charging rent for any property that is based in whole or in part on the income or profits of any person (other than rent based on a fixed percentage or percentages of receipts or sales) and the Company does not anticipate receiving any rents from Related-Party Tenants. Furthermore, the Company expects that in substantially all cases the rents attributable to its leased personal property will be less than 15% of the total rent payable under such lease. Finally, for rents to qualify as "rents from real property," the Company must not operate or manage the property or furnish or render services to tenants unless the Company furnishes or renders such services through an independent contractor from whom the Company derives no revenue. The Company need not utilize an independent contractor to the extent that services provided by the Company are usually and customarily rendered in connection with the rental of space for occupancy only and are not otherwise considered "rendered to the occupant." If the amount received by the Company from impermissible tenant services does not exceed 1% of the total amounts received by the Company with respect to such related property, such rents will not as a result be treated as nonqualifying income. Impermissible tenant services include services rendered by the Company to tenants, other than the foregoing customary services and services with regard to managing or operating the property. The Company does not anticipate that it will provide any services with respect to its properties. The Company intends to monitor the percentage of nonqualifying income and reduce the percentage of nonqualifying income if necessary. Because the income tests are based on a percentage of total gross income, increases in qualifying rents will reduce the percentage of nonqualifying income. In addition, the Company intends to acquire additional real estate assets that would generate qualifying income, thereby lowering the percentage of total nonqualifying income. Increases in other nonqualifying income may similarly affect these 23 calculations. The Company does not expect to generate nonqualifying income in quantities which would cause it to fail either at the foregoing 75% or 95% gross income tests. If the Company fails to satisfy one or both of the 75% and 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. These relief provisions generally will be available if the Company's failure to meet such test was due to reasonable cause and not willful neglect and the Company attaches a schedule of its income sources to its tax return that does not fraudulently or intentionally exclude any income sources. As discussed above, even if these relief provisions apply, a tax would be imposed with respect to such excess income. ANNUAL DISTRIBUTION REQUIREMENTS. Each year, the Company must have a deduction for dividends paid (determined under Section 561 of the Code) to its stockholders in an amount equal to (a) 95% of the sum of (i) its "REIT taxable income" as defined below (computed without a deduction for dividends paid and excluding any net capital gain), (ii) any net income from foreclosure property less the tax on such income, minus (b) any "excess noncash income," as defined below. "REIT taxable income" is the taxable income of a REIT subject to certain adjustments, including, without limitation, an exclusion for net income from foreclosure property, a deduction for the excise tax on the greater of the amount by which the REIT fails the 75% or the 95% income test, and an exclusion for an amount equal to any net income derived from prohibited transactions. "Excess noncash income" means the excess of certain amounts that the REIT is required to recognize as income in advance of receiving cash, such as original issue discount on purchase money debt, over 5% of the REIT taxable income before deduction for dividends paid and excluding any net capital gain. Such distributions must be made in the taxable year to which they relate, or in the following taxable year if declared before the REIT timely files its tax return for such year and is paid on or before the first regular dividend payment after such declaration. It is possible that the Company, from time to time, may not have sufficient cash or other liquid assets to meet the 95% distribution requirement due to timing differences between (a) the actual receipt of income and the actual payment of deductible expenses and (b) the inclusion of such income and deduction of such expenses in arriving at taxable income of the Company. Furthermore, principal payments on Company indebtedness, which would have the effect of lowering the amount of distributable cash without an offsetting deduction to Company taxable income, may adversely affect the Company's ability to meet this distribution requirement. In the event that such timing differences or reduction to distributable cash occurs, in order to meet the 95% distribution requirement, the Company may find it necessary to arrange for short-term, or possible long-term, borrowings or to pay dividends in the form of taxable stock dividends. Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to stockholders in a later year that may be included in the Company's deduction for dividends paid for the earlier year. Thus, the Company may be able to avoid being taxed on amounts distributed as deficiency dividends; however, the Company will be required to pay to the IRS interest based on the amount of any deduction taken for deficiency dividends. Congress is currently considering several proposals which, if adopted, would modify the requirements applicable to REITs. Among such requirements is one which would preclude a REIT from owning more than 10% of the value of the stock of any subsidiary, other than a qualified REIT subsidiary. An additional proposal would prohibit an existing corporation from deferring built-in gains upon filing an election to be treated as a REIT. If an entity's election to be treated as a REIT were terminated, such provision, if enacted, would