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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 1-10150
--------------------------
ISTAR FINANCIAL INC.
(Exact name of registrant as specified in its charter)
MARYLAND 95-6881527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1114 AVENUE OF THE AMERICAS, 27TH FLOOR 10036
NEW YORK, NY 10036 (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 930-9400
------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of Exchange on which registered:
COMMON STOCK, $0.001 PAR VALUE NEW YORK STOCK EXCHANGE
9.375% SERIES B CUMULATIVE REDEEMABLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, $0.001 PAR VALUE
9.200% SERIES C CUMULATIVE REDEEMABLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, $0.001 PAR VALUE
8.000% SERIES D CUMULATIVE REDEEMABLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, $0.001 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (ii) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 15, 2001, the aggregate market value of the common stock, $0.001
par value per share of iStar Financial Inc. ("Common Stock") held by
non-affiliates(1) of the registrant was approximately $2,063.0 million, based
upon the closing price of $24.01 on the New York Stock Exchange composite tape
on such date.
As of March 15, 2001, there were 85,924,550 shares of Common Stock
outstanding.
(1) For purposes of this Annual Report only, includes all outstanding Common
Stock other than Common Stock held directly by the Registrant's directors
and executive officers.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's definitive proxy statement for the registrant's
2001 Annual Meeting, to be filed within 120 days after the close of the
registrant's fiscal year, are incorporated by reference into Part III of
this Annual Report on Form 10-K.
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TABLE OF CONTENTS
PAGE
--------
PART I
Item 1. Business............................................ 3
Item 2. Properties.......................................... 17
Item 3. Legal Proceedings................................... 17
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 17
PART II
Item 5. Market for Registrant's Equity and Related Share
Matters................................................... 18
Item 6. Selected Financial Data............................. 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 23
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk............................................... 30
Item 8. Financial Statements and Supplemental Data.......... 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 84
PART III
Item 10. Directors and Executive Officers of the
Registrant................................................ 84
Item 11. Executive Compensation............................. 84
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 84
Item 13. Certain Relationships and Related Transactions..... 84
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 84
SIGNATURES.................................................. 87
PART I
ITEM 1. BUSINESS
EXPLANATORY NOTE FOR PURPOSES OF THE "SAFE HARBOR PROVISIONS" OF SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which involve certain risks and uncertainties. Forward-looking statements are
included with respect to, among other things, the Company's current business
plan, business strategy and portfolio management. The Company's actual results
or outcomes may differ materially from those anticipated. Important factors that
the Company believes might cause such differences are discussed in the
cautionary statements presented under the caption "Factors That May Affect the
Company's Business Strategy" in Item 1 of this Form 10-K or otherwise accompany
the forward-looking statements contained in this Form 10-K. In assessing all
forward-looking statements, readers are urged to read carefully all cautionary
statements contained in this Form 10-K.
OVERVIEW
iStar Financial Inc. (the "Company") is the leading publicly traded finance
company focused on the commercial real estate industry. The Company provides
structured financing to private and corporate owners of real estate nationwide,
including senior and junior mortgage debt, corporate mezzanine and subordinated
capital, and corporate net lease financing. The Company, which is taxed as a
real estate investment trust ("REIT"), seeks to deliver superior risk-adjusted
returns on equity to shareholders by providing innovative and value-added
financing solutions to its customers.
The Company's primary product lines include:
- STRUCTURED FINANCE. The Company provides senior and subordinated loans
from $20 million to $100 million to borrowers controlling institutional
quality real estate. These loans may be either fixed or floating rate and
are structured to meet the specific financing needs of the borrowers,
including the acquisition, financing, repositioning or construction of
large, high-quality real estate. The Company offers borrowers a wide range
of structured finance options, including first mortgages, second
mortgages, partnership loans, participating debt and interim/bridge
facilities.
- PORTFOLIO FINANCE. The Company provides funding to regional and national
borrowers who own multiple properties in a geographically diverse
portfolio. Loans are cross-collateralized to give borrowers the benefit of
all available collateral and underwritten to recognize inherent portfolio
diversification. Property types include multifamily, suburban office,
all-suite, extended stay and full service hotels and other property types
where individual property values are less than $20 million on average.
Loan terms are structured to meet the specific requirements of the
borrower and typically range in size from $25 million to $150 million.
- CORPORATE FINANCE. The Company provides senior and subordinated capital to
corporations engaged in real estate or real estate-related businesses.
Financing may be either secured or unsecured and typically ranges in size
from $20 million to $150 million.
- LOAN ACQUISITION. The Company acquires whole loans and loan participations
which present attractive risk-reward opportunities. Loans are generally
acquired at a discount to the principal balance outstanding and may be
acquired with financing provided by the seller. Loan acquisitions
typically range from $5 million to $100 million and are collateralized by
all major property types.
- CORPORATE TENANT LEASING. The Company provides capital to corporations, as
well as borrowers who control properties leased to single creditworthy
tenants. The Company's net leased facilities are generally subject to
long-term leases with rated corporate credit tenants, and provide for all
3
expenses at the property to be paid by the tenant on a triple net lease
basis. Corporate tenant transactions typically range in size from
$20 million to $200 million.
- SERVICING. Through its iStar Asset Services division, the Company provides
rated servicing to third-party, institutional loan portfolios, as well as
to the Company's own portfolio.
As more fully discussed in Note 4 to the Company's Consolidated Financial
Statements, the Company began its business in 1993 through private investment
funds formed to capitalize on inefficiencies in the real estate finance market.
In March 1998, these funds contributed their approximately $1.1 billion of
assets to the Company's predecessor, Starwood Financial Trust, in exchange for a
controlling interest in that company. Since that time, the Company has grown by
originating new lending and leasing transactions, as well as through corporate
acquisitions.
Specifically, in September 1998, the Company acquired the loan origination
and servicing business of a major insurance company, and in December 1998, the
Company acquired the mortgage and mezzanine loan portfolio of its largest
private competitor. Additionally, in November 1999, the Company acquired TriNet
Corporate Realty Trust, Inc., the largest publicly traded company specializing
in the net leasing of corporate office and industrial facilities. The
acquisition of TriNet was structured as a stock-for-stock merger of TriNet with
a subsidiary of the Company. We refer to TriNet throughout this document as the
"Leasing Subsidiary."
Concurrent with the acquisition of TriNet, the Company also acquired its
external advisor in exchange for shares of Common Stock and converted its
organizational form to a Maryland corporation. As part of the conversion to a
Maryland corporation, the Company replaced its dual class common share structure
with a single class of Common Stock. The Company's Common Stock began trading on
the New York Stock Exchange on November 4, 1999. Prior to this date, the
Company's common shares were traded on the American Stock Exchange.
INVESTMENT STRATEGY
The Company's investment strategy targets specific sectors of the real
estate credit markets in which it believes it can deliver value-added, flexible
financial solutions to its customers, thereby differentiating its financial
products from those offered by other capital providers.
The Company has implemented its investment strategy by:
- Focusing on the origination of large, highly structured mortgage,
corporate and lease financings where customers require flexible financial
solutions, and avoiding commodity businesses in which there is significant
direct competition from other providers of capital.
- Developing direct relationships with borrowers and corporate tenants as
opposed to sourcing transactions through intermediaries.
- Adding value beyond simply providing capital by offering borrowers and
corporate tenants specific lending expertise, flexibility, certainty and
continuing relationships beyond the closing of a particular financing
transaction.
- Taking advantage of market anomalies in the real estate financing markets
when the Company believes credit is mispriced by other providers of
capital, such as the spread between lease yields and the yields on
corporate tenants' underlying credit obligations.
The Company intends to continue to emphasize a mix of portfolio financing
transactions to create asset diversification and single-asset financings for
properties with strong, long-term competitive market positions. The Company's
credit process will continue to focus on:
- Building diversification by asset type, property type, obligor, loan/lease
maturity and geography.
4
- Financing high-quality commercial real estate assets in major metropolitan
markets.
- Underwriting assets using conservative assumptions regarding collateral
value and future property performance.
- Requiring adequate cash flow coverage on its investments.
- Stress testing potential investments for adverse economic and real estate
market conditions.
As of December 31, 2000, based on current gross carrying values, the
Company's business consists of the following product lines:
PRODUCT LINE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
STRUCTURED FINANCE 24%
Portfolio Finance 9%
Corporate Finance 11%
Corporate Tenant leasing 44%
Loan Acquisition 12%
5
The Company seeks to maintain an investment portfolio which is diversified
by asset type, underlying property type and geography. As of December 31, 2000,
based on current gross carrying values, the Company's total investment portfolio
has the following characteristics:
ASSET TYPE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FIRST MORTGAGES 31%
Second Mortgages 8%
Corporate/Partnership/Other 18%
Corporate Tenant Lease 43%
PROPERTY TYPE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
HOTEL 20%
Mixed Use 4%
Office 49%
Industrial 7%
R&D 3%
Apartment/Residential 7%
Resort/Entertainment 4%
Homebuilder/Land 3%
Retail 3%
GEOGRAPHY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SOUTHEAST 10%
Mid-Atlantic 9%
Northeast 17%
North Central 2%
Central 7%
South 16%
Southwest 3%
West 32%
Northwest 5%
6
FINANCING STRATEGY
The Company has access to a wide range of debt and equity capital resources
to finance its investment and growth strategies. At December 31, 2000, the
Company had approximately $1.8 billion of tangible book equity capital and a
total market capitalization of approximately $4.2 billion. The Company believes
that its size, diversification, investor sponsorship and track record are
competitive advantages in obtaining attractive financing for its businesses.
The Company seeks to maximize risk-adjusted returns on equity and financial
flexibility by opportunistically accessing a variety of public and private debt
and equity capital sources, including:
- iStar Asset Receivables ("STARs"), the Company's proprietary match-funded,
securitized debt program.
- A combined $1.7 billion available under its unsecured and secured
revolving credit facilities at year end (increased to $2.4 billion
subsequent to year end).
- Long-term, unsecured corporate debt.
The Company's business model is premised on significantly lower leverage
than many other commercial finance companies. In this regard, the Company seeks
to:
- Target a maximum consolidated debt/book equity ratio of 1.5x to 2.0x.
- Maintain a large tangible equity base and conservative credit statistics.
- Match fund assets and liabilities.
A more detailed discussion of the Company's current capital resources is
provided in Item 7--"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
BUSINESS
REAL ESTATE LENDING:
The Company provides structured financing to private and corporate owners of
real estate nationwide, including senior and junior mortgage debt, as well as
corporate mezzanine and subordinated capital.
Set forth below is information regarding the Company's primary real estate
lending product lines as of December 31, 2000:
CURRENT
CARRYING PERCENTAGE
VALUE OF TOTAL
-------------- ----------
(IN THOUSANDS)
Structured finance................................... $ 967,613 43.2%
Portfolio finance.................................... 371,168 16.6%
Corporate finance.................................... 420,837 18.8%
Loan acquisition..................................... 479,565 21.4%
---------- -----
Gross carrying value............................... 2,239,183 100.0%
=====
Provision for possible credit losses............... (14,000)
----------
Total carrying value, net.......................... $2,225,183
==========
As more fully discussed in Note 3 to the Company's Consolidated Financial
Statements, the Company continually monitors borrower performance and completes
a detailed, loan-by-loan formal credit review on
7
a quarterly basis. After having originated or acquired over $4 billion of
investment transactions, neither the Company nor its private investment fund
predecessors have experienced any actual losses on their investments. Further,
based on current reviews of its portfolio, management is not aware of any
factors relating to specific loans which indicate that such losses may be
experienced in the forseeable future.
While no specific losses are currently indicated, the Company has considered
it prudent to establish a policy of providing reserves for potential losses
inherent in the current portfolio which may occur in the future. Accordingly,
since its first full quarter as a public company (the quarter ended June 30,
1998), management has reflected quarterly provisions for possible credit losses
in its operating results.
SUMMARY OF INTEREST CHARACTERISTICS
As more fully discussed in Item 7--"Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
as well as in Item 7a.--"Quantitative and Qualitative Disclosures about Market
Risk," the Company utilizes certain interest rate risk management techniques,
including both asset/liability matching and certain other hedging techniques, in
order to mitigate the Company's exposure to interest rate risks.
As of December 31, 2000, the Company's Lending Business portfolio has the
following interest rate characteristics:
CURRENT
CARRYING PERCENTAGE
VALUE OF TOTAL
-------------- ----------
(IN THOUSANDS)
Fixed rate loans..................................... $1,242,552 55.5%
Variable rate loans.................................. 996,631 44.5%
---------- -----
Gross carrying value................................. $2,239,183 100.0%
========== =====
SUMMARY OF PREPAYMENT TERMS
The Company is exposed to risks of prepayment on its loan assets, and
generally seeks to protect itself from such risk by structuring its loans with
prepayment restrictions and/or penalties.
As of December 31, 2000, the Company's Lending Business portfolio has the
following call protection characteristics:
CURRENT
CARRYING PERCENTAGE
VALUE OF TOTAL
-------------- ----------
(IN THOUSANDS)
Substantial lock-out for original term............... $ 611,838 27.3%
Fixed prepayment penalties........................... 553,188 24.7%
Yield maintenance.................................... 299,666 13.4%
No significant prepayment protection................. 774,491 34.6%
---------- -----
Gross carrying value................................. $2,239,183 100.0%
========== =====
8
SUMMARY OF LENDING BUSINESS MATURITIES
As of December 31, 2000, the Company's Lending Business portfolio has the
following maturity characteristics:
NUMBER OF CURRENT
TRANSACTIONS CARRYING PERCENTAGE
YEAR OF MATURITY MATURING VALUE OF TOTAL
- ---------------- ------------ ------------- ----------
(IN THOUSANDS)
2001..................................... 7 $ 302,552 13.5%
2002..................................... 13 351,158 15.7%
2003..................................... 7 425,863 19.0%
2004..................................... 10 453,850 20.3%
2005..................................... 7 278,450 12.4%
2006..................................... 1 35,583 1.6%
2007..................................... 5 179,230 8.0%
2008..................................... 5 60,605 2.7%
2009..................................... -- -- 0.0%
2010..................................... -- -- 0.0%
2011 and thereafter...................... 3 151,892 6.8%
------------- -----
Gross carrying value................... $ 2,239,183 100.0%
============= =====
Weighted average maturity.............. 3.7 years
=============
STRUCTURED FINANCE
The Company provides custom-tailored senior and subordinated loans from
$20 million to $100 million to borrowers controlling institutional quality real
estate. These loans may be either fixed or floating rate and are structured to
meet the specific financing needs of the borrowers, including financing related
to the acquisition, refinancing, repositioning or construction of large,
high-quality real estate. The Company offers borrowers a wide range of
structured finance options, including first mortgages, second mortgages,
partnership loans, participating debt and interim/bridge facilities.
As of December 31, 2000, the Company's structured finance investments have
the following characteristics:
CURRENT WEIGHTED
# OF INITIAL CURRENT PRINCIPAL AVERAGE
LOANS CARRYING CARRYING BALANCE STATED
INVESTMENT CLASS COLLATERAL TYPES IN CLASS VALUE VALUE (1) OUTSTANDING PAY RATE
- ---------------- ------------------ -------- -------- ---------- ----------- ----------------
First Mortgages:
Fixed.................. Residential/ 6 $222,320 $ 223,749 $ 225,618 9.54%
Resort/Mixed
Use/Office
Floating............... Office/Hotel 4 270,251 285,399 284,151 LIBOR+2.91%
Second Mortgages:
Fixed.................. Office/Mixed 8 184,491 195,207 211,280 10.89%
Use/Hotel
Floating............... -- -- -- -- -- --
Corporate/Partnership/Other Loans:
Fixed.................. Office/Hotel/ 10 184,568 133,519 132,081 10.12%
Retail
Floating............... Office 2 130,000 129,739 130,000 LIBOR+5.19%
-- ---------- ----------
Total.................... 30 $ 967,613 $ 983,130
== ========== ==========
EXPLANATORY NOTES:
WEIGHTED WEIGHTED
WEIGHTED AVERAGE FIRST AVERAGE LAST
WEIGHTED AVERAGE DOLLAR DOLLAR
AVERAGE ESTIMATED CURRENT CURRENT
STATED ACCOUNTING LOAN-TO- LOAN-TO-
INVESTMENT CLASS ACCRUAL RATE YIELD (2) VALUE (3) VALUE (4)
- ---------------- ---------------- ---------- ------------- ------------
First Mortgages:
Fixed.................. 9.74% 10.81% 0% 61%
Floating............... LIBOR+2.91% 10.42% 0% 73%
Second Mortgages:
Fixed.................. 12.48% 12.35% 38% 71%
Floating............... -- -- -- --
Corporate/Partnership/Oth
Fixed.................. 12.25% 14.71% 62% 75%
Floating............... LIBOR+5.19% 10.86% 63% 80%
Total....................
EXPLANATORY NOTES:
- ----------------------------------------
(1) Where Current Carrying Value is less than Initial Carrying Value, difference
represents contractual amortization, partial prepayment of loan principal,
or amortization of acquired premiums, discounts or deferred loan fees.
(2) Estimated accounting yield represents the stated rate on the loan as
adjusted for the amortization of loan fee revenue and any direct loan costs
or acquisition premiums or discounts using the effective interest method
over the term of the loan. Such estimate is not adjusted for the effects of
expected early repayments of loans subject to prepayment penalties or the
effects of possible additional contingent interest on loan participation
features included under certain of the Company's loan investments.
(3) Weighted average ratio of first dollar current loan carrying value to
underlying collateral value using third-party appraisal (where applicable)
or the Company's internal valuation (where no appraisal available).
(4) Weighted average ratio of last dollar current loan carrying value to
underlying collateral value using third-party appraisal (where applicable)
or the Company's internal valuation (where no appraisal available).
9
PORTFOLIO FINANCE
The Company provides funding to regional and national borrowers who own
multiple properties in a geographically diverse portfolio. Loans are
cross-collateralized to give borrowers the benefit of all available collateral
and underwritten to recognize inherent diversification. Property types include
multifamily, suburban office, all-suite, extended stay and limited service
hotels and other property types where individual property values are less than
$20 million on average. Loan terms are structured to meet the specific
requirements of the borrower and typically range in size from $25 million to
$150 million.
As of December 31, 2000, the Company's portfolio finance investments have
the following characteristics:
CURRENT WEIGHTED
# OF INITIAL CURRENT PRINCIPAL AVERAGE
LOANS CARRYING CARRYING BALANCE STATED
INVESTMENT CLASS COLLATERAL TYPES IN CLASS VALUE VALUE (1) OUTSTANDING PAY RATE
- ---------------- ------------------ -------- -------- ----------- ----------- ----------------
First Mortgages:
Fixed................. Residential 5 $84,665 $ 60,961 $ 61,091 18.40%
Floating.............. Residential/Office 2 88,861 87,460 87,500 LIBOR + 1.79%
Second Mortgages:
Fixed................. Office/Hotel 3 90,725 90,519 88,808 11.27%
Floating.............. Hotel 1 29,689 39,832 40,000 LIBOR + 5.80%
Corporate/Partnership/Other Loans:
Fixed................. Office 1 23,100 14,745 14,745 10.00%
Floating.............. Hotel 1 69,856 77,651 78,000 LIBOR + 5.37%
-- ----------- -----------
Total................... 13 $ 371,168 $ 370,144
== =========== ===========
EXPLANATORY NOTES:
WEIGHTED WEIGHTED
WEIGHTED AVERAGE FIRST AVERAGE LAST
WEIGHTED AVERAGE DOLLAR DOLLAR
AVERAGE ESTIMATED CURRENT CURRENT
STATED ACCOUNTING LOAN-TO- LOAN-TO-
INVESTMENT CLASS ACCRUAL RATE YIELD (2) VALUE (3) VALUE (4)
- ---------------- ---------------- ---------- ------------- ------------
First Mortgages:
Fixed................. 20.07% 21.41% 0% 35%
Floating.............. LIBOR + 1.79% 8.29% 0% 68%
Second Mortgages:
Fixed................. 12.70% 13.38% 36% 72%
Floating.............. LIBOR + 5.80% 12.42% 64% 88%
Corporate/Partnership/Ot
Fixed................. 15.00% 15.00% 63% 71%
Floating.............. LIBOR + 5.37% 11.58% 56% 88%
Total...................
EXPLANATORY NOTES:
- ----------------------------------------
(1) Where Current Carrying Value is less than Initial Carrying Value, difference
represents contractual amortization, partial prepayment of loan principal,
or amortization of acquired premiums, discounts or deferred loan fees.
(2) Estimated accounting yield represents the stated rate on the loan as
adjusted for the amortization of loan fee revenue and any direct loan costs
or acquisition premiums or discounts using the effective interest method
over the term of the loan. Such estimate is not adjusted for the effects of
expected early repayments of loans subject to prepayment penalties or the
effects of possible additional contingent interest on loan participation
features included under certain of the Company's loan investments.
(3) Weighted average ratio of first dollar current loan carrying value to
underlying collateral value using third-party appraisal (where applicable)
or the Company's internal collateral valuation (where no appraisal
available).
(4) Weighted average ratio of last dollar current loan carrying value in
underlying collateral value using third-party appraisal (where applicable)
or the Company's internal valuation (where no appraisal available).
CORPORATE FINANCE
The Company provides senior and subordinated capital to corporations engaged
in real estate or real estate-related businesses. Financing may be either
secured or unsecured and typically ranges in size from $20 million to
$150 million. Corporate financing may be either cash flow-oriented or
asset-based.
10
As of December 31, 2000, the Company's corporate finance investments have
the following characteristics:
CURRENT WEIGHTED
# OF INITIAL CURRENT PRINCIPAL AVERAGE
COLLATERAL LOANS CARRYING CARRYING BALANCE STATED
INVESTMENT CLASS TYPES IN CLASS VALUE VALUE (1) OUTSTANDING PAY RATE
- ---------------- ---------------- -------- -------- ---------- ----------- ----------------
First Mortgages:
Fixed..................... Hotel 1 $19,397 $ 19,422 $ 23,148 7.32%
Floating.................. Homebuilder 1 72,495 72,495 72,495 LIBOR + 6.00%
Corporate/Partnership/Other Loans:
Fixed..................... Resort 4 223,441 226,674 253,150 10.50%
Entertainment/
Homebulider/
Residential
Residential/
Hotel 3 112,873 102,246 104,529 LIBOR + 3.92%
Floating..................
--- ---------- ----------
Total....................... 9 $ 420,837 $ 453,322
=== ========== ==========
EXPLANATORY NOTES:
WEIGHTED WEIGHTED
WEIGHTED AVERAGE FIRST AVERAGE LAST
WEIGHTED AVERAGE DOLLAR DOLLAR
AVERAGE ESTIMATED CURRENT CURRENT
STATED ACCOUNTING LOAN-TO- LOAN-TO-
INVESTMENT CLASS ACCRUAL RATE YIELD (2) VALUE (3) VALUE (4)
- ---------------- ---------------- ---------- ------------- ------------
First Mortgages:
Fixed..................... 7.32% 9.36% 0% 93%(5)
Floating.................. LIBOR + 6.00% 11.65% 2% 31%
Corporate/Partnership/Other
Fixed..................... 10.67% 13.91% 65% 73%
LIBOR + 3.92% 10.59% 60% 70%
Floating..................
Total.......................
EXPLANATORY NOTES:
- ----------------------------------------
(1) Where Current Carrying Value is less than Initial Carrying Value, difference
represents contractual amortization, partial prepayment of loan principal,
or amortization of acquired premiums, discounts or deferred loan fees.
(2) Estimated accounting yield represents the stated rate on the loan as
adjusted for the amortization of loan fee revenue and any direct loan costs
or acquisition premiums or discounts using the effective interest method
over the term of the loan. Such estimate is not adjusted for the effects of
expected early repayments of loans subject to prepayment penalties or the
effects of possible additional contingent interest on loan participation
features included under certain of the Company's loan investments.
(3) Weighted average ratio of first dollar current loan carrying value to
underlying collateral value using third-party appraisal (where applicable)
or the Company's internal collateral valuation (where no appraisal
available).
(4) Weighted average ratio of last dollar current loan carrying value to
underlying collateral value using third-party appraisal (where applicable)
or the Company's internal valuation (where no appraisal available).
(5) Collateral secured by long-term lease to investment grade tenant.
LOAN ACQUISITION
The Company acquires whole loans and loan participations which may be
performing or sub-performing and which the Company believes represent attractive
risk-reward opportunities. Loans are generally acquired at a discount to the
principal balance outstanding and may be acquired with financing provided by the
seller. The Company restructures many of these loans to performing status on
terms favorable to the Company. In other cases, the Company negotiates a payoff
at a price above the Company's basis in the loan. Loan acquisitions typically
range from $5 million to $100 million and are collateralized by all major
property types.
For accounting purposes, these loans are initially reflected at the
Company's acquisition cost which represents the outstanding balance net of the
acquisition discount or premium. The Company amortizes such discounts or
premiums as an adjustment to increase or decrease the yield, respectively,
realized on these loans using the effective interest method. As such,
differences between carrying value and principal balances outstanding do not
represent embedded losses or gains as the Company generally plans to hold such
loans to maturity or negotiate a favorable restructuring of a discount loan.
11
As of December 31, 2000, the Company's loan acquisition investments have the
following characteristics:
CURRENT WEIGHTED
# OF INITIAL CURRENT PRINCIPAL AVERAGE
LOANS CARRYING CARRYING BALANCE STATED
INVESTMENT CLASS COLLATERAL TYPES IN CLASS VALUE VALUE (1) OUTSTANDING PAY RATE
- ---------------- ------------------- -------- ---------- ----------- ----------- ----------------
First Mortgages:
Fixed................... Office/Retail/Hotel 3 $ 256,655 $ 259,697 $ 274,775 9.00%
Floating................ Office/Hotel 2 200,811 201,809 203,529 LIBOR + 1.75%
Corporate/Partnership/Other Loans:
Fixed................... Mixed Use 1 34,277 18,059 25,905 6.75%
Floating................ -- -- -- -- -- --
------ ----------- -----------
Total.......................................... 6 $ 479,565 $ 504,209
====== =========== ===========
EXPLANATORY NOTES:
WEIGHTED WEIGHTED
WEIGHTED AVERAGE FIRST AVERAGE LAST
WEIGHTED AVERAGE DOLLAR DOLLAR
AVERAGE ESTIMATED CURRENT CURRENT
STATED ACCOUNTING LOAN-TO- LOAN-TO-
INVESTMENT CLASS ACCRUAL RATE YIELD (2) VALUE (3) VALUE (4)
- ---------------- ---------------- ---------- ------------- ------------
First Mortgages:
Fixed................... 9.57% 10.56% 0% 83%
Floating................ LIBOR + 1.75% 8.21% 30% 85%
Corporate/Partnership/Othe
Fixed................... 6.75% 11.00% 64% 69%
Floating................ -- -- -- --
Total.....................
EXPLANATORY NOTES:
- ----------------------------------------
(1) Where Current Carrying Value is less than Initial Carrying Value, difference
represents contractual amortization, partial prepayment of loan principal,
or amortization of acquired premiums, discounts or deferred loan fees.
(2) Estimated accounting yield represents the stated rate on the loan as
adjusted for the amortization of loan fee revenue and any direct loan costs
or acquisition premiums or discounts using the effective interest method
over the term of the loan. Such estimate is not adjusted for the effects of
expected early repayments of loans subject to prepayment penalties or the
effects of possible additional contingent interest on loan participation
features included under certain of the Company's loan investments.
(3) Weighted average ratio of first dollar current loan carrying value to
underlying collateral value using third-party appraisal (where applicable)
or the Company's internal valuation (where no appraisal available).
(4) Weighted average ratio of last dollar current loan carrying value to
underlying collateral value using third-party appraisal (where applicable)
or the Company's internal valuation (where no appraisal available).
LOAN SERVICING
In September 1998, a subsidiary of the Company acquired the loan origination
and servicing business of Phoenix Realty Services, Inc., a subsidiary of Phoenix
Home Life Insurance Company. The acquisition of this servicing business, which
was renamed iStar Asset Services, expanded the Company's ability to service its
own loans and provided the Company with additional relationships with potential
borrowers.
Through its iStar Asset Services division, the Company provides loan
servicing to third-party institutional owners of loan portfolios, as well as to
the Company's own asset base. iStar Asset Services is currently rated "above
average" by Standard & Poor's and "CMS3" (approved) by Fitch Inc. as a master
servicer. The Company's servicing business focuses on maximizing risk-adjusted
investment returns through active, ongoing asset management with particular
focus on risk management, asset financing strategies and opportunistic
responsiveness to changing borrower/tenant needs.
12
CORPORATE TENANT LEASING:
The Company, directly and through its Leasing Subsidiary, provides capital
to corporate owners of office and industrial facilities. Net leased facilities
are generally subject to long-term leases to rated corporate credit tenants, and
typically provide for all expenses at the property to be paid by the tenant on a
triple net lease basis. Corporate tenant lease ("CTL") transactions typically
range in size from $20 million to $200 million.
The Company pursues the origination of corporate tenant lease transactions
by structuring purchase/ leasebacks and by acquiring facilities subject to
existing long-term net leases. In a typical purchase/ leaseback transaction, the
Company purchases a corporation's facility and leases it back to that
corporation subject to a long-term net lease. This structure allows the
corporate customer to reinvest the proceeds from the sale of its facilities into
its core business, while the Company capitalizes on its structured financing
expertise.
The Company generally intends to hold its net leased assets for long-term
investment. However, subject to certain tax restrictions, the Company may
dispose of an asset if it deems the disposition to be in the best interest of
stockholders and may either reinvest the disposition proceeds, use the proceeds
to reduce debt, or distribute the proceeds to stockholders.
The Company's CTL investments primarily represent a diversified portfolio of
strategic office and industrial facilities subject to net lease agreements with
creditworthy corporate tenants. The Company generally seeks high-quality,
general-purpose real estate with residual values that represent a discount to
current market values and replacement costs. Under a typical net lease
agreement, the corporate customer agrees to pay a base monthly operating lease
payment and all facility operating expenses (including taxes, maintenance and
insurance).
The Company generally seeks corporate tenants with the following
characteristics:
- Established companies with stable core businesses or market leaders in
growing industries.
- Investment-grade credit strength or appropriate credit enhancements if
corporate credit strength is not sufficient.
- Commitment to the facility as an important asset to their on-going
businesses.
As of December 31, 2000, the Company had more than 160 corporate customers
operating in more than ten major industry sectors, including aerospace, energy,
finance, healthcare, hospitality, technology and telecommunications. These
customers represent well-recognized national and international companies, such
as Avaya, Federal Express, Hilton, IBM, Microsoft, Nike, Nokia and Verizon.
As of December 31, 2000, the Company's CTL portfolio has the following
tenant credit characteristics:
ANNUALIZED OPERATING PERCENTAGE OF
LEASE PAYMENTS(3) TOTAL
-------------------- -------------
(IN THOUSANDS)
Investment grade(1)........................... $ 99,725 47.9%
Implied investment grade (2).................. 19,719 9.5%
Non-investment grade.......................... 34,702 16.7%
Unrated....................................... 53,818 25.9%
-------- ------
$207,964 100.0%
======== ======
EXPLANATORY NOTES:
- ------------------------------
(1) A tenant's credit rating is considered "Investment Grade" if it has a
published senior unsecured credit rating of Baa3/BBB- or above by one or
more of the three national rating agencies.
(2) A tenant's credit rating is considered "Implied Investment Grade" if it has
no published ratings, but has credit characteristics that the Company
believes warrant an investment grade senior unsecured credit rating.
Examples at December 31, 2000 include Cisco Systems, Inc., and Electronic
Data Systems.
(3) Reflects actual annualized monthly base lease rates in effect at
December 31, 2000 (without giving affect to straight-line adjustments under
GAAP).
13
PORTFOLIO AND ASSET MANAGEMENT STRATEGY. The Company believes that diligent
management of the CTL portfolio is an essential component of its long-term
strategy. There are several ways to optimize the performance and maximize the
value of net leases. The Company monitors its portfolio for changes that could
affect the performance of the markets, credits and industries in which it has
invested. As part of this monitoring, the Company's asset management group
reviews market, customer and industry data and frequently inspects its
facilities. In addition, the Company attempts to develop strong relationships
with its large corporate customers, which provide a source of information
concerning the customers' facilities needs. These relationships allow the
Company to be proactive in obtaining early lease renewals and in conducting
early marketing of assets where the customer has decided not to renew. The
Company will seek to find a new tenant prior to the expiration of the existing
lease.
As of December 31, 2000, the Company owned 142 office and industrial
facilities principally subject to net leases to more than 160 customers,
comprising 18.5 million square feet in 26 states. The Company also has a
portfolio of 17 hotels under a long-term master lease with a single customer.
Information regarding the Company's CTL assets as of December 31, 2000 is set
forth below:
% ANNUALIZED
OPERATING
# OF % LEASE
INDUSTRY FACILITES SQUARE FEET PAYMENTS (1) SIGNIFICANT CUSTOMERS
- -------- --------- ----------- ------------ ----------------------------------
Technology........................ 51 34.4% 37.0% IBM, Cisco, Mitsubishi
Electronics, Hewlett-Packard,
Unisys, Lexmark, Microsoft
Telecommunications................ 16 9.1% 18.6% Nokia, Verizon, Avaya, Alcatel
Network, Nortel Networks, AT&T
Wireless, ICG Holdings, Equinix
Other Industry Sectors............ 13 7.8% 4.7% The Mitre Corp., Andersen
Consulting, Allright Parking
Manufacturing..................... 3 7.8% 3.2% Nike, Adidas America, Inc., Mast
Industries
Food and Related Services......... 20 7.6% 6.2% Caterair, Ralphs Grocery Co.,
Unified Western Grocers, Welch
Foods, Inc.
Energy and Utilities.............. 8 4.7% 6.3% Entergy Services, Exxon-Mobil, Bay
State Gas
Automotive, Aerospace and 9 6.4% 4.3% Volkswagen of America, Unison
Defense......................... Industries, Honeywell, TRW Space
Communications
Hospitality....................... 17 6.1% 7.2% Hilton Hotels Corp.
Financial Services................ 9 5.7% 5.9% Wellpoint Health Networks, Arbella
Capital Corp., Blue Cross & Blue
Shield, Wells Fargo
Consumer Goods.................... 3 7.1% 2.3% Sears Logistics, Rex Stores Corp.,
Dunham's Athleisure, Lever
Brothers
Healthcare........................ 5 1.4% 1.4% Fresenius USA, Haemonetics Corp.,
Avitar
Transportation Services........... 4 1.3% 2.2% Federal Express, State of
California Dept. of Transportation
Government Services............... 1 0.6% 0.7% Massachusetts Lottery
--- ----- -----
Total............................. 159 100.0% 100.0%
=== ===== =====
EXPLANATORY NOTE:
- ----------------------------------
(1) Reflects actual annualized monthly base lease rates in effect at
December 31, 2000 (without giving affect to straight-line adjustments under
GAAP).
14
As of December 31, 2000, lease expirations on the Company's CTL assets,
including facilities owned by the Company's joint ventures, are as follows:
PERCENT OF TOTAL
ANNUAL
OPERATING
NUMBER OF ANNUALIZED LEASE PAYMENTS
LEASES OPERATING LEASE REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING PAYMENTS(1) EXPIRING LEASES
- ------------------------ --------- --------------- ----------------
(IN THOUSANDS)
2001.................................. 22 $ 11,018 5.3%
2002.................................. 27 12,139 5.9%
2003.................................. 19 19,622 9.4%
2004.................................. 28 25,797 12.4%
2005.................................. 15 13,551 6.5%
2006.................................. 22 26,350 12.7%
2007.................................. 14 17,740 8.5%
2008.................................. 8 8,565 4.1%
2009.................................. 10 12,740 6.1%
2010.................................. 6 9,259 4.5%
2011 and thereafter................... 25 51,183 24.6%
------ -------- ------
Total............................... 196 $207,964 100.0%
====== ======== ======
EXPLANATORY NOTE:
- ------------------------------
(1) Reflects actual annualized monthly base lease rates in effect at
December 31, 2000 (without giving affect to straight-line adjustments under
GAAP).
POLICIES WITH RESPECT TO OTHER ACTIVITIES
At all times, the Company intends to make investments in a manner consistent
with the requirements of the Code for the Company to qualify as a REIT.
INVESTMENT RESTRICTIONS OR LIMITATIONS
The Company does not have any prescribed allocation among investments or
product lines. Instead, the Company focuses on corporate and real estate credit
underwriting to develop an in-depth analysis of the risk/reward ratios in
determining the pricing and advisability of each particular transaction.
The Company believes that it is not, and intends to conduct its operations
so as not to become, regulated as an investment company under the Investment
Company Act. The Investment Company Act generally exempts entities that are
"primarily engaged in purchasing or otherwise acquiring mortgages and other
liens on and interests in real estate" (collectively, "Qualifying Interests").
The Company intends to rely on current interpretations by the staff of the
Securities and Exchange Commission in an effort to qualify for this exemption.
Based on these interpretations, the Company, among other things, must maintain
at least 55% of its assets in Qualifying Interests and at least 25% of its
assets in real estate-related assets (subject to reduction to the extent the
Company invests more than 55% of its assets in Qualifying Interests). Generally,
the Company's senior mortgages and certain of its subordinated mortgages
constitute Qualifying Interests.
The Company is restricted from making certain types of investments which may
limit its flexibility in implementing its investment policy. Specifically,
without the amendment, termination or waiver of provisions of certain
non-competition agreements between Starwood Capital Group, L.L.C. and Starwood
Hotels & Resorts Worldwide, Inc., the Company is prohibited from: (1) making
investments in loans collateralized by hotel assets where it is anticipated that
the underlying equity will be acquired by the debtholder within one year from
the acquisition of such debt; (2) acquiring equity interests in hotels (other
than acquisitions of warrants, equity participations or similar rights
incidental to a debt investment by the Company or that are acquired as a result
of the exercise of remedies in respect to a loan in which the Company has an
interest); or (3) selling, contributing to or acquiring any interests in
Starwood Hotels &
15
Resorts Worldwide, Inc., including debt positions or equity interests obtained
by the Company under, pursuant to or by reason of the Company's ownership of
debt positions.
Subject to the limitations on ownership of certain types of assets and the
gross income tests imposed by the Code, the Company also may invest in the
securities of other REITs, other entities engaged in real estate activities or
other issuers, including for the purpose of exercising control over such
entities.
COMPETITION
The Company is engaged in a competitive business. In originating and
acquiring assets, the Company competes with public and private companies,
including other finance companies, mortgage banks, pension funds, savings and
loan associations, insurance companies, institutional investors, investment
banking firms and other lenders and industry participants, as well as individual
investors. Existing industry participants and potential new entrants compete
with the Company for the available supply of investments suitable for
origination or acquisition, as well as for debt and equity capital. Certain of
the Company's competitors are larger than the Company, have longer operating
histories, may have access to greater capital and other resources, may have
management personnel with more experience than the officers of the Company, and
may have other advantages over the Company in conducting certain businesses and
providing certain services.
REGULATION
The operations of the Company are subject, in certain instances, to
supervision and regulation by state and federal governmental authorities and may
be subject to various laws and judicial and administrative decisions imposing
various requirements and restrictions, which, among other things: (1) regulate
credit granting activities; (2) establish maximum interest rates, finance
charges and other charges; (3) require disclosures to customers; (4) govern
secured transactions; and (5) set collection, foreclosure, repossession and
claims-handling procedures and other trade practices. Although most states do
not regulate commercial finance, certain states impose limitations on interest
rates and other charges and on certain collection practices and creditor
remedies and require licensing of lenders and financiers and adequate disclosure
of certain contract terms. The Company is also required to comply with certain
provisions of the Equal Credit Opportunity Act that are applicable to commercial
loans.
In the judgment of management, existing statutes and regulations have not
had a material adverse effect on the business conducted by the Company. However,
it is not possible to forecast the nature of future legislation, regulations,
judicial decisions, orders or interpretations, nor their impact upon the future
business, financial condition or results of operations or prospects of the
Company.
The Company has elected and expects to continue to make an election to be
taxed as a REIT under Section 856 through 860 of the Code. As a REIT, the
Company generally will not be subject to federal income tax if it distributes at
least 95% of its taxable income for each year to its shareholders. The
distribution rate was modified to 90% by the REIT Modernization Act beginning in
fiscal 2001. REITs are also subject to a number of organizational and
operational requirements in order to elect and maintain REIT status. These
requirements include specific share ownership tests and assets and gross income
composition tests. If the Company fails to qualify as a REIT in any taxable
year, the Company will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
tax rates. Even if the Company qualifies for taxation as a REIT, the Company may
be subject to state and local income taxes and to federal income tax and excise
tax on its undistributed income.
Although the Company did not qualify as a REIT for its fiscal years 1993
through 1997, it received a written agreement from the IRS confirming that the
Company was eligible to make an election under Section 856(c)(1) of the Code to
be taxed as a REIT for its taxable years beginning January 1, 1998, and the
Company has made such elections.
16
FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS STRATEGY
The implementation of the Company's business strategy and investment
policies are subject to certain risks, including the effect of economic and
other conditions on underlying property values, the less liquid nature of some
of its investments, the risks of borrower and corporate tenant defaults, risks
resulting from delays in enforcing remedies or in gaining control over real
estate collateral following a default, risks that the properties collateralizing
debt instruments held by the Company or net lease assets owned by the Company
will not generate revenues sufficient to meet operating expenses and to pay
scheduled debt service, the risk that prepayment restrictions may be
insufficient to deter prepayments, the existence of junior mortgages that may
affect the Company's rights, liability associated with uninsurable losses and
unknown environmental liabilities.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner of real estate (including, in certain
circumstances, a secured lender that succeeds to ownership or control of a
property) may become liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. Those laws
typically impose cleanup responsibility and liability without regard to whether
the owner or control party knew of or was responsible for the release or
presence of such hazardous or toxic substances. The costs of investigation,
remediation or removal of those substances may be substantial. The owner or
control party of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site. Certain environmental laws also impose liability in connection with
the handling of or exposure to asbestos-containing materials, pursuant to which
third parties may seek recovery from owners of real properties for personal
injuries associated with asbestos-containing materials. Absent succeeding to
ownership or control of real property, a secured lender is not likely to be
subject to any of these forms of environmental liability. The Company is not
currently aware of any environmental issues which could materially affect the
Company.
EMPLOYEES
As of March 15, 2001, the Company had 126 employees and believes its
relationships with its employees to be good. The Company's employees are not
represented by a collective bargaining agreement.
ITEM 2. PROPERTIES
The Company's principal executive and administrative offices are located at
1114 Avenue of the Americas New York, NY 10036, 27th floor. Its telephone
number, general facsimile number and e-mail address are (212) 930-9400,
(212) 930-9494 and istarfinancial.com, respectively. The lease for the Company's
primary corporate office space expires in February 2010. The Company believes
that this office space is suitable for its operations for the foreseeable
future. The Company also maintains super-regional offices in San Francisco,
California; Hartford, Connecticut; and Atlanta, Georgia, as well as regional
offices in Boston, Massachusetts; Dallas, Texas; and Denver, Colorado.
See Item 1--"Corporate Tenant Leasing" for a discussion of real estate
facilities held by the Company and its Leasing Subsidiary for investment
purposes and Item 8--"Schedule III--Real Estate and Accumulated Depreciation"
for a detailed listing of such facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation or legal proceedings,
or to the best of its knowledge, any threatened litigation or legal proceedings
which, in the opinion of management, individually or in the aggregate, would
have a material adverse effect on its results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 2000.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED SHARE MATTERS
In November 1999, the Company eliminated its dual class share structure by
exchanging its outstanding class A and class B shares for shares of a single
class of Common Stock. The Company's Common Stock began trading on the New York
Stock Exchange ("NYSE") under the symbol "SFI" on November 4, 1999. Prior to
November 4, 1999, the class A shares were traded on the American Stock Exchange
under the symbol "APT," and there was no established trading market for the
class B shares.
The high and low sales prices per share of Common Stock (or class A shares
for periods prior to November 4, 1999) are set forth below for the periods
indicated.
QUARTER ENDED HIGH LOW
- ------------- ---------- ------------
1999
March 31, 1999.............................................. $63 $42 1/2
June 30, 1999............................................... $66 1/2 $31 5/8
September 30, 1999.......................................... $76 $27 7/8
December 31, 1999........................................... $27 5/8 $16 11/16
2000
March 31, 2000.............................................. $18 3/4 $16 5/8
June 30, 2000............................................... $20 15/16 $17 3/8
September 30, 2000.......................................... $22 7/16 $20 1/4
December 31, 2000........................................... $21 5/8 $19 1/16
On March 15, 2001, the closing sale price of the Common Stock as reported by
the NYSE was $24.01. The Company had approximately 1,267 holders of record of
Common Stock as of March 15, 2001.
On June 12, 1998, the Frank Russell Company announced that the Company would
be included in the Russell 1000 and Russell 3000 equity indices. From the time
of the Company's inclusion in the Russell indices through the time of the
announcement that the Company had agreed to acquire TriNet, the reported stock
price of the Company was highly volatile, and its trading volume was relatively
low due to the very limited number of shares available for trading at that time.
Specifically, the Company believes that index funds that were required to mirror
the Russell indices' performance purchased a large number of shares of the
Company's Common Stock available in the public float. Those purchases, combined
with the limited availability of the shares at that time, resulted in a dramatic
increase in the "market" price for the common stock shortly after the June 12
announcement.
At December 31, 2000, the Company had four series of preferred stock
outstanding: Series A Preferred Stock (which currently pays dividends at the
rate of 9.50% per annum), 9.375% Series B Preferred Stock, 9.20% Series C
Preferred Stock and 8.00% Series D Preferred Stock. Each of the Series B, C and
D preferred stock was issued in connection with the acquisition of TriNet and is
publicly traded.
The Board of Directors approved, and the Company has implemented, a stock
repurchase program under which the Company is authorized to repurchase up to
5.0 million shares of its Common Stock from time to time, primarily using
proceeds from the disposition of assets and excess cash flow from operations,
but also using borrowings under its credit facilities if the Company determines
that it is advantageous to do so. As of December 31, 2000, the Company had
repurchased approximately 2.3 million shares at an aggregate cost of
approximately $40.7 million.
DIVIDENDS
The Company's management expects that any taxable income remaining after the
distribution of preferred dividends and the regular quarterly or other dividends
on its Common Stock will be distributed
18
annually to the holders of the Common Stock on or prior to the date of the first
regular quarterly dividend payment date of the following taxable year. The
dividend policy with respect to the Common Stock is subject to revision by the
Board of Directors. All distributions in excess of dividends on preferred stock
or those required for the Company to maintain its REIT status will be made by
the Company at the sole discretion of the Board of Directors and will depend on
the taxable earnings of the Company, the financial condition of the Company, and
such other factors as the Board of Directors deems relevant. The Board of
Directors has not established any minimum distribution level. In order to
maintain its qualifications as a REIT, the Company intends to make regular
quarterly dividends to its shareholders that, on an annual basis, will represent
at least 90% of its taxable income (which may not necessarily equal net income
as calculated in accordance with generally accepted accounting principles),
determined without regard to the deduction for dividends paid and excluding any
net capital gains.
Holders of Common Stock will be entitled to receive distributions if, as and
when the Board of Directors authorizes and declares distributions. However,
rights to distributions may be subordinated to the rights of holders of
preferred stock, when preferred stock is issued and outstanding. In any
liquidation, dissolution or winding up of the Company, each outstanding share of
Common Stock will entitle its holder to a proportionate share of the assets that
remain after the Company pays its liabilities and any preferential distributions
owed to preferred shareholders.
The following table sets forth the dividends paid or declared by the Company
on its Common Stock (or class A shares for periods prior to November 4, 1999):
STOCKHOLDER DIVIDEND/
QUARTERLY PERIOD ENDED RECORD DATE SHARE
- ---------------------- ----------------- ---------
1999
March 31, 1999................................. April 15, 1999 $0.42
June 30, 1999.................................. July 15, 1999 $0.43
September 30, 1999............................. October 15, 1999 $0.44
December 31, 1999.............................. December 31, 1999 $0.57(1)
2000
March 31, 2000................................. April 14, 2000 $0.60
June 30, 2000.................................. July 17, 2000 $0.60
September 30, 2000............................. October 16, 2000 $0.60
December 31, 2000.............................. December 29, 2000 $0.60(2)
EXPLANATORY NOTES:
- ------------------------------
(1) A portion of this quarterly dividend (approximately $0.47 per share) was
treated as income to shareholders of record in 1999, and the remainder was
treated as 2000 income.
(2) A portion of this quarterly dividend (approximately $0.5976 per share) was
treated as income to stockholders of record in 2000, and the remainder will
be treated as 2001 income.
In November 1999, the Company declared and paid a dividend of a total of one
million shares of Common Stock pro rata to all holders of record of Common Stock
as of the close of business on November 3, 1999. The Company also declared
dividends aggregating $20.9 million for the Series A preferred stock, which was
outstanding for the entire year ended December 31, 1999. In addition, the
Company declared dividends of $1.2 million, $0.7 million and $2.0 million on its
Series B, C and D preferred stock, respectively, for the year ended
December 31, 1999. The amounts for the Series B, C and D preferred stock for
1999 represent only dividends for the fourth quarter of that year which were
payable by the Company as a result of its acquisition of TriNet. Further, it
declared and paid dividends aggregating $0.2 million per quarter to the holders
of class B shares in connection with the March 31, 1999, June 30, 1999 and
September 30, 1999 quarterly dividends to the holders of the class A shares. As
previously described, the former class A and class B shares were converted into
a single class of shares of Common Stock on November 4, 1999.
19
The Company declared dividends aggregating $20.9 million, $4.7 million,
$3.0 million and $8.0 million, respectively, on its Series A, B, C and D
preferred stock, respectively, for the year ended December 31, 2000. There are
no dividend arrearages on any of the preferred shares currently outstanding.
Distributions to shareholders will generally be taxable as ordinary income,
although a portion of such dividends may be designated by the Company as capital
gain or may constitute a tax-free return of capital. The Company annually
furnishes to each of its shareholders a statement setting forth the
distributions paid during the preceding year and their characterization as
ordinary income, capital gain or return of capital.