make requalification as a REIT substantially more difficult. It is not possible to predict which, if any, of the current proposals will be enacted or the effect of such proposals on the Company. FAILURE OF THE COMPANY TO QUALIFY AS A REIT If the Company fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, the Company would be subject to tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates, thereby reducing the amount of cash available for distribution to its stockholders. Distributions to stockholders in any year in which the Company fails to 24 qualify would not be deductible by the Company nor would they be required to be made. In such an event, to the extent of current and accumulated earnings and profits, all distributions to stockholders would be taxable as ordinary income and, subject to certain limitations in the Code, corporate distributees may be eligible for the dividends-received deduction. Unless entitled to relief under specific statutory relief provisions, the Company would also be disqualified from taxation as a REIT for the four taxable years following the year during which such qualification was lost. It is not possible to state whether in all circumstances the Company would be entitled to such statutory relief. STATE AND LOCAL TAXES The Company may be subject to state or local taxes in other jurisdictions such as those in which the Company may be deemed to be engaged in activities or own property or other interests. Such tax treatment of the Company in states having taxing jurisdiction over it may differ from the federal income tax treatment described in this summary. Each stockholder should consult his or her tax advisor as to the status of the Company and the Securities under the respective state laws applicable to them. PLAN OF DISTRIBUTION The terms of any offering of Securities under this Registration Statement will be set forth in the applicable Prospectus Supplement. The Company may sell the Securities to one or more underwriters for public offering and sale by them or may sell the Securities to investors directly or through agents or dealers. Any such underwriter or agent involved in the offer and sale of the Securities will be named in the applicable Prospectus Supplement. Underwriters may offer and sell the Securities at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, at prices relating to such prevailing market prices or at negotiated prices. The Company also may, from time to time, authorize dealers acting as the Company's agents to offer and sell the Securities upon the terms and conditions as are set forth in the applicable Prospectus Supplement. In connection with the sale of Securities, underwriters may receive compensation from the Company in the form of underwriting discounts or commissions and may also receive commissions from purchasers of Securities for whom they may act as agent. Underwriters may sell Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agent. Any underwriting compensation paid by the Company to underwriters or agents in connection with the offering of Securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in the applicable Prospectus Supplement. Dealers and agents participating in the distribution of the Securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Securities may be deemed to be underwriting discounts and commissions. Underwriters, dealers and agents may be entitled, under agreements entered into with the Company, to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act. Certain of the underwriters, dealers and agents and their affiliates may be customers of, engage in transactions with and perform services for the Company and its subsidiaries in the ordinary course of business. Unless otherwise specified in the related Prospectus Supplement, each series of Securities will be a new issue with no established trading market, other than the Common Stock. The Common Stock is currently listed on the NYSE. Unless otherwise specified in the related Prospectus Supplement, any shares of Common Stock sold pursuant to a Prospectus Supplement will be listed on the NYSE, subject to official notice of issuance. The Company may elect to list any series of Debt Securities or Preferred Stock on the NYSE or other exchange, but is not obligated to do so. It is possible that one or more underwriters may make a market in a series of Securities, but will not be obligated to do so and may discontinue any market making at any time without notice. Therefore, there can be no assurance as to the liquidity of, or the trading market for, the Securities. 25 If so indicated in the Prospectus Supplement, the Company will authorize agents and underwriters or dealers to solicit offers by certain purchasers to purchase Securities from the Company at the public offering price set forth in the Prospectus Supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts will be subject to only those conditions set forth in the Prospectus Supplement, and the Prospectus Supplement will set forth the commission payable for solicitation of such offers. LEGAL MATTERS Certain legal matters relating to the Securities to be offered hereby, and certain REIT matters relating to the Company, will be passed upon for the Company by the national law firm of Kutak Rock, 717 Seventeenth Street, Suite 2900, Denver, Colorado 80202. EXPERTS The financial statements and schedules for the fiscal year ended December 31, 1997 incorporated by reference in this Prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report, with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 26 ================================================================================ $150,000,000 FRANCHISE FINANCE CORPORATION OF AMERICA 8.75% Senior Notes due 2010 [LOGO] -------- PROSPECTUS SUPPLEMENT September 18, 2000 -------- Salomon Smith Barney Merrill Lynch & Co. Donaldson, Lufkin & Jenrette Banc of America Securities LLC ================================================================================ -----END PRIVACY-ENHANCED MESSAGE-----