The Company intends to continue to declare quarterly distributions on its
Common Stock. No assurance, however, can be given as to the amounts or timing of
future distributions, as such distributions are subject to the Company's
earnings, financial condition, capital requirements and such other factors as
the Company's Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data on a consolidated
historical basis for the Company. However, prior to the recapitalization of the
Company in March 1998, discussed more fully in Note 4 to the Company's
Consolidated Financial Statements (the "Recapitalization Transactions"), the
Company did not have substantial capital resources or operations. Prior to the
Recapitalization Transactions, the Company's structured finance operations were
conducted by two investment partnerships affiliated with Starwood Capital Group,
L.L.C., which contributed substantially all their structured finance assets to
the Company in the Recapitalization Transactions in exchange for cash and shares
of the Company.
Further, on November 4, 1999, as more fully discussed in Note 4 to the
Company's Consolidated Financial Statements, the Company acquired TriNet, which
increased the size of the Company's operations, and also acquired its external
advisor. Operating results for the year ended December 31, 1999 reflect only the
effects of these transactions subsequent to their consummation.
Accordingly, the historical balance sheet information as of and prior to
December 31, 1998, as well as the results of operations for the Company for all
periods prior to and including the year ended December 31, 1999, do not reflect
the current operations of the Company as a well capitalized, internally-managed
finance company operating in the commercial real estate industry. For these
reasons, the Company believes that the information contained in the following
tables relating to the 1996 and 1997 periods is not indicative of the Company's
current business and should be read in conjunction with the discussions set
forth in Item 7--"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
20
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Interest income......................................... $ 268,011 $ 209,848 $ 112,914 $ 896 $ 478
Operating lease income.................................. 185,956 42,186 12,378 -- --
Other income............................................ 17,855 12,763 2,804 991 10
----------- ----------- ----------- -------- --------
Total revenue....................................... 471,822 264,797 128,096 1,887 488
----------- ----------- ----------- -------- --------
Interest expense........................................ 173,891 91,184 44,697 -- 272
Operating costs-corporate tenant lease assets........... 12,809 2,246 -- -- --
Depreciation and amortization........................... 34,514 10,340 4,287 -- --
General and administrative.............................. 25,706 6,269 2,583 461 639
Provision for possible credit losses.................... 6,500 4,750 2,750 -- --
Stock option compensation expense(1).................... 2,864 412 5,985 -- --
Advisory fees........................................... -- 16,193 7,837 -- --
Costs incurred in acquiring external advisor(2)......... -- 94,476 -- -- --
----------- ----------- ----------- -------- --------
Total expenses...................................... 256,284 225,870 68,139 461 911
----------- ----------- ----------- -------- --------
Income (loss) before minority interest.................. 215,538 38,927 59,957 1,426 (423)
Minority interest in consolidated entities(3)........... (195) (41) (54) (1,415) (154)
Gain on sale of corporate tenant lease assets........... 2,948 -- -- -- --
Extraordinary loss on early extinguishment of debt...... (705) -- -- -- --
----------- ----------- ----------- -------- --------
Net income (loss)....................................... $ 217,586 $ 38,886 $ 59,903 $ 11 $ (577)
Preferred dividend requirements......................... (36,908) (23,843) (944) -- --
----------- ----------- ----------- -------- --------
Net income allocable to common shareholders............. $ 180,678 $ 15,043 $ 58,959 $ 11 $ (577)
=========== =========== =========== ======== ========
Basic earnings (loss) per common share(4)............... $ 2.11 $ 0.25 $ 1.40 $ 0.01 $ (1.36)
=========== =========== =========== ======== ========
Diluted earnings (loss) per common share................ $ 2.10 $ 0.25 $ 1.36 $ 0.00 $ (1.36)
=========== =========== =========== ======== ========
Dividends declared per common share(9).................. $ 2.40 $ 1.86 $ 1.14 $ 0.00 $ 0.00
=========== =========== =========== ======== ========
SUPPLEMENTAL DATA:
Dividends declared on preferred shares.................. $ 36,576 $ 24,819 $ 929 $ -- $ --
Dividends declared on common shares..................... 205,477 116,813 60,343 -- --
Adjusted earnings allocable to common shareholders(5)... 230,688 127,798 66,615 11 (577)
Adjusted earnings per common share--basic............... 2.69 2.19 1.59 0.01 (1.36)
Adjusted earnings per common share--diluted............. 2.67 2.07 1.53 0.00 (1.36)
Cash flows from:
Operating activities................................ 192,469 122,549 54,915 1,271 (227)
Investing activities................................ (176,652) (143,911) (1,271,309) (6,013) (522)
Financing activities................................ (27,473) 45,660 1,226,208 4,924 --
EBITDA.................................................. 423,943 251,120 116,778 -- --
Ratio of EBITDA to interest expense(6).................. 2.44x 1.54x 2.44x -- --
Ratio of EBITDA to combined fixed charges(7)............ 2.01x 1.22x 2.39x -- --
Weighted average common shares outstanding--basic(8).... 85,441 57,749 41,607 1,258 425
Weighted average common shares
outstanding--diluted(8)............................... 86,151 60,393 43,460 2,562 425
BALANCE SHEET DATA:
Loans and other lending investments, net................ $ 2,225,183 $ 2,003,506 $ 1,823,761 $ -- $ --
Real estate subject to operating leases, net............ 1,670,169 1,714,284 189,942 -- --
Total assets............................................ 4,034,775 3,813,552 2,059,616 13,441 5,674
Debt obligations........................................ 2,131,967 1,901,204 1,055,719 -- --
Minority interest in consolidated entities(3)........... 6,224 2,565 -- 5,175 3,917
Shareholders' equity.................................... 1,787,885 1,801,343 970,728 6,351 1,578
SUPPLEMENTAL DATA:
Total debt to shareholders' equity...................... 1.2x 1.1x 1.1x -- --
21
EXPLANATORY NOTES:
- ------------------------------
(1) Historical stock option expense represents the option value of approximately
2.5 million fully-vested options to acquire class A shares which were issued
to the Company's external advisor upon consummation of the March 18, 1998
recapitalization of the Company. A portion of those options were then
regranted to employees of the advisor subject to vesting periods which were
typically three years from the date of grant. The remainder of those options
were regranted on a fully-vested basis to an affiliate of Starwood Capital
Group L.L.C., which then further regranted those options to certain of its
employees subject to vesting restrictions.
(2) As more fully discussed in Note 4 to the Company's Consolidated Financial
Statements, this amount represents a non-recurring, non-cash charge of
approximately $94.5 million relating to the acquisition of the Company's
external advisor.
(3) Historical minority interest for the Company for fiscal 1998, 1997 and 1996
represents a minority interest in APMT Limited Partnership which was
converted into class A shares on March 18, 1998, the date the partnership
was liquidated and terminated. Minority interests in fiscal 1999 reflects
minority interests in certain of the Leasing Subsidiary's consolidated
ventures. Minority interests in fiscal 2000 also reflects minority interests
in certain of the Leasing Subsidiary's and the Parent's consolidated
ventures.
(4) Earnings per common share excludes 1% of net income allocable to the
Company's class B shares prior to November 4, 1999. The class B shares were
exchanged for Common Stock in connection with the acquisition of TriNet and
other related transactions on November 4, 1999. As a result, the Company now
has a single class of Common Stock outstanding.
(5) Adjusted earnings represent GAAP net income before depreciation and
amortization and, for the year ended December 31, 1999, exclude the
non-recurring, non-cash cost incurred in acquiring the Company's external
advisor (see Note 4 to the Company's Consolidated Financial Statements).
(6) The 1999 and 1998 EBITDA to interest expense ratios on a pro forma basis
would have been 2.83x and 2.84x, respectively (see Note 4).
(7) Combined fixed charges are comprised of interest expense, capitalized
interest, amortization of loan costs and preferred stock dividend
requirements. The 1999 and 1998 EBITDA to combined fixed charges ratios on a
pro forma basis would have been 2.23x and 2.44x, respectively.
(8) As adjusted for one-for-six reverse stock split effected by the Company on
June 19, 1998.
(9) The Company generally declares common and preferred dividends in the month
subsequent to the end of the quarter.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
As more fully discussed in Note 4 to the Company's Consolidated Financial
Statements, on March 18, 1998, the Company completed the Recapitalization
Transactions which, among other things, substantially recapitalized the Company
and modified its investment policy. Effective June 18, 1998, the Company (which
was organized under California law) changed its domicile to Maryland by merging
with a newly-formed subsidiary organized under Maryland law, and issued new
shares of the subsidiary to the Company's shareholders in exchange for their
shares in the Company. Concurrently, the Company consummated a one-for-six
reverse stock split.
Immediately prior to the consummation of the Recapitalization Transactions,
the Company's assets primarily consisted of approximately $11.0 million in
short-term, liquid real estate investments, cash and cash equivalents.
On December 15, 1998, the Company sold $220.0 million of preferred shares
and warrants to purchase class A shares to a group of investors affiliated with
Lazard Freres. Concurrent with the sale of the preferred shares and warrants,
the Company purchased $280.3 million in real estate loans and participation
interests from a group of investors also affiliated with Lazard Freres. These
transactions are referred to collectively as the "Lazard Transaction."
As more fully discussed in Note 4 to the Company's Consolidated Financial
Statements, on November 3, 1999, the Company's shareholders approved a series of
transactions including: (1) the acquisition of TriNet; (2) the acquisition of
the Company's external advisor; and (3) the reorganization of the Company from a
trust to a corporation and the exchange of the class A and class B shares for
Common Stock. Pursuant to the TriNet acquisition, TriNet merged with and into a
subsidiary of the Company, with TriNet surviving as a wholly-owned subsidiary of
the Company. In the acquisition, each share of common stock of TriNet was
converted into 1.15 shares of Common Stock. Each share of TriNet Series A,
Series B and Series C Cumulative Redeemable Preferred Stock was converted into a
share of Series B, Series C or Series D (respectively) Cumulative Redeemable
Preferred Stock of the Company. The Company's preferred stock issued to the
former TriNet preferred shareholders has substantially the same terms as the
TriNet preferred stock, except that the new Series B, C and D preferred shares
have additional voting rights not associated with the TriNet preferred stock.
The Company's Series A Preferred Stock remained outstanding with the same rights
and preferences as existed prior to the TriNet acquisition. As a consequence of
the acquisition of its external advisor, the Company is now internally-managed
and no longer pays external advisory fees.
The transactions described above and other related transactions have
materially impacted the historical operations of the Company. Accordingly, the
reported historical financial information for periods prior to these
transactions is not believed to be fully indicative of the Company's future
operating results or financial condition.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
INTEREST INCOME--Interest income increased to approximately $268.0 million
for the year ended December 31, 2000 from approximately $209.8 million for the
same period in 1999. This increase is a result of the interest generated by
$721.2 million of newly-originated loan investments during fiscal 2000 and an
additional $56.0 million funded under existing loan commitments. The increase
was partially offset by a reduction in interest earned as a result of principal
repayments of approximately $584.5 million made to the Company on its loan
investments during the year ended December 31, 2000. In addition, the increase
was in part due to higher average interest rates on the Company's variable-rate
loans and other lending investments.
OPERATING LEASE INCOME--Operating lease income increased to approximately
$186.0 million for the year ended December 31, 2000 from approximately
$42.2 million for the same period in 1999.
23
Approximately $134.2 million of this increase is attributable to operating lease
income generated from corporate tenant lease assets acquired in the acquisition
of TriNet, which were included in operations for the entire year in fiscal 2000
as compared to only approximately two months in fiscal 1999. In addition,
approximately $5.4 million resulted from income generated by $128.4 million of
new corporate tenant lease investments.
OTHER INCOME--Included in other income for fiscal year 2000 are prepayment
fees of approximately $7.9 million resulting from the full or partial repayments
of several loans, recognition of $2.1 million in connection with loan
defeasances, a forbearance fee of $1.1 million resulting from the purchase of a
sub-performing loan and subsequent restructuring of such loan to fully
performing status, a prepayment penalty of approximately $1.2 million resulting
from the refinancing of a senior mortgage and corporate loan, and approximately
$1.4 million resulting from the repayment of a senior loan held at a discount
upon the conversion of such loan to a corporate tenant lease holding pursuant to
a purchase option granted to the Company in connection with its original
investment in the asset.
INTEREST EXPENSE--The Company's interest expense increased by $82.7 million
for the year ended December 31, 2000 over the same period in the prior year.
Approximately $44.1 million of this increase is attributable to interest expense
incurred by the Leasing Subsidiary subsequent to its acquisition, which was
included in operations for the entire year in fiscal 2000 as compared to only
approximately two months in 1999. In addition, the increase was in part due to
higher average aggregate borrowings by the Company on its credit facilities,
other term loans and secured notes, the proceeds of which were used to fund
additional investments. The increase was also attributable to higher average
interest rates on the Company's variable-rate debt obligations.
OPERATING COSTS-CORPORATE TENANT LEASE ASSETS--For the year ended
December 31, 2000, operating costs associated with corporate tenant lease assets
increased by approximately $10.6 million to approximately $12.8 million, net of
recoveries from tenants. Such operating costs represent unreimbursed operating
expenses associated with corporate tenant lease assets. This increase is
primarily attributable to operating costs generated from corporate tenant lease
assets acquired in the acquisition of TriNet, which were included in operations
for the entire year in fiscal 2000 as compared to only approximately two months
in 1999.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased by
approximately $24.2 million to $34.5 million for the year ended December 31,
2000 over the same period in the prior year. Approximately $24.0 million of this
increase is attributable to depreciation and amortization relating to the
corporate tenant lease assets acquired in the acquisition of TriNet, which were
included in operations for the entire year in fiscal 2000 as compared to only
approximately two months in 1999.
GENERAL AND ADMINISTRATIVE--The Company's general and administrative
expenses during the year ended December 31, 2000 increased by approximately
$19.4 million to $25.7 million compared to the same period in 1999. These
increases were generally the result of the increased scope of the Company's
operations associated with the acquisition of TriNet and the direct overhead
costs associated with the Company's former external advisor, which impacted
operations for the entire year in fiscal 2000 as compared to only approximately
two months in 1999.
PROVISION FOR POSSIBLE CREDIT LOSSES--The Company's charge for provision for
possible credit losses increased to $6.5 million from $4.8 million as a result
of expanded lending operations as well as additional seasoning of the Company's
existing lending portfolio. As more fully discussed in Note 5 to the Company's
Consolidated Financial Statements, the Company has not realized any actual
losses on any of its loan investments to date. However, the Company has
considered it prudent to establish a policy of providing reserves for potential
losses in the current portfolio which may occur in the future. Accordingly,
since its first full quarter as a public company (the quarter ended June 30,
1998), management has reflected quarterly provisions for possible credit losses
in its operating results. The Company will continue to recognize quarterly
provisions until a stabilized reserve level is attained.
24
STOCK OPTION COMPENSATION EXPENSE--Stock compensation expense increased by
approximately $2.5 million as a result of charges relating to grants of stock
options to the Company's employees, including amortization of the deferred
charge related to options granted to employees of the Company's former external
advisor subsequent to such personnel becoming direct employees of the Company as
of November 4, 1999.
ADVISORY FEES--There were no advisory fees during the year ended
December 31, 2000 because, subsequent to the acquisition of the Company's
external advisor, the Company is now internally-managed. No further advisory
fees will be incurred.
COSTS INCURRED IN ACQUIRING EXTERNAL ADVISOR--As more fully discussed in
Note 4 to the Company's Consolidated Financial Statements, included in fiscal
1999 costs and expenses is a non-recurring, non-cash charge of approximately
$94.5 million relating to the aquisition of the Company's external advisor.
GAIN ON SALE OF CORPORATE TENANT LEASE ASSETS--During the year ended 2000,
the Company disposed of 14 corporate tenant lease assets, including six assets
held in joint venture partnerships, for a total of $256.7 million in proceeds,
and recognized total gains of $2.9 million.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT--Certain of the proceeds
from an asset disposition were used to partially repay $8.1 million of a
mortgage loan. In connection with this partial paydown, the Company incurred
prepayment penalties, which resulted in an extraordinary loss of $317,000 during
the first quarter of 2000. Additionally, proceeds from a joint venture asset
disposition were used to repay the third-party debt of the joint venture of
$16.4 million. In connection with this paydown, the venture incurred certain
prepayment penalties, which resulted in an extraordinary loss to the Company of
$388,000 during the third quarter of 2000. There were no comparable early
extinguishments of debt during the year ended December 31, 1999, including by
the Leasing Subsidiary after its acquisition on November 4, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
INTEREST INCOME--During fiscal year 1999, interest income increased by
approximately $96.9 million over interest income for fiscal year 1998. This
increase is a result of the interest generated by the loans and other
investments contributed in the Recapitalization Transactions, as well as
approximately $663.4 million of loans and other lending investments
newly-originated or acquired by the Company during 1999 and an additional
$46.4 million funded under existing commitments. The increase was partially
offset by principal repayments of approximately $561.9 million made to the
Company during fiscal year 1999.
OPERATING LEASE INCOME--Operating lease income increased by $29.8 million
from fiscal year 1998 to fiscal year 1999 due to approximately $26.8 million in
operating lease income generated from corporate tenant lease assets acquired in
the acquisition of TriNet.
OTHER INCOME--Included in other income for fiscal year 1999 is a fee
associated with the repayment of a construction loan of approximately
$1.9 million, yield maintenance payments of approximately $8.1 million resulting
from the repayment of three loans, and approximately $1.0 million in additional
revenue from certain cash flow participation features on five of the Company's
loan investments.
INTEREST EXPENSE--The Company's interest expense increased by $46.5 million
as a result of higher average borrowings by the Company on its credit facilities
and other term loans, the proceeds of which were used to fund additional loan
origination and acquisition activities. The increase was also attributable to
higher average interest rates on the Company's variable-rate debt obligations.
Further, interest expense includes interest incurred by the Leasing Subsidiary
subsequent to its acquisition.
OPERATING COSTS-CORPORATE TENANT LEASE ASSETS--Such operating costs
represent unreimbursed operating expenses incurred by the Leasing Subsidiary
subsequent to its acquisition.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased as a
result of a full year's depreciation on the Company's pre-existing corporate
tenant leasing portfolio, as well as depreciation on the Leasing Subsidiary's
net leased assets subsequent to its acquisition.
25
GENERAL AND ADMINISTRATIVE--General and administrative costs increased by
approximately $3.7 million as a result of additional costs incurred subsequent
to the acquisition of the Company's external advisor, as well as additional
administrative expenses associated with the Leasing Subsidiary subsequent to its
acquisition.
PROVISION FOR POSSIBLE CREDIT LOSSES--The Company's charge for provision for
possible credit losses increased by approximately $2.0 million as a result of
expanded lending operations as well as additional seasoning of the Company's
existing lending portfolio. As more fully discussed in Note 5 to the Company's
Consolidated Financial Statements, the Company has not realized any actual
losses on any of its loan investments to date. However, the Company has
considered it prudent to establish a policy of providing reserves for potential
losses in the current portfolio which may occur in the future. Accordingly,
since its first full quarter as a public company (the quarter ended June 30,
1998), management has reflected quarterly provisions for possible credit losses
in its operating results. The Company will continue to recognize quarterly
provisions until a stabilized reserve level is attained.
STOCK OPTION COMPENSATION EXPENSE--Stock option compensation expense
declined by approximately $5.6 million as a result of the non-recurring charge
relating to the original grant of stock options to the Company's external
advisor in fiscal 1998 concurrently with the consummation of the
Recapitalization Transactions.
ADVISORY FEES--Base advisory fees increased by approximately $5.3 million as
a result of fees being incurred from June 16, 1999 through year end in the prior
year and through November 4, 1999 in fiscal 1999. Further, as a result of the
Company's expanded operations, incentive fees paid under the prior advisory
contract increased from $2.3 million in 1998 to $5.4 million in 1999. Subsequent
to the acquisition of the Company's external advisor, the Company is now
internally-managed and no further advisory fees will be incurred.
COSTS INCURRED IN ACQUIRING EXTERNAL ADVISOR--Finally, as more fully
discussed in Note 4 to the Company's Consolidated Financial Statements, included
in fiscal 1999 costs and expenses is a non-recurring, non-cash charge of
approximately $94.5 million relating to the acquisition of the Company's
external advisor.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to fund its investment activities and operating
expenses. The Company has significant access to capital resources to fund its
existing business plan, which includes the expansion of its real estate lending
and corporate tenant leasing businesses. The Company's capital sources include
cash flow from operations, borrowings under lines of credit, additional term
borrowings, long-term financing secured by the Company's assets, unsecured
financing and the issuance of common, convertible and /or preferred equity
securities. Further, the Company may acquire other businesses or assets using
its capital stock, cash or a combination thereof.
The distribution requirements under the REIT provisions of the Code limit
the Company's ability to retain earnings and thereby replenish capital committed
to its operations. However, the Company believes that its significant capital
resources and access to financing will provide it with financial flexibility and
market responsiveness at levels sufficient to meet current and anticipated
capital requirements, including expected new lending and leasing transactions.
The Company's ability to meet its long-term (i.e., beyond one year)
liquidity requirements is subject to the renewal of its credit lines and /or
obtaining other sources of financing, including issuing additional debt or
equity from time to time. Any decision by the Company's lenders and investors to
enter into such transactions with the Company will depend upon a number of
factors, such as compliance with the terms of its existing credit arrangements,
the Company's financial performance, industry or market trends, the general
availability of and rates applicable to financing transactions, such lenders'
and investors' resources and policies concerning the terms under which they make
such capital commitments and the relative attractiveness of alternative
investment or lending opportunities.
26
Based on its monthly interest and other expenses, monthly cash receipts,
existing investment commitments and funding plans, the Company believes that its
existing sources of funds will be adequate for purposes of meeting its short-
and long-term liquidity needs. Material increases in monthly interest expense or
material decreases in monthly cash receipts would negatively impact the
Company's liquidity. On the other hand, material decreases in monthly interest
expense would positively affect the Company's liquidity.
As more fully discussed in Note 7 to the Company's Consolidated Financial
Statements, at December 31, 2000, the Company had existing fixed-rate borrowings
of approximately $150.7 million secured by real estate under operating leases
which mature in 2009, an aggregate of approximately $162.1 million in
LIBOR-based, variable-rate loans secured by various senior and subordinate
mortgage investments and real estate under operating leases which mature between
fiscal 2001 and 2003, fixed-rate corporate debt obligations aggregating
approximately $356.5 million which mature between 2001 and 2017, and other
variable- and fixed-rate secured debt obligations aggregating approximately
$108.6 million which mature at various dates through 2010.
In addition, the Company has entered into LIBOR-based secured revolving
credit facilities of $700.0 and $500.0 million which expire in fiscal 2005 and
2002, respectively. As of December 31, 2000, the Company had drawn approximately
$284.4 million and $308.0 million under these facilities, respectively.
Availability under these facilities is based on collateral provided under a
borrowing base calculation. The Company also has two unsecured credit facilities
totaling $450.0 million. The $100.0 million facility had no outstanding balance
as of December 31, 2000, matures in January 2002 and bears interest at LIBOR
plus 2.25%. In addition, the Leasing Subsidiary's $350.0 million unsecured
credit facility had a balance of $173.5 million as of December 31, 2000, matures
on May 31, 2001 with a one-year extension period at the Company's option and
bears interest at LIBOR plus 1.55%. Under the terms of the this facility, the
Leasing Subsidiary is generally permitted to make cash distributions to the
Company in an amount equal to 85% of cash flow from operations in any rolling
four-quarter period. Subsequent to year end, the Company extended the term of
this facility to May 2002.
The Company has entered into LIBOR interest rate caps struck at 9.00%, 7.50%
and 7.50% in notional amounts of $300.0 million, $40.4 million and
$38.3 million, respectively, which expire in March 2001, January 2001 and
June 2001, respectively. In addition, in connection with the acquisition of
TriNet, the Company acquired LIBOR interest rate caps currently struck at 7.75%,
7.75% and 7.50% in notional amounts of $75.0 million, $35.0 million and
$75.0 million, respectively, which expire in December 2004, December 2004 and
June 2001, respectively. In connection with the closing of STARS, Series 2000-1
in May 2000, the Company entered into a LIBOR interest rate cap struck at 10.00%
in the notional amount of $312.0 million, and simultaneously sold a LIBOR
interest rate cap with the same terms. Since these instruments do not reduce the
Company's net interest rate risk exposure, they do not qualify as hedges and
changes in their respective values are charged to earnings. As the significant
terms of these arrangements are substantially the same, the effects of a
revaluation of these two instruments are expected to substantially offset one
another. At December 31, 2000, the net fair value of the Company's interest rate
caps was approximately $0.4 million.
The Company has entered into LIBOR interest rate swaps struck at 5.714%,
7.055% and 7.058% in notional amounts of $92.0 million, $125.0 million and
$125.0 million, respectively which expire in March 2001, June 2003 and
June 2003, respectively. These swaps effectively fix the interest rate on a
portion of the Company's floating-rate term loan obligations. In connection with
the acquisition of TriNet, the Company acquired an interest rate swap which,
together with certain existing interest rate cap agreements, effectively fix the
interest rate on $75.0 million of the Leasing Subsidiary's LIBOR-based
borrowings at 5.58% plus the applicable margin through December 1, 2004.
Management expects that it will have aggregate LIBOR-based borrowings at the
Leasing Subsidiary in excess of the notional amount for the duration of the
swap. The actual borrowing cost to the Company with respect to indebtedness
covered by the swap will depend upon the applicable margin over LIBOR for such
indebtedness, which will be determined by the terms of the relevant debt
instruments. In June 2000, an interest rate swap with a
27
notional amount of approximately $112.0 million matured. At December 31, 2000,
the fair value (liability) of the Company's interest rate swaps was ($7.7)
million.
During the year ended December 31, 1999, the Company settled an aggregate
notional amount of approximately $63.0 million that was outstanding under
certain hedging agreements which the Company had entered into in order to hedge
the potential effects of interest rate movements on anticipated fixed-rate
borrowings. The settlement of such agreements resulted in the receipt of
approximately $0.6 million which had been deferred pending completion of the
planned fixed-rate financing transaction. Subsequently, the transaction was
modified and consummated as a variable-rate financing transaction. As a result,
the previously deferred receipt no longer qualified for hedge accounting
treatment and the $0.6 million was recognized as a gain and included in other
income in the consolidated statement of operations for the year ended
December 31, 2000.
During the year ended December 31, 1999, the Company refinanced its
$125.0 million term loan maturing March 15, 1999 with a $155.4 million term loan
maturing March 5, 2009. The new term loan bears interest at 7.44% per annum,
payable monthly, and amortizes over an approximately 22-year schedule. The new
term loan represented forecasted transactions for which the Company had
previously entered into U.S. Treasury-based hedging transactions. The net
$3.4 million cost of the settlement of such hedges has been deferred and is
being amortized as an increase to the effective financing costs of the new term
loan over its effective ten-year term.
On May 17, 2000, the Company closed the inaugural offering under its
proprietary matched funding program, STARS, Series 2000-1. In the initial
transaction, a wholly-owned subsidiary of the Company issued $896.5 million of
investment grade bonds secured by the subsidiary's assets, which had an
aggregate outstanding principal balance of approximately $1.2 billion at
inception. Principal payments received on the assets will be utilized to repay
the most senior class of the bonds then outstanding. The maturity of the bonds
match funds the maturity of the underlying assets financed under the program.
The Company initially purchased the class F bonds at a par value of
$38.2 million, which the Company financed with a $27.8 million repurchase
agreement maturing in May 2001, which has a balance of $24.2 million at
December 31, 2000. On July 17, 2000, the Company sold, at par, $5.0 million of
the class F bonds to an institutional investor. For accounting purposes, these
transactions were treated as secured financings.
On December 28, 2000, the Company expanded its existing $675.0 million
secured warehouse facility to $700.0 million. The Company extended the original
March 2001 maturity date to March 2005, including a one-year "term out"
extension option to the facility's maturity during which the interest rate
spread will increase 25 basis points, no additional draws under the facility
will be permitted, and the outstanding principal must amortize 25% per quarter.
In connection with the extension, the Company and the facility lender also
increased the range of collateral eligible for inclusion in the facility. Also
in connection with the extension, the Company agreed to increase the facility's
interest rate from LIBOR plus 1.50% to a revised rate of LIBOR plus 1.75% to
2.25%, depending upon certain conditions.
On January 11, 2001, the Company closed a new $700.0 million secured
revolving credit facility which is led by a major commercial bank. The new
facility has a three-year primary term and one-year "term out" extension option,
and bears interest at LIBOR plus 1.40% to 2.15%, depending upon the collateral
contributed to the borrowing base. The new facility accepts a broad range of
structured finance assets and has a final maturity of January 2005.
STOCK REPURCHASE PROGRAM: The Board of Directors approved, and the Company
has implemented, a stock repurchase program under which the Company is
authorized to repurchase up to 5.0 million shares of its Common Stock from time
to time, primarily using proceeds from the disposition of assets and excess cash
flow from operations, but also using borrowings under its credit facilities if
the Company determines that it is advantageous to do so. As of December 31,
2000, the Company had repurchased approximately 2.3 million shares at an
aggregate cost of approximately $40.7 million.
28
ADJUSTED EARNINGS
Adjusted earnings represents net income computed in accordance with GAAP,
before gains (losses) on sales of corporate tenant lease assets, extraordinary
items and cumulative effect, plus depreciation and amortization, less preferred
stock dividends, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect adjusted earnings on the same basis.
The Company believes that to facilitate a clear understanding of the
historical operating results of the Company, adjusted earnings should be
examined in conjunction with net income as shown in the Consolidated Statements
of Operations. Adjusted earnings should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indicator of the Company's
performance, or to cash flows from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs.
FOR THE
YEAR ENDED
DECEMBER 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
Adjusted earnings:
Net income................................................ $217,586 $ 38,886
Add: Depreciation......................................... 34,514 11,016
Add: Joint venture depreciation........................... 3,662 365
Add: Amortization......................................... 13,140 6,121
Add: Costs incurred in acquiring external advisor......... -- 94,476
Less: Preferred dividends................................. (36,908) (23,843)
Less: Net income allocable to class B shares(1)........... -- (826)
Less: Gain on sale of corporate tenant lease assets....... (2,948) --
Add: Extraordinary loss--early extinguishment of debt..... 705 --
-------- --------
Adjusted earnings allocable to common shareholders:
Basic..................................................... $229,751 $126,195
======== ========
Diluted................................................... $230,688 $127,798
======== ========
Adjusted earnings per common share:
Basic..................................................... $ 2.69 $ 2.19
======== ========
Diluted................................................... $ 2.67 $ 2.07
======== ========
EXPLANATORY NOTE:
- ------------------------
(1) For the year ended December 31, 1999, net income allocable to class B shares
represents 1% of net income allocable to the Company's class B shares. On
November 4, 1999, the class B shares were exchanged for common shares in
connection with the Company's acquisition of TriNet and related
transactions. As a result, the Company now has a single class of common
shares outstanding.
29
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). On June 23, 1999, the FASB voted to defer the effectiveness of SFAS
No. 133 for one year. SFAS No. 133 is now effective for fiscal years beginning
after June 15, 2000, but earlier application is permitted as of the beginning of
any fiscal quarter subsequent to June 15, 1998. SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as: (1) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment; (2) a hedge of the exposure to variable cash flows of a forecasted
transaction; or (3) in certain circumstances a hedge of a foreign currency
exposure. The Company adopted this pronouncement, as amended by Statement of
Financial Accounting Standards No. 137 "Accounting for Derivative Instruments
and Hedging Activities-deferral of the Effective Date of FASB Statement
No. 133" and Statement of Financial Accounting Standards No. 138 "Accounting for
Certain Hedging Activities-an Amendment of FASB No. 133," January 1, 2001.
Because the Company has primarily used derivatives as cash flow hedges of
interest rate risk only, the adoption of SFAS No. 133 did not have a material
financial impact on the financial position and results of operations of the
Company. However, should the Company change its current use of such derivatives
(see Note 9), the adoption of SFAS No. 133 could have a more significant effect
on the Company prospectively.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company adopted SAB 101, as
required, in the fourth quarter of fiscal 2000. The adoption of SAB 101 did not
have a material financial impact on the financial position or results of
operations of the Company.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation." The Company
was required to adopt FIN 44 effective July 1, 2000 with respect to certain
provisions applicable to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee status
that occur on or after that date. FIN 44 addresses practice issues related to
the application of Accounting Practice Bulletin Opinion No. 25, "Accounting for
Stock Issued to Employees." The initial adoption of FIN 44 by the Company did
not have a material impact on its consolidated financial position or results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. In
pursuing its business plan, the primary market risk to which the Company is
exposed is interest rate risk. Consistent with its liability management
objectives, the Company has implemented an interest rate risk management policy
based on match funding, with the objective that floating-rate assets be
primarily financed by floating-rate liabilities and fixed-rate assets be
primarily financed by fixed-rate liabilities.
The Company's operating results will depend in part on the difference
between the interest and related income earned on its assets and the interest
expense incurred in connection with its interest-bearing liabilities.
Competition from other providers of real estate financing may lead to a decrease
in the interest rate earned on the Company's interest-bearing assets, which the
Company may not be able to offset by obtaining lower interest costs on its
borrowings. Changes in the general level of interest rates prevailing in the
financial markets may affect the spread between the Company's interest-earning
assets and interest-bearing liabilities. Any significant compression of the
spreads between interest-earning assets
30
and interest-bearing liabilities could have a material adverse effect on the
Company. In addition, an increase in interest rates could, among other things,
reduce the value of the Company's interest-bearing assets and its ability to
realize gains from the sale of such assets, and a decrease in interest rates
could reduce the average life of the Company's interest-earning assets.
A substantial portion of the Company's loan investments are subject to
significant prepayment protection in the form of lock-outs, yield maintenance
provisions or other prepayment premiums which provide substantial yield
protection to the Company. Those assets generally not subject to prepayment
penalties include: (1) variable-rate loans based on LIBOR, originated or
acquired at par, which would not result in any gain or loss upon repayment; and
(2) discount loans and loan participations acquired at discounts to face values,
which would result in gains upon repayment. Further, while the Company generally
seeks to enter into loan investments which provide for substantial prepayment
protection, in the event of declining interest rates, the Company could receive
such prepayments and may not be able to reinvest such proceeds at favorable
returns. Such prepayments could have an adverse effect on the spreads between
interest-earning assets and interest-bearing liabilities.
While the Company has not experienced any significant credit losses, in the
event of a significant rising interest rate environment and/or economic
downturn, defaults could increase and result in credit losses to the Company
which adversely affect its liquidity and operating results. Further, such
delinquencies or defaults could have an adverse effect on the spreads between
interest-earning assets and interest-bearing liabilities.
Interest rates are highly sensitive to many factors, including governmental
monetary and tax policies, domestic and international economic and political
conditions, and other factors beyond the control of the Company. As more fully
discussed in Note 9 to the Company's Consolidated Financial Statements, the
Company employs match funding-based hedging strategies to limit the effects of
changes in interest rates on its operations, including engaging in interest rate
caps, floors, swaps, futures and other interest rate-related derivative
contracts. These strategies are specifically designed to reduce the Company's
exposure, on specific transactions or on a portfolio basis, to changes in cash
flows as a result of interest rate movements in the market. The Company does not
enter into derivative contracts for speculative purposes nor as a hedge against
changes in credit risk of its borrowers or of the Company itself.
Each interest rate cap or floor agreement is a legal contract between the
Company and a third party (the "counterparty"). When the Company purchases a cap
or floor contract, the Company makes an up-front payment to the counterparty and
the counterparty agrees to make payments to the Company in the future should the
reference rate (typically one- or three-month LIBOR) rise above (cap agreements)
or fall below (floor agreements) the "strike" rate specified in the contract.
Each contract has a notional face amount. Should the reference rate rise above
the contractual strike rate in a cap, the Company will earn cap income. Should
the reference rate fall below the contractual strike rate in a floor, the
Company will earn floor income. Payments on an annualized basis will equal the
contractual notional face amount multiplied by the difference between the actual
reference rate and the contracted strike rate. The cost of the up-front payment
is amortized over the term of the contract.
Interest rate swaps are agreements in which a series of interest rate flows
are exchanged over a prescribed period. The notional amount on which swaps are
based is not exchanged. In general, the Company's swaps are "pay fixed" swaps
involving the exchange of floating-rate interest payments from the counterparty
for fixed interest payments from the Company.
Interest rate futures are contracts, generally settled in cash, in which the
seller agrees to deliver on a specified future date the cash equivalent of the
difference between the specified price or yield indicated in the contract and
the value of that of the specified instrument (e.g., U.S. Treasury securities)
upon settlement. The Company generally uses such instruments to hedge forecasted
fixed-rate borrowings. Under these agreements, the Company will generally
receive additional cash flow at settlement if interest rates rise and pay cash
if interest rates fall. The effects of such receipts or payments will be
deferred and
31
amortized over the term of the specific related fixed-rate borrowings. In the
event that, in the opinion of management, it is no longer probable that a
forecasted transaction will occur under terms substantially equivalent to those
projected, the Company will cease recognizing such transactions as hedges and
immediately recognize related gains or losses based on actual settlement or
estimated settlement value.
While a REIT may freely utilize the types of derivative instruments
discussed above to hedge interest rate risk on its liabilities, the use of
derivatives for other purposes, including hedging asset-related risks such as
credit, prepayment or interest rate exposure on the Company's loan assets, could
generate income which is not qualified income for purposes of maintaining REIT
status. As a consequence, the Company may only engage in such instruments to
hedge such risks on a limited basis.
There can be no assurance that the Company's profitability will not be
adversely affected during any period as a result of changing interest rates. In
addition, hedging transactions using derivative instruments involve certain
additional risks such as counterparty credit risk, legal enforceability of
hedging contracts and the risk that unanticipated and significant changes in
interest rates will cause a significant loss of basis in the contract. With
regard to loss of basis in a hedging contract, indices upon which contracts are
based may be more or less variable than the indices upon which the hedged assets
or liabilities are based, thereby making the hedge less effective. The
counterparties to these contractual arrangements are major financial
institutions with which the Company and its affiliates may also have other
financial relationships. The Company is potentially exposed to credit loss in
the event of nonperformance by these counterparties. However, because of their
high credit ratings, the Company does not anticipate that any of the
counterparties will fail to meet their obligations. There can be no assurance
that the Company will be able to adequately protect against the foregoing risks
and that the Company will ultimately realize an economic benefit from any
hedging contract it enters into which exceeds the related costs incurred in
connection with engaging in such hedges.
The following table quantifies the potential changes in net investment
income and net fair value of financial instruments should interest rates
increase or decrease 200 basis points, assuming no change in the shape of the
yield curve (i.e., relative interest rates). Net investment income is calculated
as revenue from loans and other lending investments and operating leases (as of
December 31, 2000), less related interest expense and operating costs on
corporate tenant lease assets, for the year ended December 31, 2000. Net fair
value of financial instruments is calculated as the sum of the value of
off-balance sheet instruments and the present value of cash in-flows generated
from interest-earning assets, less cash out-flows in respect of interest-bearing
liabilities as of December 31, 2000. The cash flows associated with the
Company's assets are calculated based on management's best estimate of expected
payments for each loan based on loan characteristics such as loan-to-value
ratio, interest rate, credit history, prepayment penalty, term and collateral
type. Most of the Company's loans are protected from prepayment as a result of
prepayment penalties and contractual terms which prohibit prepayments during
specified periods. However, for those loans where prepayments are not currently
precluded by contract, declines in interest rates may increase prepayment
speeds. The base interest rate scenario assumes interest rates as of
December 31, 2000. Actual results could differ significantly from those
estimated in the table.
ESTIMATED PERCENTAGE CHANGE IN
NET INVESTMENT NET FAIR VALUE OF
CHANGE IN INTEREST RATES INCOME FINANCIAL INSTRUMENTS (1)
- ------------------------ -------------- -------------------------
- -200 Basis Points............ 1.40% 40.62%
- -100 Basis Points............ 0.70% 19.64%
Base Interest Rate........... 0.00% 0.00%
+100 Basis Points............ (0.66)% (18.34)%
+200 Basis Points............ (0.45)% (35.20)%
EXPLANATORY NOTE:
- ------------------------------
(1) Amounts exclude fair values of non-financial investments, primarily assets
under long-term operating leases and certain forms of corporate finance
investments.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements
PAGE
--------
Financial Statements:
Report of Independent Accountants......................... 34
Consolidated Balance Sheets at December 31, 2000 and
1999.................................................... 35
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 2000....... 36
Consolidated Statement of Changes in Shareholders' Equity
for each of the three years in the period ended December
31, 2000................................................ 37
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2000....... 38
Notes to Consolidated Financial Statements................ 39
Financial Statement Schedules:
For the period ended December 31, 2000:
Schedule II--Valuation and Qualifying Accounts and
Reserves................................................ 69
Schedule III--Real Estate and Accumulated Depreciation.... 70
Schedule IV--Mortgage Loans on Real Estate................ 83
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
Financial statements of seven owned companies or joint ventures accounted
for under the equity method have been omitted because the Company's
proportionate share of the income from continuing operations before income taxes
is less than 20% of the respective consolidated amount and the investments in
and advances to each company are less than 20% of consolidated total assets.
33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of iStar Financial Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of iStar
Financial Inc. and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedules listed in the accompanying index present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
March 2, 2001
34
ISTAR FINANCIAL INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF DECEMBER 31,
-----------------------
2000 1999*
---------- ----------
ASSETS
Loans and other lending investments, net.................... $2,225,183 $2,003,506
Real estate subject to operating leases, net................ 1,670,169 1,714,284
Cash and cash equivalents................................... 22,752 34,408
Restricted cash............................................. 20,441 10,195
Marketable securities....................................... 41 4,344
Accrued interest and operating lease income receivable...... 20,167 16,211
Deferred operating lease income receivable.................. 10,236 1,147
Deferred expenses and other assets.......................... 62,224 29,074
Investment in iStar Operating, Inc.......................... 3,562 383
---------- ----------
Total assets.............................................. $4,034,775 $3,813,552
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities.... $ 52,038 $ 54,773
Dividends payable........................................... 56,661 53,667
Debt obligations............................................ 2,131,967 1,901,204
---------- ----------
Total liabilities......................................... 2,240,666 2,009,644
---------- ----------
Commitments and contingencies............................... -- --
Minority interests in consolidated entities................. 6,224 2,565
Shareholders' equity:
Series A Preferred Stock, $0.001 par value, liquidation
preference $220,000, 4,400 shares issued and outstanding
at December 31, 2000 and December 31, 1999................ 4 4
Series B Preferred Stock, $0.001 par value, liquidation
preference $50,000, 2,000 shares issued and outstanding at
December 31, 2000 and December 31, 1999................... 2 2
Series C Preferred Stock, $0.001 par value, liquidation
preference $32,500, 1,300 shares issued and outstanding at
December 31, 2000 and December 31, 1999................... 1 1
Series D Preferred Stock, $0.001 par value, liquidation
preference $100,000, 4,000 shares issued and outstanding
at December 31, 2000 and December 31, 1999................ 4 4
Common Stock, $0.001 par value, 200,000 shares authorized,
85,726 and 84,985 shares issued and outstanding at
December 31, 2000 and December 31, 1999, respectively..... 85 85
Warrants and options........................................ 16,943 17,935
Additional paid in capital.................................. 1,966,396 1,953,972
Retained earnings (deficit)................................. (154,789) (129,992)
Accumulated other comprehensive income (losses)............. (20) (229)
Treasury stock (at cost).................................... (40,741) (40,439)
---------- ----------
Total shareholders' equity................................ 1,787,885 1,801,343
---------- ----------
Total liabilities and shareholders' equity................ $4,034,775 $3,813,552
========== ==========
- --------------------------
* RECLASSIFIED TO CONFORM TO 2000 PRESENTATION.
The accompanying notes are an integral part of the financial statements.
35
ISTAR FINANCIAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999* 1998*
--------- --------- ---------
REVENUE:
Interest income........................................... $268,011 $209,848 $112,914
Operating lease income.................................... 185,956 42,186 12,378
Other income.............................................. 17,855 12,763 2,804
-------- -------- --------
Total revenue........................................... 471,822 264,797 128,096
-------- -------- --------
COSTS AND EXPENSES:
Interest expense.......................................... 173,891 91,184 44,697
Operating costs-corporate tenant lease assets............. 12,809 2,246 --
Depreciation and amortization............................. 34,514 10,340 4,287
General and administrative................................ 25,706 6,269 2,583
Provision for possible credit losses...................... 6,500 4,750 2,750
Stock option compensation expense......................... 2,864 412 5,985
Advisory fees............................................. -- 16,193 7,837
Costs incurred in acquiring external advisor.............. -- 94,476 --
-------- -------- --------
Total costs and expenses................................ 256,284 225,870 68,139
-------- -------- --------
Net income before minority interest, gain on sale of
corporate tenant lease assets and extraordinary loss...... 215,538 38,927 59,957
Minority interest in consolidated entities.................. (195) (41) (54)
Gain on sale of corporate tenant lease assets............... 2,948 -- --
-------- -------- --------
Net income before extraordinary loss........................ 218,291 38,886 59,903
Extraordinary loss on early extinguishments of debt......... (705) -- --
-------- -------- --------
Net income.................................................. $217,586 $ 38,886 $ 59,903
Preferred dividend requirements............................. (36,908) (23,843) (944)
-------- -------- --------
Net income allocable to common shareholders................. $180,678 $ 15,043 $ 58,959
======== ======== ========
Basic earnings per common share(1).......................... $ 2.11 $ 0.25 $ 1.40
======== ======== ========
Diluted earnings per common share(1)........................ $ 2.10 $ 0.25 $ 1.36
======== ======== ========
EXPLANATORY NOTES:
- ------------------------
* RECLASSIFIED TO CONFORM TO 2000 PRESENTATION.
(1) Net income per basic common share excludes 1% of net income allocable to the
Company's class B shares prior to November 4, 1999. These shares were
exchanged for Common Stock in connection with the TriNet Acquisition and
related transactions on November 4, 1999. As a result, the Company now has a
single class of Common Stock outstanding.
The accompanying notes are an integral part of the financial statements.
36
ISTAR FINANCIAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK
SERIES A SERIES B SERIES C SERIES D COMMON AT PAR
PREFERRED PREFERRED PREFERRED PREFERRED STOCK --------------------
STOCK STOCK STOCK STOCK AT PAR CLASS A CLASS B
--------- --------- --------- --------- -------- --------- --------
Balance at January 1, 1998............. $ -- $ -- $ -- $ -- $ -- $ 7,550 $ 38
Recapitalization Transactions.......... -- -- -- -- -- 306,796 1,534
Issuance of options to Advisor......... -- -- -- -- -- -- --
Effects of reorganization(1)........... -- -- -- -- -- (261,956) (1,310)
Exercise of options.................... -- -- -- -- -- 18 --
Issuance of preferred shares and
warrants............................. 44 -- -- -- -- -- --
Dividends declared-preferred........... -- -- -- -- -- -- --
Dividends declared-common.............. -- -- -- -- -- -- --
Net Income for the period.............. -- -- -- -- -- -- --
Change in accumulated other
comprehensive income................. -- -- -- -- -- -- --
---- ---- ---- ---- ---- --------- -------
Balance at December 31, 1998*.......... $ 44 $ -- $ -- $ -- $ -- $ 52,408 $ 262
Exercise of options.................... -- -- -- -- -- 63 --
Dividends declared-preferred........... -- -- -- -- -- -- --
Dividends declared-common.............. -- -- -- -- -- -- --
Effects of Incorporation Merger........ (40) -- -- -- 53 (52,471) (262)
Acquisition of TriNet.................. -- 2 1 4 29 -- --
Issuance of shares of Common Stock
through conversion of joint venture
partners interest.................... -- -- -- -- -- -- --
Advisor Transaction.................... -- -- -- -- 4 -- --
Special stock dividend................. -- -- -- -- 1 -- --
Purchase of treasury stock............. -- -- -- -- (2) -- --
Net income for the period.............. -- -- -- -- -- -- --
Change in accumulated other
comprehensive income................. -- -- -- -- -- -- --
---- ---- ---- ---- ---- --------- -------
Balance at December 31, 1999........... $ 4 $ 2 $ 1 $ 4 $ 85 $ -- $ --
Exercise of options.................... -- -- -- -- -- -- --
Dividends declared-preferred........... -- -- -- -- -- -- --
Dividends declared-common.............. -- -- -- -- -- -- --
Acquisition of ACRE Partners........... -- -- -- -- -- -- --
Restricted stock units issued to
employees in lieu of cash bonuses.... -- -- -- -- -- -- --
Restricted stock units granted to
employees............................ -- -- -- -- -- -- --
Issuance of stock through DRIP plan.... -- -- -- -- -- -- --
Purchase of treasury stock............. -- -- -- -- -- -- --
Net income for the period.............. -- -- -- -- -- -- --
Change in accumulated other
comprehensive income................. -- -- -- -- -- -- --
---- ---- ---- ---- ---- --------- -------
Balance at December 31, 2000........... $ 4 $ 2 $ 1 $ 4 $ 85 $ -- $ --
==== ==== ==== ==== ==== ========= =======
EXPLANATORY NOTE:
ACCUMULATED
WARRANTS ADDITIONAL RETAINED OTHER
AND PAID-IN EARNINGS COMPREHENSIVE TREASURY
OPTIONS CAPITAL (DEFICIT) INCOME STOCK TOTAL
--------- ---------- --------- -------------- -------- ----------
Balance at January 1, 1998............. $ -- $ -- $ (1,075) $(162) $ -- $ 6,351
Recapitalization Transactions.......... -- 432,084 -- -- -- 740,414
Issuance of options to Advisor......... 5,985 -- -- -- -- 5,985
Effects of reorganization(1)........... -- 262,786 -- -- -- (480)
Exercise of options.................... (270) 537 -- -- -- 285
Issuance of preferred shares and
warrants............................. 13,189 206,170 -- -- -- 219,403
Dividends declared-preferred........... -- 15 (944) -- -- (929)
Dividends declared-common.............. -- -- (60,343) -- -- (60,343)
Net Income for the period.............. -- -- 59,903 -- -- 59,903
Change in accumulated other
comprehensive income................. -- -- -- 139 -- 139
-------- ---------- --------- ----- -------- ----------
Balance at December 31, 1998*.......... $ 18,904 $ 901,592 $ (2,459) $ (23) $ -- $ 970,728
Exercise of options.................... (969) 1,853 -- -- -- 947
Dividends declared-preferred........... -- 330 (25,149) -- -- (24,819)
Dividends declared-common.............. -- -- (116,813) -- -- (116,813)
Effects of Incorporation Merger........ -- 52,720 -- -- -- --
Acquisition of TriNet.................. -- 868,933 -- -- -- 868,969
Issuance of shares of Common Stock
through conversion of joint venture
partners interest.................... -- 6,226 -- -- -- 6,226
Advisor Transaction.................... -- 97,862 -- -- -- 97,866
Special stock dividend................. -- 24,456 (24,457) -- -- --
Purchase of treasury stock............. -- -- -- -- (40,439) (40,441)
Net income for the period.............. -- -- 38,886 -- -- 38,886
Change in accumulated other
comprehensive income................. -- -- -- (206) -- (206)
-------- ---------- --------- ----- -------- ----------
Balance at December 31, 1999........... $ 17,935 $1,953,972 $(129,992) $(229) $(40,439) $1,801,343
Exercise of options.................... (992) 7,089 -- -- -- 6,097
Dividends declared-preferred........... -- 330 (36,906) -- -- (36,576)
Dividends declared-common.............. -- -- (205,477) -- -- (205,477)
Acquisition of ACRE Partners........... -- 3,637 -- -- -- 3,637
Restricted stock units issued to
employees in lieu of cash bonuses.... -- 1,125 -- -- -- 1,125
Restricted stock units granted to
employees............................ -- 212 -- -- -- 212
Issuance of stock through DRIP plan.... -- 31 -- -- -- 31
Purchase of treasury stock............. -- -- -- -- (302) (302)
Net income for the period.............. -- -- 217,586 217,586
Change in accumulated other
comprehensive income................. -- -- -- 209 -- 209
-------- ---------- --------- ----- -------- ----------
Balance at December 31, 2000........... $ 16,943 $1,966,396 $(154,789) $ (20) $(40,741) $1,787,885
======== ========== ========= ===== ======== ==========
EXPLANATORY NOTE:
- ----------------------------------------
* RECLASSIFIED TO CONFORM TO 2000 PRESENTATION.
(1) As adjusted for one-for-six reverse stock split effective June 19, 1998.
The accompanying notes are an integral part of the financial statements.
37
ISTAR FINANCIAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
2000 1999* 1998*
--------- ----------- -----------
Cash flows from operating activities:
Net income.................................................. $ 217,586 $ 38,886 $ 59,903
Adjustments to reconcile net income to cash flows provided
by operating activities:
Minority interest......................................... 195 41 54
Non-cash expense for options issued to Advisor............ 1,700 412 5,985
Non-cash expense for Advisor Transaction.................. -- 94,476 --
Equity in earnings of unconsolidated joint ventures and
subsidiaries............................................ (4,753) (234) (96)
Depreciation and amortization............................. 47,402 15,932 7,662
Amortization of discounts/premiums and deferred
interest................................................ (27,059) (25,493) (17,750)
Distributions from operating joint venture................ 4,511 470 --
Deferred operating lease income adjustments............... (9,130) (1,597) --
Realized (gain)/loss on sale of securities................ 233 (11) --
Gain on sale of corporate tenant lease assets............. (2,948) -- --
Extraordinary loss on early extinguishment of debt........ 705 -- --
Provision for possible credit losses...................... 6,500 4,750 2,750
Changes in assets and liabilities:
(Increase) decrease in restricted cash.................. (10,246) 2,924 (5,699)
Increase in accrued interest and operating lease income
receivable............................................. (3,761) (3,089) (5,613)
Decrease in deferred expenses and other assets.......... (26,764) (1,212) (902)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities......................... (1,702) (3,706) 8,621
--------- ----------- -----------
Cash flows provided by operating activities............... 192,469 122,549 54,915
--------- ----------- -----------
Cash flows from investing activities:
Net cash outflow for the Recapitalization Transactions
(Note 3)................................................ -- -- (334,964)
Net cash outflow for TriNet Acquisition (Note 3).......... -- (23,723) --
Proceeds from sale of corporate tenant lease assets....... 146,265 -- --
New investment originations/acquisitions.................. (849,618) (640,757) (975,670)
Principal fundings on existing loan commitments........... (56,039) (45,916) (16,500)
Investment in iStar Operating, Inc........................ (3,443) -- (426)
Proceeds from sale of investment securities............... 30 -- --
Repayments of and principal collections from loans and
other investments....................................... 584,452 520,768 103,926
Investments (in) and advances to unconsolidated joint
ventures................................................ (24,047) (377) (47,675)
Distributions from unconsolidated joint ventures.......... 34,759 47,365 --
Other capital expenditures on real estate subject to
operating leases........................................ (9,011) (1,271) --
--------- ----------- -----------
Cash flows used in investing activities................. (176,652) (143,911) (1,271,309)
--------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit
facilities.............................................. (183,837) 168,592 640,945
Borrowings under term loans............................... 90,000 39,234 368,683
Repayments under term loans............................... (300,799) -- --
Borrowings under repurchase agreements.................... 65,067 (7,331) 46,091
Repayments under repurchase agreements.................... (31,564) -- --
Mortgage note repayments.................................. -- (150) --
Borrowings under bond offerings........................... 863,254 -- --
Repayments under bond offerings........................... (274,919) -- --
Common dividends paid..................................... (202,397) (90,076) (38,638)
Preferred dividends paid.................................. (36,576) (20,524) --
Minority interest......................................... (164) -- --
Extraordinary loss on early extinguishment of debt........ (317) -- --
Payment for deferred financing costs...................... (21,048) (4,593) (11,615)
Proceeds from issuance of class B shares.................. -- -- 1,534
Costs incurred in reorganization.......................... -- -- (480)
Purchase of treasury stock................................ (302) (40,439) --
Proceeds from exercise of options......................... 6,129 947 285
Proceeds from issuance of preferred stock and warrants.... -- -- 219,403
--------- ----------- -----------
Cash flows (used in) provided by financing activities... (27,473) 45,660 1,226,208
--------- ----------- -----------
Increase (decrease) in cash and cash equivalents............ (11,656) 24,298 9,814
Cash and cash equivalents at beginning of period............ 34,408 10,110 296
--------- ----------- -----------
Cash and cash equivalents at end of period.................. $ 22,752 $ 34,408 $ 10,110
========= =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 142,145 $ 85,835 $ 38,006
========= =========== ===========
- ----------------------------------
* RECLASSIFIED TO CONFORM TO 2000 PRESENTATION.
The accompanying notes are an integral part of the financial statements.
38
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS
ORGANIZATION--iStar Financial Inc.(1) (the "Company") began its business in
1993 through private investment funds formed to capitalize on inefficiencies in
the real estate finance market. In March 1998, these funds contributed their
approximately $1.1 billion of assets to the Company's predecessor, Starwood
Financial Trust, in exchange for a controlling interest in that company. Since
that time, the Company has grown by originating new lending and leasing
transactions, as well as through corporate acquisitions. Specifically, in
September 1998, the Company acquired the loan origination and servicing business
of a major insurance company, and in December 1998, the Company acquired the
mortgage and mezzanine loan portfolio of its largest private competitor.
Additionally, in November 1999, the Company acquired TriNet Corporate Realty
Trust, Inc. ("TriNet"), which was then the largest publicly traded company
specializing in the net leasing of corporate office and industrial facilities
(the "TriNet Acquisition"). The TriNet Acquisition was structured as a
stock-for-stock merger of TriNet with a subsidiary of the Company. Concurrent
with the TriNet Acquisition, the Company also acquired its external advisor (the
"Advisor Transaction") in exchange for shares of common stock of the Company
("Common Stock") and converted its organizational form to a Maryland corporation
(the "Incorporation Merger"). As part of the conversion to a Maryland
corporation, the Company replaced its dual class common share structure with a
single class of Common Stock. The Company's Common Stock began trading on the
New York Stock Exchange under the symbol "SFI" in November 1999.
During 1993 through 1997, the Company did not qualify as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). However, pursuant to a closing agreement with the Internal Revenue
Service (the "IRS") obtained in March 1998, the Company was eligible and elected
to be taxed as a REIT for the taxable year beginning January 1, 1998.
BUSINESS--The Company is the leading publicly traded finance company focused
on the commercial real estate industry. The Company provides structured
financing to private and corporate owners of real estate nationwide, including
senior and junior mortgage debt, corporate mezzanine and subordinated capital,
and corporate net lease financing. The Company, which has elected to be taxed as
a real estate investment trust ("REIT"), seeks to deliver superior risk-adjusted
returns on equity for shareholders by providing innovative and value-added
financing solutions to its customers.
The Company has implemented its investment strategy by: (1) focusing on the
origination of large, highly structured mortgage, corporate and lease financings
where customers require flexible financial solutions, and avoiding commodity
businesses in which there is significant direct competition from other providers
of capital; (2) developing direct relationships with borrowers and corporate
tenants as opposed to sourcing transactions through intermediaries; (3) adding
value beyond simply providing capital by offering borrowers and corporate
tenants specific lending expertise, flexibility, certainty and continuing
relationships beyond the closing of a particular financing transaction; and
(4) taking advantage of market anomalies in the real estate financing markets
when the Company believes credit is mispriced by other providers of capital,
such as the spread between lease yields and the yields on corporate tenants'
underlying credit obligations.
The Company intends to continue to emphasize a mix of portfolio financing
transactions to create built-in diversification and single-asset financings for
properties with strong, long-term competitive market positions.
EXPLANATORY NOTE:
- ------------------------------
(1) As more fully discussed in Note 4, on November 4, 1999, the Company changed
its form and became a corporation under Maryland law and changed its name
from Starwood Financial Trust to Starwood Financial Inc. Further, effective
April 30, 2000, the registrant changed its name to iStar Financial Inc.
39
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BASIS OF PRESENTATION
The accompanying audited Consolidated Financial Statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
for complete financial statements. The Consolidated Financial Statements include
the accounts of the Company, its qualified REIT subsidiaries, and its
majority-owned and controlled partnerships. Certain third-party mortgage
servicing operations are conducted through iStar Operating, Inc. ("iStar
Operating"), a taxable corporation which is not consolidated with the Company
for financial reporting or income tax purposes. The Company owns all of the
non-voting preferred stock and a 95% economic interest in iStar Operating, which
is accounted for under the equity method for financial reporting purposes. The
Company does not own any of the outstanding voting stock of iStar Operating. In
addition, the Company has an investment in TriNet Management Operating
Company, Inc. ("TMOC"), a taxable noncontrolled subsidiary of the Company, which
is also accounted for under the equity method. Further, certain other
investments in partnerships or joint ventures which the Company does not control
are also accounted for under the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying Consolidated Financial
Statements contain all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the Company's consolidated financial
position at December 31, 2000 and December 31, 1999 and the results of its
operations, changes in shareholders' equity and its cash flows for the years
ended December 31, 2000, 1999 and 1998. Such operating results are not
necessarily indicative of the results that may be expected for any other interim
periods or the entire year.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOANS AND OTHER LENDING INVESTMENTS, NET--As described in Note 5, "Loans and
Other Lending Investments," includes the following investments: senior
mortgages, subordinate mortgages, corporate/ partnership loans/unsecured notes,
loan participations and other lending investments. In general, management
considers its investments in this category as held-to-maturity and, accordingly,
reflects such items at amortized historical cost.
REAL ESTATE SUBJECT TO OPERATING LEASES AND DEPRECIATION--Real estate
subject to operating leases is generally recorded at cost. Certain improvements
and replacements are capitalized when they extend the useful life, increase
capacity or improve the efficiency of the asset. Repairs and maintenance items
are expensed as incurred. The Company capitalizes interest costs incurred during
the land development or construction period on qualified development projects,
including investments in joint ventures accounted for under the equity method.
Depreciation is computed using the straight line method of cost recovery over
estimated useful lives of 40.0 years for buildings, five years for furniture and
equipment, the shorter of the remaining lease term or expected life for tenant
improvements, and the remaining life of the building for building improvements.
Real estate assets to be disposed of are reported at the lower of their
carrying amount or fair value less costs to sell. The Company also periodically
reviews long-lived assets to be held and used for an impairment in value
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. In management's opinion, real estate assets
to be held and used are not carried at amounts in excess of their estimated
recoverable amounts.
CAPITALIZED INTEREST--The Company capitalizes interest costs incurred during
the land development or construction period on qualified development projects,
including investments in joint ventures accounted for under the equity method.
Interest capitalized was approximately $513,000 and $377,000 during the years
ended December 31, 2000 and 1999, respectively.
40
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash held in
banks or invested in money market funds with original maturity terms of less
than 90 days.
RESTRICTED CASH--Restricted cash represents amounts required to be
maintained in escrow under certain of the Company's debt obligations and leasing
cost obligations.
NON-CASH ACTIVITY--During the year ended December 31, 1998, the Company had
significant non-cash activity including: (1) conversion of units in APMT Limited
Partnership (shown as "minority interest" in the consolidated financial
statements) to class A shares of the Company (see Note 4); (2) issuance of
options to Starwood Financial Advisors, L.L.C. (the "Advisor") to acquire
class A shares of the Company (see Note 11); and (3) issuance of new class A
shares in exchange for a portion of the acquisition of loans and related
investments as part of the Recapitalization Transactions (see Note 4).
The cash portion of the Recapitalization Transactions is summarized as
follows (in thousands):
Acquisition of loans and other investments.................. $(1,061,006)
Acquired accrued interest and operating lease income
receivable................................................ (7,451)
Conversion of minority interest............................. (5,387)
Par value of class A shares issued.......................... 306,796
Additional paid in capital on class A shares issued......... 432,084
-----------
Net cash outflow for the Recapitalization Transactions...... $ (334,964)
===========
During 1999, the Company acquired TriNet (see Note 4). The following is a
summary of the effects of this transaction on the Company's consolidated
financial position (in thousands):
ACQUISITION OF
TRINET
--------------
Fair value of:
Assets acquired........................................... $(1,589,714)
Liabilities assumed....................................... 676,936
Minority interest......................................... 2,524
Stock issued.............................................. 875,195
-----------
Cash paid................................................. (35,059)
Less cash acquired........................................ 11,336
-----------
Net cash outflow for TriNet Acquisition................... $ (23,723)
===========
There was no non-cash activity during the year ended December 31, 2000.
MARKETABLE SECURITIES-- From time to time, the Company invests excess
working capital in short-term marketable securities such as those issued by the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC").
Although the Company generally intends to hold such investments for investment
purposes, it may, from time to time, sell any of its investments in these
securities as part of its management of liquidity. Accordingly, the Company
considers such investments as "available-for-sale" and reflects such investments
at fair market value with changes in fair market value reflected as a component
of shareholders' equity.
41
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REPURCHASE AGREEMENTS-- The Company may enter into sales of securities or
loans under agreements to repurchase the same security or loan. The amounts
borrowed under repurchase agreements are carried on the balance sheet as part of
debt obligations at the amount advanced plus accrued interest. Interest incurred
on the repurchase agreements is reported as interest expense.
REVENUE RECOGNITION--The Company's revenue recognition policies are as
follows:
LOANS AND OTHER LENDING INVESTMENTS: The Company generally intends to hold
all of its loans and other lending investments to maturity. Accordingly, it
reflects all of these investments at amortized cost less allowance for loan
losses, acquisition premiums or discounts, deferred loan fees and undisbursed
loan funds. On occasion, the Company may acquire loans at either premiums or
discounts based on the credit characteristics of such loans. These premiums or
discounts are recognized as yield adjustments over the lives of the related
loans. If loans that were acquired at a premium or discount are prepaid, the
Company immediately recognizes the unamortized premium or discount as a decrease
or increase in the prepayment gain or loss, respectively. Loan origination or
exit fees, as well as direct loan origination costs, are also deferred and
recognized over the lives of the related loans as a yield adjustment. Interest
income is recognized using the effective interest method applied on a
loan-by-loan basis.
Certain of the Company's loans provide for accrual of interest at specified
rates which differ from current payment terms. Interest is recognized on such
loans at the accrual rate subject to management's determination that accrued
interest and outstanding principal are ultimately collectible, based on the
underlying collateral and operations of the borrower.
Prepayment penalties or yield maintenance payments from borrowers are
recognized as additional income when received. Certain of the Company's loan
investments provide for additional interest based on the borrower's operating
cash flow or appreciation of the underlying collateral. Such amounts are
considered contingent interest and are reflected as income only upon certainty
of collection.
LEASING INVESTMENTS: Operating lease revenue is recognized on the
straight-line method of accounting from the later of the date of the origination
of the lease or the date of acquisition of the facility subject to existing
leases. Accordingly, contractual lease payment increases are recognized evenly
over the term of the lease. The cumulative difference between lease revenue
recognized under this method and contractual lease payment terms is recorded as
a deferred operating lease income receivable on the balance sheet.
PROVISION FOR POSSIBLE CREDIT LOSSES--The Company's accounting policies
require that an allowance for estimated credit losses be maintained at a level
that management, based upon an evaluation of known and inherent risks in the
portfolio, considers adequate to provide for possible credit losses. Specific
valuation allowances are established for impaired loans in the amount by which
the carrying value, before allowance for estimated losses, exceeds the fair
value of collateral less disposition costs on an individual loan basis.
Management considers a loan to be impaired when, based upon current information
and events, it believes that it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan agreement
on a timely basis. Management measures these impaired loans at the fair value of
the loans' underlying collateral less estimated disposition costs. Impaired
loans may be left on accrual status during the period the Company is pursuing
repayment of the loan; however, these loans are placed on non-accrual status at
such time that the loans either: (1) become 90 days delinquent; or
(2) management determines the borrower is incapable of, or has ceased efforts
toward, curing the cause of the impairment. While on non-accrual status,
interest income is recognized only upon actual receipt. Impairment losses are
recognized as direct write-downs of the related loan with a corresponding charge
to the provision for possible credit losses. Charge-offs occur when loans, or a
portion thereof, are considered
42
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
uncollectible and of such little value that further pursuit of collection is not
warranted. Management also provides a portfolio reserve based upon its periodic
evaluation and analysis of the portfolio, historical and industry loss
experience, economic conditions and trends, collateral values and quality, and
other relevant factors.
INCOME TAXES--The Company did not qualify as a REIT from 1993 through 1997;
however, it did not incur any material tax liabilities as a result of its
operations. See Note 10 to the Consolidated Financial Statements for more
information.
As confirmed in a closing agreement with the IRS obtained in March 1998, the
Company was eligible and has elected to be taxed as a REIT for its tax year
beginning January 1, 1998. As a REIT, the Company is subject to federal income
taxation at corporate rates on its REIT taxable income; however, the Company is
allowed a deduction for the amount of dividends paid to its shareholders,
thereby subjecting the distributed net income of the Company to taxation at the
shareholder level only. iStar Operating and TMOC are not consolidated for
federal income tax purposes and are taxed as corporations. For financial
reporting purposes, current and deferred taxes are provided for in the portion
of earnings recognized by the Company with respect to its interest in iStar
Operating and TMOC.
NET INCOME ALLOCABLE TO COMMON SHARES--Net income allocable to common shares
excludes 1% of net income allocable to the class B shares prior to November 4,
1999. The class A and class B shares were exchanged for Common Stock in
connection with the TriNet Acquisition, as more fully described in Note 4.
EARNINGS (LOSS) PER COMMON SHARES--In accordance with the Statement of
Financial Accounting Standards No. 128 ("FASB No. 128"), the Company presents
both basic and diluted earnings per share ("EPS"). Basic earnings per share
("Basic EPS") excludes dilution and is computed by dividing net income available
to common shareholders by the weighted average number of shares outstanding for
the period. Diluted earnings per share ("Diluted EPS") reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock, where such exercise or conversion
would result in a lower earnings per share amount.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS--In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). On June 23, 1999, the FASB voted to
defer the effectiveness of SFAS No. 133 for one year. SFAS No. 133 is now
effective for fiscal years beginning after June 15, 2000, but earlier
application is permitted as of the beginning of any fiscal quarter subsequent to
June 15, 1998. SFAS No. 133 establishes accounting and reporting standards for
derivative financial instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as:
(1) a hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment; (2) a hedge of the exposure to
variable cash flows of a forecasted transaction; or (3) in certain
circumstances, a hedge of a foreign currency exposure. The Company adopted this
pronouncement, as amended by Statement of Financial Accounting Standards
No. 137 "Accounting for Derivative Instruments and Hedging Activities--deferral
of the Effective Date of FASB Statement No. 133" and Statement of Financial
Accounting Standards No. 138 "Accounting for Certain Derivative Instruments and
43
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Certain Hedging Activities--an Amendment of FASB Statement No. 133," on
January 1, 2001. Because the Company has primarily used derivatives as cash flow
hedges of interest rate risk only, the adoption of SFAS No. 133 did not have a
material financial impact on the financial position and results of operations of
the Company. However, should the Company change its current use of such
derivatives (see Note 9), the adoption of SFAS No. 133 could have a more
significant effect on the Company prospectively.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company adopted SAB 101, as
required, in the fourth quarter of fiscal 2000. The adoption of SAB 101 did not
have a material financial impact on the financial position or the results of
operations of the Company.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation." The Company
was required to adopt FIN 44 effective July 1, 2000 with respect to certain
provisions applicable to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee status
that occur on or after that date. FIN 44 addresses practice issues related to
the application of Accounting Practice Bulletin Opinion No. 25, "Accounting for
Stock Issued to Employees." The initial adoption of FIN 44 by the Company did
not have a material impact on its consolidated financial position or results of
operations.
NOTE 4--CAPITAL TRANSACTIONS
PRIOR TRANSACTIONS WITH AFFILIATES--Through a series of transactions
beginning in November 1993 and through March 18, 1998, the date of the
Recapitalization Transactions described in the following section, Starwood
Mezzanine Investors, L.P. ("Starwood Mezzanine") and certain other affiliates
(collectively, the "Starwood Investors") had acquired controlling interests in
the Company represented by an aggregate of 874,016 class A shares, or 69.46% of
the then total class A shares outstanding, and 629,167 class B shares,
representing 100% of the then total class B shares outstanding. Together, the
class A and class B shares held by the Starwood Investors represented 79.64% of
the voting interests of the Company.
During the quarter ended March 31, 1998, the Company consummated certain
transactions and entered into agreements which significantly recapitalized and
expanded its capital resources, as well as modified future operations, including
those described herein below in "Recapitalization Transactions" and "Advisor
Agreement."
RECAPITALIZATION TRANSACTIONS--As more fully discussed above, pursuant to a
series of transactions beginning in March 1994 and including the exercise of the
class A and class B warrants in January 1997, the Starwood Investors acquired
joint ownership of 69.46% and 100% of the outstanding class A shares and
class B shares of the Company, respectively, through which they controlled
approximately 79.64% of the voting interests in the Company as of December 31,
1997. Prior to the consummation of these transactions on March 18, 1998
(collectively, the "Recapitalization Transactions"), Starwood Mezzanine also
owned 761,491 units which represented the remaining 91.95% of APMT Limited
Partnership not held by the Company. Those units were convertible into cash, an
additional 761,491 class A shares of the Company, or a combination of the two,
as determined by the Company.
On March 18, 1998, each outstanding unit held by Starwood Mezzanine was
exchanged for one class A share of the Company and, concurrently, the
partnership was liquidated through a distribution of its net assets to the
Company, its then sole partner.
Simultaneously, Starwood Mezzanine contributed various real estate loan
investments to the Company in exchange for 9,191,333 class A shares and
$25.5 million in cash, as adjusted. Starwood
44
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--CAPITAL TRANSACTIONS (CONTINUED)
Opportunity Fund IV, L.P. ("SOF IV"), one of the Starwood Investors, contributed
loans and other lending investments, $17.9 million in cash and certain letters
of intent in exchange for 41,179,133 class A shares of the Company and a cash
payment of $324.3 million. Concurrently, the holders of the class B shares who
were affiliates of the Starwood Investors acquired 25,565,979 additional
class B shares sufficient to maintain existing voting preferences pursuant to
the Company's Amended and Restated Declaration of Trust. Immediately after these
transactions, the Starwood Investors owned approximately 99.27% of the
outstanding class A shares of the Company and 100% of the class B shares. Assets
acquired from Starwood Mezzanine were reflected using step acquisition
accounting at predecessor basis adjusted to fair value to the extent of
post-transaction, third-party ownership. Assets acquired from SOF IV were
reflected at their fair market value.
ADVISORY AGREEMENT--In connection with the Recapitalization Transactions,
the Company and its former external advisor (the "Advisor"), an affiliate of the
Starwood Investors, entered into an Advisory Agreement (the "Advisory
Agreement") pursuant to which the Advisor managed the affairs of the Company,
subject to the Company's purpose and investment policy, the investment
restrictions and the directives of the Board of Directors.
The Company paid the Advisor a quarterly base management fee of 0.3125%
(1.25% per annum) of the "Book Equity Value" of the Company. "Book Equity Value"
was generally defined as the excess of the book value of the assets of the
Company over all liabilities of the Company.
In addition, the Company paid the Advisor a quarterly incentive fee of 5.00%
of the Company's "Adjusted Net Income" during each quarter that the Adjusted Net
Income for such quarter (restated and annualized as a rate of return on the
Company's Book Equity Value for such quarter) equaled or exceeded the "Benchmark
BB Rate." "Adjusted Net Income" was generally defined as the Company's gross
income less the Company's expenses for the applicable quarter (including the
base fee for such quarter but not the incentive fee for such quarter). The
Advisor was also reimbursed for certain expenses it incurred on behalf of the
Company.
Prior to the transactions described below through which, among other things,
the Company became internally-managed, the Company was dependent on the services
of the Advisor and its officers and employees for the successful execution of
its business strategy.
1999 TRANSACTIONS--On November 3, 1999, consistent with previously announced
terms, the Company's shareholders approved a series of transactions including:
(1) the acquisition, through a merger, of TriNet; (2) the acquisition, through a
merger and a contribution of interests, of 100% of the ownership interests in
the Advisor; and (3) the change in form, through a merger, of the Company's
organization to a Maryland corporation. TriNet shareholders also approved the
TriNet Acquisition on November 3, 1999. These transactions were consummated on
November 4, 1999. As part of these transactions, the Company also replaced its
dual class common share structure with a single class of Common Stock.
TRINET ACQUISITION--TriNet merged with and into a subsidiary of the Company,
with TriNet surviving as a wholly-owned subsidiary of the Company (the "Leasing
Subsidiary"). In the TriNet Acquisition, each share of TriNet common stock was
converted into 1.15 shares of Common Stock, resulting in an aggregate issuance
of 28.9 million shares of Common Stock. Each share of TriNet Series A, Series B
and Series C Cumulative Redeemable Preferred Stock was converted into a share of
Series B, Series C or Series D (respectively) Cumulative Redeemable Preferred
Stock of the Company. The Company's preferred stock issued to the former TriNet
preferred shareholders has substantially the same terms as the TriNet preferred
stock, except that the new Series B, C and D preferred stock has additional
voting rights not
45
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--CAPITAL TRANSACTIONS (CONTINUED)
associated with the TriNet preferred stock. The holders of the Company's
Series A preferred stock retained the same rights and preferences as existed
prior to the TriNet Acquisition.
The TriNet Acquisition was accounted for as a purchase. Because the
Company's stock prior to the transaction was largely held by the Starwood
Investors, and, as a result, the stock was not widely traded relative to the
amount of shares outstanding, the pro forma financial information presented
below was prepared utilizing a stock price of $28.14 per TriNet share, which was
the average stock price of TriNet during the five-day period before and after
the TriNet Acquisition was agreed to and announced.
ADVISOR TRANSACTION--Contemporaneously with the consummation of the TriNet
Acquisition, the Company acquired 100% of the interests in the Advisor in
exchange for total consideration of four million shares of Common Stock. For
accounting purposes, the Advisor Transaction was not considered the acquisition
of a "business" in applying Accounting Principles Board Opinion No. 16,
"Business Combinations" and, therefore, the market value of the Common Stock
issued in excess of the fair value of the net tangible assets acquired of
approximately $94.5 million was charged to operating income as a non-recurring,
non-cash item in the fourth quarter of 1999, rather than capitalized as
goodwill.
INCORPORATION MERGER--Prior to the consummation of the TriNet Acquisition
and the Advisor Transaction, the Company changed its form from a Maryland trust
to a Maryland corporation in the Incorporation Merger, which technically
involved a merger of the Company with a wholly-owned subsidiary formed solely to
effect such merger. In the Incorporation Merger, the class B shares were
converted into shares of Common Stock on a 49-for-one basis (the same ratio at
which class B shares were previously convertible into class A shares), and the
class A shares were converted into shares of Common Stock on a one-for-one
basis. As a result, the Company no longer has multiple classes of common shares.
The Incorporation Merger was treated as a transfer of assets and liabilities
under common control. Accordingly, the assets and liabilities transferred from
the Maryland trust to the Maryland corporation were reflected at their
predecessor basis and no gain or loss was recognized.
The Company declared and paid a special dividend of one million shares of
its Common Stock payable pro rata to all holders of record of its Common Stock
following completion of the Incorporation Merger, but prior to the effective
time of the TriNet Acquisition and the Advisor Transaction.
PRO FORMA INFORMATION--The summary unaudited pro forma consolidated
statements of operations for the years ended December 31, 1999 and 1998 are
presented as if the following transactions, consummated in November 1999, had
occurred on January 1, 1998: (1) the TriNet Acquisition; (2) the Advisor
Transaction; and (3) the borrowings necessary to consummate the aforementioned
transactions, and as if the following transactions consummated in March 1998 had
occurred on January 1, 1998: (1) the Recapitalization Transactions; (2) the
exchange of each outstanding unit in the APMT Limited Partnership held by
holders other than the Company for one class A share; (3) the liquidation and
termination of the partnership; and (4) the borrowings necessary to consummate
the aforementioned transactions. The unaudited pro forma information is based
upon the historical consolidated results of operations of the Company and TriNet
for the years ended December 31, 1999 and 1998, after giving effect to the
events described above.
46
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--CAPITAL TRANSACTIONS (CONTINUED)
PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(UNAUDITED)
REVENUE:
Interest income........................................... $218,359 $140,261
Operating lease income.................................... 186,776 169,196
Other income.............................................. 21,000 9,776
-------- --------
Total revenue........................................... 426,135 319,233
-------- --------
EXPENSES:
Interest expense.......................................... 135,795 99,138
Operating costs-corporate tenant lease assets............. 12,601 7,651
Depreciation and amortization............................. 36,423 35,053
General and administrative................................ 21,716 20,770
Provision for possible credit losses...................... 4,750 2,750
Stock option compensation expense......................... 2,474 5,985
-------- --------
Total costs and expenses................................ 213,759 171,347
-------- --------
Income before minority interest........................... $212,376 $147,886
Minority interest......................................... (164) (128)
-------- --------
Net income................................................ $212,212 $147,758
Preferred dividend requirements........................... (36,906) (16,622)
-------- --------
Net income allocable to common shareholders............... $175,306 $131,136
======== ========
BASIC EARNINGS PER SHARE:
Basic earnings per common share........................... $ 2.01 $ 1.50
======== ========
Weighted average number of common shares outstanding...... 87,073 87,193
======== ========
Investments and dispositions are assumed to have taken place as of
January 1, 1998; however, loan originations and acquisitions are not reflected
in these pro forma numbers until the actual origination or acquisition date by
the Company. The pro forma information above excludes the charge of
approximately $94.5 million taken by the Company in fiscal 1999 to reflect the
costs incurred in acquiring the Advisor as such charge is non-recurring. The pro
forma information also excludes certain non-recurring historical charges
recorded by TriNet of $3.4 million in 1999 for a provision for a real estate
write-down and $3.0 million in 1998 for a special charge for an expected
reduction in TriNet's investment activity. General and administrative costs
represent estimated expense levels as an internally-managed Company.
The pro forma financial information is not necessarily indicative of what
the consolidated results of operations of the Company would have been as of and
for the periods indicated, nor does it purport to represent the results of
operations for future periods.
47
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LOANS AND OTHER LENDING INVESTMENTS
The following is a summary description of the Company's loans and other
lending investments (in thousands):
CARRYING VALUE
# OF ORIGINAL PRINCIPAL AS OF DECEMBER 31,
BORROWERS COMMITMENT BALANCES -----------------------
TYPE OF INVESTMENT UNDERLYING PROPERTY TYPE(1) IN CLASS(1) AMOUNT(1) OUTSTANDING(1) 2000 1999
- --------------------------- --------------------------- ----------- ------------ -------------- ---------- ----------
Senior Mortgages(5) Office/Hotel/Mixed Use/ 21 $1,337,717 $1,232,307 $1,210,992 $1,039,052
Apartment/Retail/Resort
Subordinated Mortgages Office/Hotel/Mixed Use 13 372,136 340,088 325,558 464,105
Corporate Loans/Partnership Office/Hotel/Residential/ 14 413,946 401,795 398,978 309,768
Loans/Unsecured Notes Apartment
Loan Participations Office/Retail 3 127,497 111,388 111,251 128,105
Other Lending Investments Resort/Office/Mixed Use/ N/A N/A N/A 192,404 69,976
Residential/Homebuilder
---------- ----------
Gross Carrying Value $2,239,183 $2,011,006
Provision for Possible
Credit Losses (14,000) (7,500)
---------- ----------
Total, Net $2,225,183 $2,003,506
========== ==========
EFFECTIVE PRINCIPAL PARTICI-
MATURITY CONTRACTUAL INTEREST CONTRACTUAL INTEREST AMORTIZ- PATION
TYPE OF INVESTMENT DATES PAYMENT RATES(2) ACCRUAL RATES(3) ATION FEATURES
- --------------------------- ------------- ----------------------- ----------------------- --------- --------
Senior Mortgages(5) 2001 to 2019 Fixed: 6.13% to 20.00% Fixed: 6.13% to 24.00% Yes (4) Yes (3)
Variable: LIBOR + 1.50% Variable: LIBOR + 1.50%
to 6.00% to 6.00%
Subordinated Mortgages 2002 to 2007 Fixed: 7.00% to 15.25% Fixed: 10.07% to 17.00% Yes (4) Yes (3)
Variable: LIBOR + 5.80% Variable: LIBOR + 5.80%
Corporate Loans/Partnership 2001 to 2008 Fixed: 6.13% to 14.50% Fixed: 6.13% to 17.50% Yes Yes (3)
Loans/Unsecured Notes Variable: LIBOR + 2.78% Variable: LIBOR + 2.78%
to 7.50% to 7.50%
Loan Participations 2003 to 2005 Fixed: 10.00% to 13.60% Fixed: 13.60% to 14.00% No Yes (3)
Variable: LIBOR + 4.50% Variable: LIBOR + 4.50%
Other Lending Investments 2002 and 2013 Fixed: 6.75% to 12.75% Fixed: 6.75% to 12.75% No No
Gross Carrying Value
Provision for Possible
Credit Losses
Total, Net
EXPLANATORY NOTES:
- ----------------------------------
(1) Amounts and details are for loans outstanding as of December 31, 2000.
(2) Substantially all variable-rate loans are based on 30-day LIBOR and reprice
monthly. The 30-day LIBOR rate on December 29, 2000 was 6.56%.
(3) Under some of these loans, the lender receives additional payments
representing additional interest from participation in available cash flow
from operations of the property and the proceeds, in excess of a base
amount, arising from a sale or refinancing of the property.
(4) The loans require fixed payments of principal and interest resulting in
partial principal amortization over the term of the loan with the remaining
principal due at maturity. In addition, one of the loans permits additional
annual prepayments of principal of up to $1.3 million without penalty at the
borrower's option.
(5) The unfunded commitment amount on one of the Company's construction loans,
included in senior mortgages, was $16.2 million as of December 31, 1999. As
of December 31, 2000, the construction loan was fully funded.
48
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LOANS AND OTHER LENDING INVESTMENTS (CONTINUED)
During the years ended December 31, 2000 and 1999, respectively, the Company
and its affiliated ventures originated or acquired an aggregate of approximately
$721.2 million and $663.4 million in loans and other lending investments, funded
$56.0 million and $46.4 million under existing loan commitments and received
principal repayments of $584.5 million and $561.9 million.
As of December 31, 2000, the Company had nine loans with unfunded
commitments. The total unfunded commitment amount was approximately
$151.1 million, of which $83.5 million was discretionary (i.e., at the Company's
option) and $67.6 million was non-discretionary.
The Company's loans and other lending investments are predominantly pledged
as collateral under either the iStar Asset Receivables secured notes, the
secured revolving facilities or secured term loans (see Note 7).
The Company has reflected provisions for possible credit losses of
approximately $6.5 million, $4.8 million and $2.8 million in its results of
operations during the years ended December 31, 2000, 1999 and 1998,
respectively. These provisions represent portfolio reserves based on
management's evaluation of general market conditions, the Company's internal
risk management policies and credit risk ratings system, industry loss
experience, the likelihood of delinquencies or defaults, and the underlying
collateral. No direct impairment reserves on specific loans were considered
necessary. Management may transfer reserves between general and specific
reserves as considered necessary.
NOTE 6--REAL ESTATE SUBJECT TO OPERATING LEASES
During 2000, the Company acquired one corporate tenant lease facility for a
purchase price of $22.8 million and exercised an option to purchase another
facility for $16.4 million by funding an additional $474,000 on an existing
convertible mortgage loan. Construction was completed on five facilities under
development in one of the Company's joint venture partnerships for a total
development cost of $65.2 million. In addition, the TN-CP joint venture acquired
one facility for a purchase price of $36.8 million. The Company also purchased
78.4 acres of land for approximately $80.7 million subject to a 20-year ground
lease to a corporate customer, with the first year of operating lease payments
equal to a return on cost of approximately 11.6%. In addition, the Company
purchased 32.4 acres of land for approximately $2.3 million on which it is
constructing a build-to-suit distribution facility for a corporate customer
under a 15-year tenant lease.
The Company's investments in real estate subject to operating leases, at
cost, were as follows (in thousands):
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Buildings and improvements........................... $1,294,572 $1,390,933
Land and land improvements........................... 344,490 277,872
Less: accumulated depreciation....................... (46,975) (14,627)
---------- ----------
1,592,087 1,654,178
Investments in unconsolidated joint ventures......... 78,082 60,106
---------- ----------
Real estate subject to operating leases, net... $1,670,169 $1,714,284
========== ==========
49
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--REAL ESTATE SUBJECT TO OPERATING LEASES (CONTINUED)
The Company's net lease facilities are leased to customers with initial term
expiration dates from 2001 to 2020. Future operating lease payments under
non-cancelable leases, excluding customer reimbursements of expenses, in effect
at December 31, 2000, are approximately as follows (in thousands):
YEAR AMOUNT
- ---- ----------
2001........................................................ $ 176,429
2002........................................................ 172,811
2003........................................................ 164,401
2004........................................................ 146,279
2005........................................................ 127,867
Thereafter.................................................. 751,177
----------
$1,538,964
==========
Under certain leases, the Company receives additional participating lease
payments to the extent gross revenues of the tenant exceed a base amount. The
Company earned $0.6 million and $0.5 million of such additional participating
lease payments in the years ended December 31, 2000 and 1999, respectively. In
addition, the Company also receives reimbursements from tenants for certain
facility operating expenses.
At December 31, 2000, the Company had investments in five joint ventures:
(1) TriNet Sunnyvale Partners L.P. ("Sunnyvale"), whose external partners are
John D. O'Donnell, Trustee, John W. Hopkins, and Donald S. Grant; (2) Corporate
Technology Associates LLC ("CTC I"), whose external member is Corporate
Technology Centre Partners LLC; (3) Sierra Land Ventures ("Sierra"), whose
external joint venture partner is Sierra-LC Land, Ltd.; (4) TriNet Milpitas
Associates, LLC ("Milpitas"), whose external member is The Prudential Insurance
Company of America; and (5) ACRE Simon, L.L.C. ("ACRE"), whose external partner
is William E. Simon & Sons Realty Investments, L.L.C. These ventures were formed
for the purpose of operating, acquiring and in certain cases, developing
corporate tenant lease facilities. At December 31, 2000, all facilities held by
CTC II and TN-CP had been sold. The Company previously had an equity investment
in CTC II which was sold for approximately $66.0 million in September, 2000. In
connection with this sale, the note receivable from the venture was modified to
mature on December 31, 2001. The note receivable and related accrued interest
are included in Loans and Other Lending Investments at December 31, 2000.
Through the TriNet Acquisition, the Company also acquired a 50% interest in
W9/TriNet Poydras LLC ("Poydras"). Effective November 22, 1999, the joint
venture partners, who are affiliates of Whitehall Street Real Estate Limited
Partnership, IX and The Goldman Sachs Group L.P. (the "Whitehall Group"),
elected to exercise their right under the partnership agreement, which was
accelerated as a result of the TriNet Acquisition, to exchange all of their
membership units for 350,746 shares of Common Stock of the Company and a
$767,000 distribution of available cash. As a consequence, Poydras is now wholly
owned and is reflected on a consolidated basis in these financial statements.
At December 31, 2000, the ventures comprised 23 net leased facilities, three
of which were under development (these three facilities became fully operational
with lease payments commencing as of January 2001). Additionally, 17.7 acres of
land are held for sale. The Company's combined investment in these joint
ventures at December 31, 2000 was $78.1 million. The joint ventures' purchase
price for the 23 facilities owned at December 31, 2000 was $295.7 million. The
purchase price of the land held for sale was $6.8 million. In the aggregate, the
joint ventures had total assets of $366.8 million and total liabilities of
$267.8 million as of December 31, 2000, and net income of $7.1 million for the
year ended December 31,
50
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--REAL ESTATE SUBJECT TO OPERATING LEASES (CONTINUED)
2000. The Company accounts for these investments under the equity method because
the Company's joint venture partners have certain participating rights which
limit the Company's control. The Company's investments in and advances to
unconsolidated joint ventures, its percentage ownership interests, its
respective income and the Company's pro rata share of its ventures' third-party
debt as of December 31, 2000 are presented below (in thousands):
PRO RATA
ACCRUED JOINT SHARE OF
UNCONSOLIDATED OWNERSHIP EQUITY NOTE INTEREST TOTAL VENTURE INTEREST THIRD-PARTY
JOINT VENTURE % INVESTMENT RECEIVABLE RECEIVABLE INVESTMENT INCOME INCOME DEBT
- ------------------------- --------- ---------- ---------- ---------- ---------- -------- -------- -----------
Operating:
Sunnyvale.............. 44.7% $12,772 $ -- $ -- $ 12,772 $1,163 $ -- $ 10,728
CTC I.................. 50.0% 32,440 -- -- 32,440 1,053 43,789
CTC II................. 50.0% -- 24,874 6,222 31,096 (755) 5,371 --
Milpitas............... 50.0% 24,289 -- -- 24,289 2,941 -- 40,641
TN-CP.................. 50.0% -- -- -- -- 397 -- --
ACRE Simon............. 20.0% 5,099 -- -- 5,099 42 -- 6,009
Development:
Sierra................. 50.0% 3,482 -- -- 3,482 217 -- 724
------- ------- ------ -------- ------ ------ --------
Total.............. $78,082 $24,874 $6,222 $109,178 $5,058 $5,371 $101,891
======= ======= ====== ======== ====== ====== ========
Effective September 29, 2000, iStar Sunnyvale Partners, LP entered into an
interest rate cap agreement with Bear Stearns Financial Products, limiting the
venture's exposure to interest rate movements on its $24.0 million LIBOR-based
mortgage loan to an interest rate cap of 9.0% through November 9, 2003.
Currently, the limited partners of the Sunnyvale partnership have the option
to convert their partnership interest into cash; however, the Company may elect
to deliver 297,728 shares of Common Stock in lieu of cash. Additionally,
commencing in February 2002, subject to acceleration under certain
circumstances, partnership units held by certain partners of Milpitas may be
converted into 984,476 shares of Common Stock.
Income generated from the above joint venture investments is included in
Operating Lease Income in the Consolidated Statements of Operations.
51
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT OBLIGATIONS
As of December 31, 2000 and 1999, the Company has debt obligations under
various arrangements with financial institutions as follows (in thousands):
CARRYING VALUE AS OF
MAXIMUM --------------------------- STATED SCHEDULED
AMOUNT DECEMBER 31, DECEMBER 31, INTEREST MATURITY
AVAILABLE 2000 1999 RATES DATE
---------- ------------ ------------ -------------------------- ----------------------
SECURED REVOLVING CREDIT
FACILITIES:
Line of credit............... $ 700,000(1) $ 284,371 $ 592,984 LIBOR + 1.75% - 2.25% (1) March 2005 (1)
Line of credit............... 500,000 307,978 169,952 LIBOR + 1.50% - 1.75% (2) August 2002 (2)
UNSECURED REVOLVING CREDIT
FACILITIES:
Line of credit............... 350,000 173,450 186,700 LIBOR + 1.55% May 2001 (3)
Line of credit............... 100,000 -- -- LIBOR + 2.25% January 2002
---------- ---------- ----------
Total revolving credit $1,650,000 765,799 949,636
facilities.................
==========
SECURED TERM LOANS:
Secured by real estate under operating 150,678 153,618 7.44% March 2009
leases.................................
Secured by senior and subordinate -- 109,398 LIBOR + 1.00% August 2000 (4)
mortgage investments...................
Secured by senior mortgage investment.... -- 90,902 LIBOR + 1.00% August 2000 (4)
Secured by corporate lending 60,000 -- LIBOR + 2.50% June 2003 (5)
investments............................
Secured by real estate under operating 77,860 78,610 LIBOR + 1.38% June 2001
leases (6).............................
Secured by real estate under operating 60,471 73,279 Fixed: 6.00%-11.38% (7)
leases................................. Variable: LIBOR + 1.00%
Secured by senior mortgage investment.... -- 54,000 LIBOR+ 1.75% (8) November 2000
---------- ----------
Total term loans......................... 349,009 559,807
Debt premiums (discounts)................ 51 (521)
---------- ----------
Total secured term loans................. 349,060 559,286
iStar Asset Receivables secured
notes:
Class A.................................. 207,114 -- LIBOR + 0.30% August 2003 (9)
Class B.................................. 94,055 -- LIBOR + 0.50% October 2003 (9)
Class C.................................. 105,813 -- LIBOR + 1.00% January 2004 (9)
Class D.................................. 52,906 -- LIBOR + 1.45% June 2004 (9)
Class E.................................. 123,447 -- LIBOR + 2.75% January 2005 (9)
Class F.................................. 5,000 -- LIBOR + 3.15% January 2005 (9)
---------- ----------
Total iStar Asset Receivables secured 588,335 --
notes..................................
UNSECURED NOTES (10):
6.75% Dealer Remarketable Securities 125,000 125,000 6.75% March 2013
(11)...................................
7.30% Notes.............................. 100,000 100,000 7.30% May 2001
7.70% Notes.............................. 100,000 100,000 7.70% July 2017
7.95% Notes.............................. 50,000 50,000 7.95% May 2006
---------- ----------
Total unsecured notes.................... 375,000 375,000
Less: debt discount (12)................. (18,490) (21,481)
---------- ----------
Total unsecured notes.................... 356,510 353,519
OTHER DEBT OBLIGATIONS....................... 72,263 38,763 Various Various
---------- ----------
TOTAL DEBT OBLIGATIONS....................... $2,131,967 $1,901,204
========== ==========
EXPLANATORY NOTES:
- ------------------------------
(1) On December 28, 2000, the Company expanded the facility to $700.0 million,
increased the range of collateral eligible for inclusion in the facility,
increased pricing to LIBOR +1.75% to 2.25%, and extended its final maturity
to March 2005 (including an option to extend for an additional year).
52
(2) On February 4, 2000, the Company extended the term of its $500.0 million
facility to August 2002 and increased pricing under the facility to
LIBOR + 1.50% to 1.75%.
(3) Subsequent to year end, the Company extended the maturity of this credit
facility to May 2002.
(4) On May 17, 2000, the Company repaid these secured term loan obligations.
(5) The Company has a one-year extension option in June 2003.
(6) The Company provides a guarantee for 25% of the principal balance
outstanding.
(7) These mortgage loans mature at various dates through 2010.
(8) On November 30, 2000, the Company repaid this secured loan obligation.
(9) Principal payments on these bonds are a function of the principal repayments
on loan assets which collateralize these obligations. The dates indicated
above represent the expected date on which the final payment would occur for
such class based on the assumptions that the loans which collateralize the
obligations are not voluntarily prepaid, the loans are paid on their
effective maturity dates and no extensions of the effective maturity dates
of any of the loans are granted. The final maturity date for the underlying
indenture on classes A, B, C, D, E and F is September 25, 2022.
(10) The notes are callable by the Company at any time for an amount equal to
the total of principal outstanding, accrued interest and the applicable
make-whole prepayment premium.
(11) Subject to mandatory tender on March 1, 2003, to either the dealer or the
Leasing Subsidiary. The initial coupon of 6.75% applies to first five-year
term through the mandatory tender date. If tendered to the dealer, the notes
must be remarketed. The rates reset upon remarketing.
(12) These obligations were assumed as part of the TriNet Acquisition. As part
of the accounting for the purchase, these fixed rate obligations were
considered to have stated interest rates which were below the then
prevailing market rates at which the Leasing Subsidiary could issue new debt
obligations and, accordingly, the Company ascribed a market discount to each
obligation. Such discounts will be amortized as an adjustment to interest
expense using the effective interest method over the related term of the
obligations. As adjusted, the effective annual interest rates on these
obligations were 8.81%, 8.75%, 9.51% and 9.04%, for the 6.75% Dealer
Remarketable Securities, 7.30% Notes, 7.70% Notes and 7.95% Notes,
respectively.
53
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT OBLIGATIONS (CONTINUED)
Availability of amounts under the secured revolving credit facilities are
based on percentage borrowing base calculations.
Certain of the Leasing Subsidiary's debt obligations contain financial
covenants pertaining to the subsidiary. Such obligations also establish
restrictions on certain intercompany transactions between the Leasing Subsidiary
and other Company affiliates. Further, such obligations also provide for a limit
on distributions from the Leasing Subsidiary at 85% of cash flow from operations
on a rolling four-quarter basis.
On January 31, 2000, the Company closed a new unsecured revolving credit
facility. The facility is led by a major commercial bank, which committed
$50.0 million of the facility amount. On July 7, 2000, the Company increased the
facility amount to $100.0 million through syndication. The new facility has a
two-year primary term and a one-year extension, at the Company's option, and
bears interest at LIBOR plus 2.25%.
On February 4, 2000, the Company extended the term of its existing
$500.0 million secured credit facility. The Company extended the original
August 2000 maturity date to August 2002, through a one-year extension to the
facility's draw period and an additional one-year "term out" period during which
outstanding principal amortizes 25% per quarter. In connection with the
extension, the Company and the facility lender also expanded the range of assets
that the lender would accept as collateral under the facility. In exchange for
the extension and expansion, the Company agreed to increase the facility's
interest rate from LIBOR plus 1.25% to 1.50%, to a revised rate of LIBOR plus
1.50% to 1.75%, depending upon certain conditions.
On May 17, 2000, the Company closed the inaugural offering under its
proprietary matched funding program, iStar Asset Receivables ("STARS"),
Series 2000-1. In the initial transaction, a wholly-owned subsidiary of the
Company issued $896.5 million of investment grade bonds secured by the
subsidiary's assets, which had an aggregate outstanding principal balance of
approximately $1.2 billion at inception. Principal payments received on the
assets will be utilized to repay the most senior class of the bonds then
outstanding. The maturity of the bonds match funds the maturity of the
underlying assets financed under the program. The Company initially purchased
the class F bonds at a par value of $38.2 million, which the Company financed
with a $27.8 million repurchase agreement maturing in May 2001, which has a
balance of $24.2 million at December 31, 2000 and is included in other debt
obligations in the preceding table. On July 17, 2000, the Company sold, at par,
$5.0 million of the class F bonds to an institutional investor. For accounting
purposes, these transactions were treated as secured financings.
On June 20, 2000, the Company closed a $60.0 million term loan secured by a
corporate lending investment it originated in the first quarter of 2000. The new
loan replaced a $30.0 million interim facility, and effectively match funds the
expected weighted average maturity of the underlying corporate loan asset. The
loan has a three-year primary term and a one-year extension, at the Company's
option, and bears interest at LIBOR plus 2.50%.
On December 28, 2000, the Company expanded its existing $675.0 million
secured warehouse facility to $700.0 million. The Company extended the original
March 2001 maturity date to March 2005, including a one-year "term-out"
extension option to the facility's maturity during which the interest rate
spread will increase 25 basis points, no additional draws under the facility
will be permitted, and the outstanding principal must amortize 25% per quarter.
In connection with the extension, the Company and the facility lender also
increased the range of collateral eligible for inclusion in the facility. Also
in connection with the
54
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT OBLIGATIONS (CONTINUED)
extension, the Company agreed to increase the facility's interest rate from
LIBOR plus 1.50% to a revised rate of LIBOR plus 1.75% to 2.25%, depending upon
certain conditions.
See also Note 17--Subsequent Events for information on a new $700.0 million
secured revolving credit facility entered into on January 11, 2001 and the
extension of the Company's $350.0 million unsecured revolving credit facility.
During the year ended December 31, 2000, the Company incurred an
extraordinary loss of approximately $0.7 million as a result of the early
retirement of certain secured debt obligations of its Leasing Subsidiary.
Future expected/scheduled maturities of outstanding long-term debt
obligations are as follows (in thousands):
2001(1)..................................................... $ 280,917
2002(2)..................................................... 496,420
2003........................................................ 361,169
2004........................................................ 158,719
2005(3)..................................................... 416,557
Thereafter.................................................. 436,624
----------
Total principal maturities.................................. 2,150,406
Net unamortized debt (discounts)/premiums................... (18,439)
----------
Total debt obligations...................................... $2,131,967
==========
EXPLANATORY NOTES:
- ------------------------------
(1) Includes the 1994 mortgage loan balance of $36.3 million which had an
original maturity date in 2004 and was repaid on March 1, 2001.
(2) Reflects the one-year extension on the $350.0 million unsecured revolving
credit facility to mature in 2002.
(3) Assumes exercise of one-year extension option on secured revolving facility.
NOTE 8--SHAREHOLDERS' EQUITY
Prior to November 4, 1999, the Company was authorized to issue 105.0 million
shares, representing 70.0 million class A shares and 35.0 million class B
shares, with a par value of $1.00 and $0.01 per share, respectively. Class B
shares were required to be issued by the Company in an amount equal to one half
of the number of class A shares outstanding. Class A and class B shares were
each entitled to one vote per share with respect to the election of directors
and other matters. Pursuant to the Declaration of Trust, the class B shares were
convertible at the option of the class B shareholders into class A shares on the
basis of 49 class B shares for one class A share. However, the holder of
class B shares had agreed with the Company that it would not convert the
class B shares into class A shares without the approval of a majority of
directors that were not affiliated with such holder. All distributions of cash
were made 99% to the holders of class A shares and 1% to the holders of class B
shares.
On December 15, 1998, for an aggregate purchase price of $220.0 million, the
Company issued 4.4 million shares of Series A Preferred Stock and warrants to
acquire 6.1 million common shares of Common Stock, as adjusted for dilution, at
$34.35 per share. The warrants are exercisable on or after
55
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--SHAREHOLDERS' EQUITY (CONTINUED)
December 15, 1999 at a price of $34.35 per share and expire on December 15,
2005. The proceeds were allocated between the two securities issued based on
estimated relative fair values.
As more fully described in Note 4, the Company consummated a series of
transactions on November 4, 1999 in which its class A and class B shares were
exchanged into a single class of Common Stock. The Company's charter now
provides for the issuance of up to 200.0 million shares of Common Stock, par
value $0.001 per share, and 30.0 million shares of preferred stock. As part of
these transactions, the Company adopted articles supplementary creating four
series of preferred stock designated as 9.5% Series A Cumulative Redeemable
Preferred Stock, consisting of 4.4 million shares, 9.375% Series B Cumulative
Redeemable Preferred Stock, consisting of 2.3 million shares, 9.20% Series C
Cumulative Redeemable Preferred Stock, consisting of approximately 1.5 million
shares, and 8.0% Series D Cumulative Redeemable Preferred Stock, consisting of
4.6 million shares. The Series B, C and D Cumulative Redeemable Preferred Stock
were issued in the TriNet Acquisition in exchange for similar issuances of
TriNet stock then outstanding. The Series A, B, C and D Cumulative Redeemable
Preferred Stock are redeemable without premium at the option of the Company at
their respective liquidation preferences beginning on December 15, 2003,
June 15, 2001, August 15, 2001 and October 8, 2002, respectively.
STOCK REPURCHASE PROGRAM: The Board of Directors approved, and the Company
has implemented, a stock repurchase program under which the Company is
authorized to repurchase up to 5.0 million shares of its Common Stock from time
to time, primarily using proceeds from the disposition of assets and excess cash
flow from operations, but also using borrowings under its credit facilities if
the Company determines that it is advantageous to do so. As of December 31, 2000
and December 31, 1999, the Company had repurchased approximately 2.3 million
shares at an aggregate cost of approximately $40.7 million and $40.4 million,
respectively.
NOTE 9--RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
RISK MANAGEMENT--In the normal course of its on-going business operations,
the Company encounters economic risk. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different speeds, or different bases, than its
interest-earning assets. Credit risk is the risk of default on the Company's
loan assets that results from a property's, borrower's or tenant's inability or
unwillingness to make contractually required payments. Market risk reflects
changes in the value of loans due to changes in interest rates or other market
factors, including the rate of prepayments of principal and the value of the
collateral underlying loans and the valuation of corporate tenant lease
facilities held by the Company.
USE OF DERIVATIVE FINANCIAL INSTRUMENTS--The Company's use of derivative
financial instruments is primarily limited to the utilization of interest rate
agreements or other instruments to manage interest rate risk exposure. The
principal objective of such arrangements is to minimize the risks and/or costs
associated with the Company's operating and financial structure as well as to
hedge specific anticipated transactions. The counterparties to these contractual
arrangements are major financial institutions with which the Company and its
affiliates may also have other financial relationships. The Company is
potentially exposed to credit loss in the event of nonperformance by these
counterparties. However, because of their high credit ratings, the Company does
not anticipate that any of the counterparties will fail to meet their
obligations.
56
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS (CONTINUED)
The Company has entered into LIBOR interest rate caps struck at 9.00%, 7.50%
and 7.50% in notional amounts of $300.0 million, $40.4 million and
$38.3 million, respectively, which expire in March 2001, January 2001 and
June 2001, respectively. In addition, in connection with the TriNet Acquisition,
the Company acquired LIBOR interest rate caps currently struck at 7.75%, 7.75%
and 7.50% in notional amounts of $75.0 million, $35.0 million and
$75.0 million, respectively, which expire in December 2004, December 2004 and
August 2001, respectively. In connection with the closing of STARS,
Series 2000-1 in May 2000, the Company entered into a LIBOR interest rate cap
struck at 10.00% in the notional amount of $312.0 million, and simultaneously
sold a LIBOR interest rate cap with the same terms. Since these instruments do
not reduce the Company's net interest rate risk exposure, they do not qualify as
hedges and changes in their respective values are charged to earnings. As the
significant terms of these arrangements are substantially the same, the effects
of a revaluation of these two instruments are expected to substantially offset
one another. At December 31, 2000 and 1999, the net fair value of the Company's
interest rate caps were $0.4 million and $2.2 million, respectively.
The Company has entered into LIBOR interest rate swaps struck at 5.714%,
7.055%, and 7.058% in notional amounts of $92.0 million, $125.0 million and
$125.0 million, respectively, which expire in March 2001, June 2003 and
June 2003, respectively. These swaps effectively fix the interest rate on a
portion of the Company's floating-rate term loan obligations. In connection with
the TriNet Acquisition, the Company acquired an interest rate swap which,
together with certain existing interest rate cap agreements, effectively fix the
interest rate on $75.0 million of the Leasing Subsidiary's LIBOR-based
borrowings at 5.58% plus the applicable margin through December 1, 2004.
Management expects that it will have aggregate LIBOR-based borrowings at the
Leasing Subsidiary in excess of the notional amount for the duration of the
swap. The actual borrowing cost to the Company with respect to indebtedness
covered by the swap will depend upon the applicable margin over LIBOR for such
indebtedness, which will be determined by the terms of the relevant debt
instruments. In June 2000, an interest rate swap with a notional amount of
approximately $112.0 million matured. At December 31, 2000 and 1999, the fair
value (liability) of the Company's interest rate swaps were ($7.7) million and
$3.4 million, respectively.
During the year ended December 31, 1999, the Company settled an aggregate
notional amount of approximately $63.0 million that was outstanding under
certain hedging agreements which the Company had entered into in order to hedge
the potential effects of interest rate movements on anticipated fixed-rate
borrowings. The settlement of such agreements resulted in a receipt of
approximately $0.6 million which had been deferred pending completion of the
planned fixed-rate financing transaction. Subsequently, the transaction was
modified and was actually consummated as a variable-rate financing transaction.
As a result, the previously deferred receipt no longer qualified for hedge
accounting treatment and the $0.6 million was recognized as a gain included in
other income in the consolidated statement of operations for the year ended
December 31, 2000 in connection with the closing of STARS, Series 2000-1.
During the year ended December 31, 1999, the Company refinanced its
$125.0 million term loan maturing March 15, 1999 with a $155.4 million term loan
maturing March 5, 2009. The new term loan bears interest at 7.44% per annum,
payable monthly, and amortizes over an approximately 22-year schedule. The new
term loan represented forecasted transactions for which the Company had
previously entered into U.S. Treasury-based hedging transactions. The net
$3.4 million cost of the settlement of such hedges has been deferred and is
being amortized as an increase to the effective financing cost of the new term
loan over its effective ten-year term.
CREDIT RISK CONCENTRATIONS--Concentrations of credit risks arise when a
number of borrowers or tenants related to the Company's investments are engaged
in similar business activities, or activities in the
57
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS (CONTINUED)
same geographic region, or have similar economic features that would cause their
ability to meet contractual obligations, including those to the Company, to be
similarly affected by changes in economic conditions. The Company regularly
monitors various segments of its portfolio to assess potential concentrations of
credit risks. Management believes the current credit risk portfolio is
reasonably well diversified and does not contain any unusual concentration of
credit risks.
Substantially all of the Company's real estate subject to operating leases
(including those held by joint ventures) and loans and other lending
investments, are collateralized by facilities located in the United States, with
significant concentrations (i.e., greater than 10%) as of December 31, 2000 in
California (23.7%) and Texas (14.7%). As of December 31, 2000, the Company's
investments also contain significant concentrations in the following
asset/collateral types: office (48.5%) and hotel/resorts (20.2%).
The Company underwrites the credit of prospective borrowers and tenants and
often requires them to provide some form of credit support such as corporate
guarantees or letters of credit. Although the Company's loans and other lending
investments and corporate tenant lease assets are geographically diverse and the
borrowers and tenants operate in a variety of industries, to the extent the
Company has a significant concentration of interest or operating lease revenues
from any single borrower or tenant, the inability of that borrower or tenant to
make its payment could have an adverse effect on the Company. As of
December 31, 2000, the Company's five largest borrowers or tenants collectively
accounted for approximately 18.6% of the Company's aggregate annualized interest
and operating lease revenue.
NOTE 10--INCOME TAXES
Although originally formed to qualify as a REIT under the Code for the
purpose of making and acquiring various types of mortgage and other loans,
during 1993 through 1997, the Company failed to qualify as a REIT. As confirmed
by a closing agreement with the Internal Revenue Service (the "IRS") obtained in
March 1998, the Company was eligible, elected to be taxed as a REIT and
qualified for REIT status for the tax years commencing on January 1, 1998. The
Company did not incur any material tax liabilities as a result of its operations
during such years.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and income tax purposes, as well as operating loss and tax credit carry
forwards. A valuation allowance is recorded if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
income tax asset will not be realized. Given the limited nature of the Company's
operations and assets and liabilities from 1993 through 1997, the only deferred
tax assets are net operating loss carry forwards ("NOL's") of approximately $4.0
million, which arose during such periods. Since the Company has elected to be
treated as a REIT for its tax years beginning January 1, 1998, the NOL's will
expire unutilized. Accordingly, no net deferred tax asset value, after
consideration of a 100% valuation allowance, has been reflected in these
financial statements as of December 31, 2000 and 1999, nor has any net tax
provision for the fiscal years ended December 31, 2000, 1999 or 1998.
NOTE 11--STOCK OPTION PLANS AND EMPLOYEE BENEFITS
The Company's 1996 Long-Term Incentive Plan (the "Plan") is designed to
provide incentive compensation for officers, other key employees and directors
of the Company. The Plan provides for awards of stock options and restricted
stock and other performance awards. The maximum number of shares of Common Stock
available for awards under the Plan is 9% of the outstanding shares of Common
Stock, calculated on a fully diluted basis, from time to time; provided that the
number of shares of
58
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK OPTION PLANS AND EMPLOYEE BENEFITS (CONTINUED)
Common Stock reserved for grants of options designated as incentive stock
options is 5.0 million, subject to certain antidilution provisions in the Plan.
All awards under the Plan, other than automatic awards to non-employee
directors, are at the discretion of the Board or a committee of the Board. At
December 31, 2000, a total of approximately 7.7 million shares of Common Stock
were available for awards under the Plan, of which options to purchase
approximately 4.7 million shares of Common Stock were outstanding and
approximately 56,000 shares of restricted stock were outstanding.
Concurrently with the Recapitalization Transactions, the Company issued
approximately 2.5 million (as adjusted) fully vested and immediately exercisable
options to purchase class A shares at $14.72 per share (as adjusted) to the
Advisor with a term of ten years. The Advisor granted a portion of these options
to its employees and the remainder were allocated to an affiliate. Upon
consummation of the Advisor Transaction, these individuals became employees of
the Company. In general, the grants to these employees provided for scheduled
vesting over a predefined service period of three to five years and, under
certain conditions, provide for accelerated vesting. These options expire on
March 15, 2008.
In connection with the TriNet Acquisition, outstanding options to purchase
TriNet stock under TriNet's stock option plans were converted into options to
purchase shares of Common Stock on substantially the same terms, except that
both the exercise price and number of shares issuable upon exercise of the
TriNet options were adjusted to give effect to the merger exchange ratio of 1.15
shares of Common Stock for each share of TriNet common stock. In addition,
options held by the former directors of TriNet and certain executive officers
became fully vested as a result of the transaction. Such options were converted
into options to purchase shares of Common Stock on substantially the same terms,
as adjusted for the merger exchange ratio.
Also, as a result of the TriNet Acquisition, TriNet terminated its dividend
equivalent rights program. The program called for immediate vesting and cash
redemption of all dividend equivalent rights upon a change of control of 50% or
more of the voting common stock. Concurrent with the TriNet Acquisition, all
dividend equivalent rights were vested and amounts due to former TriNet
employees of approximately $8.3 million were paid by the Company. Such payments
were included as part of the purchase price paid by the Company to acquire
TriNet for financial reporting purposes.
59
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK OPTION PLANS AND EMPLOYEE BENEFITS (CONTINUED)
Changes in options outstanding during each of fiscal 1998, 1999 and 2000 are
as follows:
NUMBER OF SHARES
------------------------------------- AVERAGE
NON-EMPLOYEE STRIKE
EMPLOYEES DIRECTORS OTHER PRICE
--------- ------------ ---------- --------
OPTIONS OUTSTANDING, DECEMBER 31, 1997............ -- 1,333 -- $13.32
Granted in 1998................................. -- 9,996 2,402,476 $ --
Exercised in 1998............................... -- (687) (18,000) $15.00
Forfeited in 1998............................... -- (646) -- $15.00
--------- ------- ----------
OPTIONS OUTSTANDING, DECEMBER 31, 1998............ -- 9,996 2,384,476 $15.00
Granted in 1999................................. -- 4,998 -- $57.50
Exercised in 1999............................... -- -- (68,233) $15.00
Forfeited in 1999............................... (23,690) -- (4,166) $24.94
Assumed in TriNet Acquisition................... 1,321,322 131,100 -- $25.62
Reclassification for Advisor Transaction(1)..... 1,447,083 -- (1,447,083) $15.00
Adjustment for dilution......................... 33,537 285 16,169 $14.72
--------- ------- ----------
OPTIONS OUTSTANDING, DECEMBER 31, 1999............ 2,778,252 146,379 881,163 $19.03
Granted in 2000................................. 1,852,059 80,000 80,000 $17.34
Exercised in 2000............................... (412,734) -- -- $15.67
Forfeited in 2000............................... (682,005) -- -- $25.47
--------- ------- ----------
OPTIONS OUTSTANDING, DECEMBER 31, 2000............ 3,535,572 226,379 961,163 $18.97
========= ======= ==========
EXPLANATORY NOTE:
- ------------------------
(1) Represents the reclassification of stock options originally granted to the
Advisor and regranted to its employees who became employees of the Company
upon consummation of the Advisor Transaction (see Note 4).
60
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK OPTION PLANS AND EMPLOYEE BENEFITS (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL EXERCISE CURRENTLY EXERCISE
EXERCISE PRICE RANGE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------------- ----------- ----------- -------- ----------- --------
$14.72 - $15.00 1,992,668 7.20 $14.73 947,168 $14.72
$16.69 - $16.88 1,212,109 8.09 $16.86 81,533 $16.88
$17.38 - $17.56 550,000 9.21 $17.39 -- $ --
$19.50 - $19.69 6,250 9.39 $19.54 -- $ --
$20.63 - $21.44 258,050 6.87 $21.01 100,050 $21.13
$22.44 - $22.45 54,500 3.82 $22.44 34,500 $22.45
$23.32 - $23.64 130,842 2.12 $23.46 101,351 $23.41
$24.13 - $24.57 173,650 3.63 $24.31 173,650 $24.31
$25.22 - $26.09 34,500 3.40 $25.74 34,500 $25.74
$26.30 - $26.85 108,100 2.95 $26.74 108,100 $26.74
$28.26 - $28.54 67,113 1.97 $28.37 60,842 $28.36
$30.33 119,888 1.60 $30.33 99,769 $30.33
$33.15 - $33.70 10,350 1.97 $33.39 8,913 $33.43
$55.39 5,094 8.42 $55.39 1,698 $55.39
--------- ----- ------ --------- ------
4,723,114 7.18 $17.65 1,752,074 $19.25
========= ===== ====== ========= ======
EXPLANATORY NOTE:
- ------------------------------
(1) Includes approximately 764,000 options which were granted, on a fully
exercisable basis, in connection with the Recapitalization Transactions to
Starwood Capital Group, and were subsequently regranted by that entity to
its employees subject to vesting requirements. As a result of those vesting
requirements, less than 2,000 of these options are currently exercisable by
the beneficial owners. In the event that these employees forfeit such
options, they revert to Starwood Capital Group, who may regrant them at its
discretion.
The Company has elected to use the intrinsic method for accounting for
options issued to employees or directors, as allowed under Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("SFAS No. 123") and, accordingly, recognizes no compensation charge in
connection with these options to the extent that the options exercise price
equals or exceeds the quoted price of the Company's common shares at the date of
grant or measurement date. In connection with the Advisor Transaction, as part
of the computation of the one-time charge to earnings, the Company calculated a
deferred compensation charge of approximately $5.1 million. This deferred charge
represents the difference of the closing sales price of the shares of Common
Stock on the date of the Advisor Transaction of $20.25 over the strike price of
the options of $14.72 per share (as adjusted) for the unvested portion of the
options granted to former employees of the Advisor who are now employees of the
Company. This deferred charge will be amortized over the related remaining
vesting terms to the individual employees as additional compensation expense.
In connection with the original grant of options in March 1998 to the
Advisor, the Company utilized the option value method as required by SFAS
No. 123. An independent financial advisory firm estimated the value of these
options at date of grant to be approximately $2.40 per share using a
Black-Scholes valuation model. In the absence of comparable historical market
information for the Company, the
61
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK OPTION PLANS AND EMPLOYEE BENEFITS (CONTINUED)
advisory firm utilized assumptions consistent with activity of a comparable peer
group of companies, including an estimated option life of five years, a 27.5%
volatility rate and an estimated annual dividend rate of 8.5%. The resulting
charge to earnings was calculated as the number of options allocated to the
Advisor multiplied by the estimated value at consummation. A charge of
approximately $6.0 million was reflected in the Company's first quarter 1998
financial results for this original grant.
Had the Company's compensation costs been determined using the fair value
method of accounting for stock options issued under the Plan to employees and
directors prescribed by SFAS No. 123, the Company's net income and earnings per
share for the fiscal years ended December 31, 2000 and 1999 would have been
reduced on a pro forma basis by approximately $275,000 and $141,000,
respectively. This would not have significantly impacted earnings per share. As
the Company had no employees prior to the consummation of the Advisor
Transaction, no pro forma adjustment is necessary to reflect in the results of
operations for fiscal 1998 as if the option value were utilized.
For the above SFAS No. 123 calculation, the Company utilized the following
assumptions: a 26.8% volatility rate (historical volatility for the Company's
Common Stock at December 31, 2000), a risk free rate of 5.3% and an estimated
annual dividend rate of 13.5%.
Future charges may be taken to the extent of additional option grants, which
are at the discretion of the Board of Directors.
During the year ended December 31, 2000, the Company granted 76,585
restricted stock units ("RSU's") to new employees. The RSU's vest over a
three-year period, with the exception of 12,500 RSU's, which were immediately
vested on the date of grant. The RSU's are valued at the date of grant and are
reflected as compensation expense over the vesting period.
On July 28, 2000, the Company granted to its employees profits interests in
a wholly-owned subsidiary of the Company called iStar Venture Direct Holdings,
LLC. iStar Venture Direct Holdings, LLC has invested $2.4 million in the
aggregate in the preferred stock of three real estate-related technology
companies. The profits interests have a three-year vesting schedules, and are
subject to forfeiture in the event of termination of employment for cause or a
voluntary resignation.
Effective November 4, 1999, the Company implemented a savings and retirement
plan (the "401 (k) Plan"), which is a voluntary, defined contribution plan. All
employees are eligible to participate in the 401 (k) Plan following completion
of six months of continuous service with the Company. Each participant may
contribute on a pretax basis between 2% and 15% of such participant's
compensation. At the discretion of the Board of Directors, the Company may make
matching contributions on the participant's behalf up to 50% of the first 10% of
the participant's annual contribution. The Company made contributions of
approximately $320,000 to the 401 (k) Plan for the year ended December 31, 2000.
NOTE 12--EARNINGS PER SHARE
Prior to November 4, 1999, Basic EPS was computed based on the income
allocable to class A shares (net income reduced by accrued dividends on
preferred shares and by 1% allocated to class B shares), divided by the weighted
average number of class A shares outstanding during the period. Diluted EPS was
based on the net earnings allocable to class A shares plus dividends on class B
shares which were convertible into class A shares, divided by the weighted
average number of class A shares and dilutive potential class A shares that were
outstanding during the period. Dilutive potential class A shares included the
class B shares, which were convertible into class A shares at a rate of 49
class B shares for one class A
62
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--EARNINGS PER SHARE (CONTINUED)
share, and potentially dilutive options to purchase class A shares issued to the
Advisor and the Company's directors and warrants to acquire class A shares.
As more fully described in Note 4, in the Incorporation Merger, the class A
shares and class B shares were converted into shares of Common Stock and, as a
result, the Company no longer has multiple classes of common shares. Basic and
diluted earnings per share are based upon the following weighted average shares
outstanding during during the years ended December 31, 2000, 1999 and 1998,
respectively:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Weighted average common shares outstanding for basic
earnings per common share................................. 85,441 57,749 41,607
Add effect of assumed shares issued under treasury stock
method for stock options and restricted stock units....... 710 1,500 1,311
Add effects of conversion of class B shares (49-for-one).... -- 450 445
Add effects of assumed warrants exercised under treasury
stock method for stock options............................ -- 694 97
------ ------ ------
Weighted average common shares outstanding for diluted
earnings per common share................................. 86,151 60,393 43,460
====== ====== ======
As previously indicated, effective June 19, 1998, the Company consummated a
one-for-six reverse stock split for its shares. Historical earnings per share
have been retroactively restated to reflect the reverse split for comparative
purposes.
NOTE 13--COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective for fiscal
years beginning after December 15, 1997. The statement changes the reporting of
certain items currently reported as changes in the shareholders' equity section
of the balance sheet and establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 requires that all components of comprehensive
income shall be reported in the financial statements in the period in which they
are recognized. Furthermore, a total amount for comprehensive income shall be
displayed in the financial statements. The Company has adopted this standard
effective January 1, 1998. Total comprehensive income was $217.8 million,
$38.7 million and $59.9 million for the years ended December 31, 2000, 1999 and
1998 respectively. The primary component of comprehensive income other than net
income was the change in value of certain investments in marketable securities
classified as available-for-sale. Upon adoption of SFAS 133/SFAS 137 effective
January 1, 2001 (see Note 3), other comprehensive income will also be affected
by the mark-to-market on the effective portion of hedge instruments.
NOTE 14--DIVIDENDS
In order to maintain its election to qualify as a REIT, the Company must
distribute, at a minimum, an amount equal to 95% of its taxable income and must
distribute 100% of its taxable income to avoid paying corporate federal income
taxes. The distribution rate was modified to 90% by the REIT Modernization
63
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--DIVIDENDS (CONTINUED)
Act beginning in fiscal 2001. Accordingly, the Company anticipates it will
distribute all of its taxable income to its shareholders. Because taxable income
differs from cash flow from operations due to non-cash revenues or expenses, in
certain circumstances, the Company may be required to borrow to make sufficient
dividend payments to meet this anticipated dividend threshold.
On November 4, 1999, the class A shares were converted into shares of Common
Stock on a one-for-one basis. Total dividends declared by the Company aggregated
$116.1 million, or $1.86 per common share, for the year ended December 31, 1999.
For the year ended December 31, 2000, total dividends declared by the Company
aggregated $205.5 million, or $2.40 per common share. The Company also declared
dividends aggregating $20.9 million, $4.7 million, $3.0 million and
$8.0 million, respectively, on its Series A, B, C and D preferred stock,
respectively, for the year ended December 31, 2000.
In November 1999, the Company declared and paid a dividend of a total of one
million shares of Common Stock pro rata to all holders of record of Common Stock
as of the close of business on November 3, 1999.
The Series A preferred stock has a liquidation preference of $50.00 per
share and carries an initial dividend yield of 9.50% per annum. The dividend
rate on the preferred shares will increase to 9.75% on December 15, 2005, to
10.00% on December 15, 2006 and to 10.25% on December 15, 2007 and thereafter.
Dividends on the Series A preferred shares are payable quarterly in arrears and
are cumulative.
Holders of shares of the Series B preferred stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 9.375% per annum of the $25.00 liquidation preference, equivalent to a fixed
annual rate of $2.34 per share. Dividends are cumulative from the date of
original issue and are payable quarterly in arrears on or before the 15th day of
each March, June, September and December or, if not a business day, the next
succeeding business day. Any dividend payable on the Series B preferred stock
for any partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends will be payable to holders of
record as of the close of business on the first day of the calendar month in
which the applicable dividend payment date falls or on another date designated
by the Board of Directors of the Company for the payment of dividends that is
not more than 30 nor less than ten days prior to the dividend payment date.
Holders of shares of the Series C preferred stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 9.20% of the $25.00 liquidation preference per year, equivalent to a fixed
annual rate of $2.30 per share.
Holders of shares of the Series D preferred stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 8.00% of the $25.00 liquidation preference per year, equivalent to a fixed
annual rate of $2.00 per share.
The exact amount of future quarterly dividends to common shareholders will
be determined by the Board of Directors based on the Company's actual and
expected operations for the fiscal year and the Company's overall liquidity
position.
64
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS
No. 107"), requires the disclosure of the estimated fair values of financial
instruments. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Quoted market prices, if available,
are utilized as estimates of the fair values of financial instruments. Because
no quoted market prices exist for a significant part of the Company's financial
instruments, the fair values of such instruments have been derived based on
management's assumptions, the amount and timing of future cash flows and
estimated discount rates. The estimation methods for individual classifications
of financial instruments are described more fully below. Different assumptions
could significantly affect these estimates. Accordingly, the net realizable
values could be materially different from the estimates presented below. The
provisions of SFAS No. 107 do not require the disclosure of the fair value of
non-financial instruments, including intangible assets or the Company's real
estate assets under operating leases.
In addition, the estimates are only indicative of the value of individual
financial instruments and should not be considered an indication of the fair
value of the Company as an operating business.
SHORT-TERM FINANCIAL INSTRUMENTS--The carrying values of short-term
financial instruments including cash and cash equivalents and short-term
investments approximate the fair values of these instruments. These financial
instruments generally expose the Company to limited credit risk and have no
stated maturities, or have an average maturity of less than 90 days and carry
interest rates which approximate market.
LOANS AND OTHER LENDING INVESTMENTS--For the Company's interests in loans
and other lending investments, the fair values were estimated by discounting the
future contractual cash flows (excluding participation interests in the sale or
refinancing proceeds of the underlying collateral) using estimated current
market rates at which similar loans would be made to borrowers with similar
credit ratings for the same remaining maturities.
MARKETABLE SECURITIES--Securities held for investment, securities available
for sale, loans held for sale, trading account instruments, long-term debt and
trust preferred securities traded actively in the secondary market have been
valued using quoted market prices.
OTHER FINANCIAL INSTRUMENTS--The carrying value of other financial
instruments including, restricted cash, accrued interest receivable, accounts
payable, accrued expenses and other liabilities approximate the fair values of
the instruments.
DEBT OBLIGATIONS--A substantial portion of the Company's existing debt
obligations bear interest at fixed margins over LIBOR. Such margins may be
higher or lower than those at which the Company could currently replace the
related financing arrangements. Other obligations of the Company bear interest
at fixed rates, which may differ from prevailing market interest rates. As a
result, the fair values of the Company's debt obligations were estimated by
discounting current debt balances from December 31, 2000 or 1999 to maturity
using estimated current market rates at which the Company could enter into
similar financing arrangements.
INTEREST RATE PROTECTION AGREEMENTS--The fair value of interest rate
protection agreements such as interest rate caps, floors, collars and swaps used
for hedging purposes (see Note 9) is the estimated amount the Company would
receive or pay to terminate these agreements at the reporting date, taking into
account current interest rates and current creditworthiness of the respective
counterparties.
65
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The book and fair values of financial instruments as of December 31, 2000
and 1999 were (in thousands):
2000 1999
----------------------- -----------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
FINANCIAL ASSETS:
Loans and other lending
investments............... $2,239,183 $2,333,112 $2,011,006 $2,031,065
Marketable securities....... 41 41 4,344 4,344
Allowance for credit
losses.................... (14,000) (14,000) (7,500) (7,500)
FINANCIAL LIABILITIES:
Debt obligations............ 2,131,967 2,135,574 1,901,204 1,885,797
Interest rate protection
agreements................ 2,495 (7,261) 3,139 5,556
NOTE 16--SEGMENT REPORTING
Statement of Financial Accounting Standard No. 131 ("SFAS No. 131")
establishes standards for the way the public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected financial information about operating
segments in interim financial reports issued to shareholders.
The Company has two reportable segments: Real Estate Lending and Corporate
Tenant Leasing. The Company does not have substantial foreign operations. The
accounting policies of the segments are the same as those described in Note 3.
The Company has no single customer that accounts for 10% or more of revenues
(see Note 9 for other information regarding concentrations of credit risk).
66
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--SEGMENT REPORTING (CONTINUED)
The Company evaluates performance based on the following financial measures
for each segment:
CORPORATE
REAL ESTATE TENANT CORPORATE/ COMPANY
LENDING LEASING (1) OTHER (2) TOTAL
----------- ----------- ---------- ----------
(IN THOUSANDS)
2000:
Total revenues(3): $ 279,680 $ 191,821 $ 321 $ 471,822
Total operating and interest expense(4): 115,906 111,808 28,570 256,284
Net operating income before minority
interests(5): 163,774 80,013 (28,249) 215,538
Total long-lived assets(6): 2,225,183 1,670,169 N/A 3,895,352
Total assets: 2,225,183 1,670,169 139,423 4,034,775
1999:
Total revenues(3): 209,848 42,186 12,763 264,797
Total operating and interest expense(4): 70,778 36,749 118,343 225,870
Net operating income before minority
interests(5): 139,070 5,437 (105,580) 38,927
Total long-lived assets(6): 2,003,506 1,714,284 N/A 3,717,790
Total assets: 2,003,506 1,714,284 95,762 3,813,552
1998:
Total revenues(3): 112,914 12,378 2,804 128,096
Total operating and interest expense(4): 36,998 12,554 18,587 68,139
Net operating income before minority
interests(5): 75,916 (176) (15,783) 59,957
Total long-lived assets(6): 1,823,761 189,942 N/A 2,013,703
Total assets: 1,823,761 189,942 45,913 2,059,616
EXPLANATORY NOTES:
- ------------------------------
(1) Includes the Company's pre-existing Corporate Tenant Leasing investments
since March 18, 1998 and the Corporate Tenant Leasing business acquired in
the TriNet Acquisition since November 4, 1999.
(2) Corporate and Other represents all corporate-level items, including general
and administrative expenses and any intercompany eliminations necessary to
reconcile to the consolidated Company totals. This caption also includes the
Company's servicing business, which is not considered a material separate
segment. In addition, as more fully discussed in Note 4, Corporate and Other
for the year ended December 31, 1999 includes a non-recurring charge,
non-cash of approximately $94.5 million relating to the Advisor Transaction.
(3) Total revenues represents all revenues earned during the period from the
assets in each segment. Revenue from the Real Estate Lending business
primarily represents interest income and revenue from the Corporate Tenant
Leasing business primarily represents operating lease income.
(4) Total operating and interest expense represents provision for possible
credit losses for the Real Estate Lending business and operating costs on
corporate tenant lease assets for the Corporate Tenant Leasing business, as
well as interest expense specifically related to each segment. General and
administrative expense, advisory fees (prior to November 4, 1999) and stock
option compensation expense is included in Corporate and Other for all
periods. Depreciation and amortization of $34,514, $10,340 and $4,287 in
2000, 1999 and 1998, respectively, are included in the amounts presented
above.
(5) Net operating income before minority interests represents net operating
income before minority interest, gain on sale of corporate tenant lease
assets and extraordinary loss as defined in note (3) above, less total
operating and interest expense, as defined in note (4) above.
(6) Total long-lived assets is comprised of Loans and Other Lending Investments,
net and Real Estate Subject to Operating Leases, net, for each respective
segment.
67
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUBSEQUENT EVENTS
On January 11, 2001 the Company closed a new $700.0 million secured revolving
credit facility which is led by a major commercial bank. The new facility has a
three-year primary term and one-year "term-out" extension option, and bears
interest at LIBOR plus 1.40% to 2.15%, depending upon the collateral contributed
to the borrowing base. The new facility accepts a broad range of structured
finance assets and has a final maturity of January 2005. In addition, subsequent
to year end, the Company extended the maturity of its $350.0 million unsecured
revolving credit facility to May 2002.
NOTE 18--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the selected quarterly financial data for the
Company (in thousands, except per share amounts).
QUARTER ENDED
---------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
------------ ------------- -------- ---------
2000:
Revenue......................................... $122,337 $120,683 $117,914 $110,888
Net income...................................... 56,177 55,591 53,829 51,989
Net income allocable to common shares........... 46,950 46,364 44,602 42,762
Net income per common share..................... $ 0.55 $ 0.54 $ 0.52 $ 0.50
Weighted average common shares
outstanding--basic............................ 85,731 85,662 85,281 85,087
1999:
Revenue......................................... $ 89,483 $ 60,635 $ 59,255 $ 55,424
Net income (loss)(1)............................ (50,485) 31,271 29,883 28,217
Net income (loss) allocable to common
shares(2)..................................... (58,405) 25,963 24,575 22,909
Net income (loss) per common shares............. $ (0.80) $ 0.49 $ 0.46 $ 0.43
Weighted average common shares
outstanding--basic............................ 73,427 52,471 52,471 52,447
EXPLANATORY NOTES:
- ------------------------------
(1) As more fully discussed in Note 4, the quarter ended December 31, 1999
includes a non-recurring, non cash charge of approximately $94.5 million
relating to the Advisor Transaction. Excluding such charge, net income for
the quarter would have been approximately $44.0 million and net income per
common share for the quarter would have been $0.49.
(2) On November 4, 1999, through the Incorporation Merger, the class B shares
were effectively converted into shares of Common Stock on a 49-for-one basis
and the class A shares were converted into shares of Common Stock on a
one-for-one basis.
68
ISTAR FINANCIAL INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGES TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
FOR THE YEAR ENDED DECEMBER 31, 1998
Provision for possible credit losses
(1)................................... $ -- $2,750 $ -- $ -- $ 2,750
FOR THE YEAR ENDED DECEMBER 31, 1999
Provision for possible credit losses
(1)................................... $2,750 $4,750 $ -- $ -- $ 7,500
FOR THE YEAR ENDED DECEMBER 31, 2000
Provision for possible credit losses
(1)................................... $7,500 $6,500 $ -- $ -- $14,000
EXPLANATORY NOTE:
- ------------------------------
(1) See Note 5 to the Company's 2000 Consolidated Financial Statements.
69
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
UNISYS CENTRAL TRAINING CENTER
1 2611 Corporate West Drive
Lisle, IL $ 5,805 $ 6,153 $ 14,993 $ -- $ 6,153 $ 14,993 $ 21,146
REX STORES CORPORATION
2 2875 Needmore Road
Dayton, OH 1,890 873 4,614 -- 873 4,614 5,487
THE STANDARD REGISTER COMPANY
3 4000 South Racine Avenue
Chicago, IL -- 409 2,893 -- 409 2,893 3,302
RALPHS GROCERY COMPANY
4 2652 East Long Beach Avenue
Los Angeles, CA -- 9,334 12,501 -- 9,334 12,501 21,835
UNIVERSAL TECHNICAL INSTITUTE
5-6 3002 North 27th Avenue
Phoenix, AZ -- 1,000 1,997 -- 1,000 1,997 2,997
CATERAIR INTERNATIONAL CORPORATION
7 50 Adrian Court
Burlingame, CA -- 1,219 3,470 -- 1,219 3,470 4,689
8 370 Adrian Road
Millbrae, CA -- 741 2,107 -- 741 2,107 2,848
9 3500 N.W. 24th Street
Miami, FL -- 3,048 8,676 -- 3,048 8,676 11,724
10 3630 N.W. 25th Street
Miami, FL -- 1,612 4,586 -- 1,612 4,586 6,198
11 4101 N.W. 25th Street
Miami, FL -- 1,393 3,967 -- 1,393 3,967 5,360
12 221 West 79th Street
Bloomington, MN -- 403 1,147 -- 403 1,147 1,550
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
UNISYS CENTRAL TRAINING CENTER
1 2611 Corporate West Drive
Lisle, IL $ (437) 1999 40.0
REX STORES CORPORATION
2 2875 Needmore Road
Dayton, OH (135) 1999 40.0
THE STANDARD REGISTER COMPANY
3 4000 South Racine Avenue
Chicago, IL (84) 1999 40.0
RALPHS GROCERY COMPANY
4 2652 East Long Beach Avenue
Los Angeles, CA (365) 1999 40.0
UNIVERSAL TECHNICAL INSTITUTE
5-6 3002 North 27th Avenue
Phoenix, AZ (58) 1999 40.0
CATERAIR INTERNATIONAL CORPORATION
7 50 Adrian Court
Burlingame, CA (101) 1999 40.0
8 370 Adrian Road
Millbrae, CA (61) 1999 40.0
9 3500 N.W. 24th Street
Miami, FL (253) 1999 40.0
10 3630 N.W. 25th Street
Miami, FL (134) 1999 40.0
11 4101 N.W. 25th Street
Miami, FL (116) 1999 40.0
12 221 West 79th Street
Bloomington, MN (33) 1999 40.0
70
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
13 1085 Bible Way
Reno, NV -- 248 707 -- 248 707 955
14 18850 28th Avenue, South
Seattle, WA -- 828 2,355 -- 828 2,355 3,183
15 2800 Collingswood Drive
Orlando, FL -- 1,476 4,198 -- 1,476 4,198 5,674
16 45-10 19th Avenue
Astoria, NY -- 1,796 5,109 -- 1,796 5,109 6,905
17 24-20 49th Street
Astoria, NY -- 897 2,555 -- 897 2,555 3,452
18 8401 Escort Street
Philadelphia, PA -- 619 1,765 -- 619 1,765 2,384
SEARS LOGISTICS SERVICES
19 4150 Lockbourne Industrial
Parkway
Columbus, OH 2,390 375 7,191 -- 375 7,191 7,566
NORTHERN STATES POWER COMPANY
20 3115 Centre Point Drive
Roseville, MN 1,205 1,113 4,452 -- 1,113 4,452 5,565
PNC MORTGAGE CORPORATION OF
AMERICA, INC.
21 440 North Fairway Drive
Vernon Hills, IL -- 1,400 12,597 -- 1,400 12,597 13,997
VOLKSWAGEN OF AMERICA, INC.
22 450 Barclay Boulevard
Lincolnshire, IL 2,896 3,192 7,508 -- 3,192 7,508 10,700
23 500 South Seventh Avenue
City of Industry, CA 2,258 5,002 11,766 -- 5,002 11,766 16,768
24 11650 Central Parkway
Jacksonville, FL 1,621 2,310 5,435 -- 2,310 5,435 7,745
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
13 1085 Bible Way
Reno, NV (21) 1999 40.0
14 18850 28th Avenue, South
Seattle, WA (69) 1999 40.0
15 2800 Collingswood Drive
Orlando, FL (122) 1999 40.0
16 45-10 19th Avenue
Astoria, NY (149) 1999 40.0
17 24-20 49th Street
Astoria, NY (75) 1999 40.0
18 8401 Escort Street
Philadelphia, PA (51) 1999 40.0
SEARS LOGISTICS SERVICES
19 4150 Lockbourne Industrial
Parkway
Columbus, OH (210) 1999 40.0
NORTHERN STATES POWER COMPANY
20 3115 Centre Point Drive
Roseville, MN (130) 1999 40.0
PNC MORTGAGE CORPORATION OF
AMERICA, INC.
21 440 North Fairway Drive
Vernon Hills, IL (367) 1999 40.0
VOLKSWAGEN OF AMERICA, INC.
22 450 Barclay Boulevard
Lincolnshire, IL (219) 1999 40.0
23 500 South Seventh Avenue
City of Industry, CA (343) 1999 40.0
24 11650 Central Parkway
Jacksonville, FL (159) 1999 40.0
71
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
LAND O LAKES
25 1275 Red Fox Road
Arden Hills, MN 1,557 719 6,541 -- 719 6,541 7,260
MICROSOFT CORPORATION
26 1321 Greenway
Irving, TX 1,248 1,804 5,815 131 1,804 5,946 7,750
UNIVERSAL CARD SERVICES
27 7595 Oak Grove Plaza
Jacksonville, FL 2,040 1,384 3,911 -- 1,384 3,911 5,295
VACANT
28 7585 Oak Grove Plaza
Jacksonville, FL 1,055 877 2,237 39 877 2,276 3,153
UNISON INDUSTRIES, L.P.
29 7575 Oak Grove Plaza
Jacksonville, FL 3,465 2,366 6,072 -- 2,366 6,072 8,438
NIKE DISTRIBUTION WAREHOUSE
30 8400 Winchester Road
Memphis, TN 5,316 1,486 23,279 -- 1,486 23,279 24,765
CIRRUS LOGIC, INC.
31 46702 Bayside Parkway
Fremont, CA 1,046 654 4,591 -- 654 4,591 5,245
32 46831 Lakeview Blvd.
Fremont, CA -- 1,086 7,964 -- 1,086 7,964 9,050
UNIFIED WESTERN GROCERS
33 5200 Sheila Street
Commerce, CA 2,504 3,454 12,915 -- 3,454 12,915 16,369
FIRST HEALTH STRATEGIES, INC.
34-37 Decker Lake Lane Center
Salt Lake City, UT -- 1,179 12,861 -- 1,179 12,861 14,040
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
LAND O LAKES
25 1275 Red Fox Road
Arden Hills, MN (191) 1999 40.0
MICROSOFT CORPORATION
26 1321 Greenway
Irving, TX (171) 1999 40.0
UNIVERSAL CARD SERVICES
27 7595 Oak Grove Plaza
Jacksonville, FL (113) 1999 40.0
VACANT
28 7585 Oak Grove Plaza
Jacksonville, FL (66) 1999 40.0
UNISON INDUSTRIES, L.P.
29 7575 Oak Grove Plaza
Jacksonville, FL (177) 1999 40.0
NIKE DISTRIBUTION WAREHOUSE
30 8400 Winchester Road
Memphis, TN (679) 1999 40.0
CIRRUS LOGIC, INC.
31 46702 Bayside Parkway
Fremont, CA (134) 1999 40.0
32 46831 Lakeview Blvd.
Fremont, CA (232) 1999 40.0
UNIFIED WESTERN GROCERS
33 5200 Sheila Street
Commerce, CA (377) 1999 40.0
FIRST HEALTH STRATEGIES, INC.
34-37 Decker Lake Lane Center
Salt Lake City, UT (375) 1999 40.0
72
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
TRW SPACE AND ELECTRONICS GROUP
38 3701 Doolittle Drive
Redondo Beach, CA -- 2,598 9,212 -- 2,598 9,212 11,810
DUNHAM'S ATHLEISURE CORPORATION
39 2201 E. Loew Road
Marion, IN -- 131 4,254 -- 131 4,254 4,385
ACOSTA SALES & MARKETING CO.
40 6300 Dumbarton Circle
Fremont, CA -- 880 4,846 -- 880 4,846 5,726
INTERNATIONAL FOOD SOLUTION
41 5015 South Water Circle
Wichita, KS -- 213 3,189 -- 213 3,189 3,402
TECH DATA CORPORATION
42 3900 William Richardson Drive
South Bend, IN -- 140 4,640 -- 140 4,640 4,780
PRIMERICA LIFE INSURANCE COMPANY
43-44 3120 Breckinridge
Boulevard
Duluth, GA -- 1,655 14,484 38 1,655 14,522 16,177
LUCENT TECHNOLOGIES
45 Capstone Building
Aurora, CO -- 453 3,060 49 453 3,109 3,562
KOCH MEMBRANE SYSTEMS
46 10054 Old Grove Road
San Diego, CA -- 1,530 3,060 -- 1,530 3,060 4,590
NISSAN MOTOR ACCEPTANCE
CORPORATION
47 2901 Kinwest Parkway
Irving, TX -- 1,363 10,628 -- 1,363 10,628 11,991
LEVER BROTHERS COMPANY
48 3501 E. Terra Drive
O'Fallon, MO -- 1,388 12,700 -- 1,388 12,700 14,088
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
TRW SPACE AND ELECTRONICS GROUP
38 3701 Doolittle Drive
Redondo Beach, CA (269) 1999 40.0
DUNHAM'S ATHLEISURE CORPORATION
39 2201 E. Loew Road
Marion, IN (124) 1999 40.0
ACOSTA SALES & MARKETING CO.
40 6300 Dumbarton Circle
Fremont, CA (141) 1999 40.0
INTERNATIONAL FOOD SOLUTION
41 5015 South Water Circle
Wichita, KS (93) 1999 40.0
TECH DATA CORPORATION
42 3900 William Richardson Drive
South Bend, IN (135) 1999 40.0
PRIMERICA LIFE INSURANCE COMPANY
43-44 3120 Breckinridge
Boulevard
Duluth, GA (424) 1999 40.0
LUCENT TECHNOLOGIES
45 Capstone Building
Aurora, CO (91) 1999 40.0
KOCH MEMBRANE SYSTEMS
46 10054 Old Grove Road
San Diego, CA (89) 1999 40.0
NISSAN MOTOR ACCEPTANCE
CORPORATION
47 2901 Kinwest Parkway
Irving, TX (310) 1999 40.0
LEVER BROTHERS COMPANY
48 3501 E. Terra Drive
O'Fallon, MO (370) 1999 40.0
73
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
FEDERAL EXPRESS CORPORATION
49-51 NonConnah Corporate Center
Memphis, TN -- 2,702 25,129 -- 2,702 25,129 27,831
VACANT
52 500 Airline Drive
Coppell, TX -- 1,664 12,471 33 1,664 12,504 14,168
FRESENIUS USA, INC.
53 2637 Shadelands Drive
Walnut Creek, CA -- 808 8,306 -- 808 8,306 9,114
TERADYNE, INC.
54 2625 Shadelands Drive
Walnut Creek, CA -- 571 5,874 -- 571 5,874 6,445
LAM RESEARCH CORPORATION
55 1210 California Circle
Milpitas, CA -- 4,095 8,323 -- 4,095 8,323 12,418
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
56 401 West Michigan Street
Milwaukee, WI -- 1,875 13,914 -- 1,875 13,914 15,789
NORTHERN TELECOM INC.
57 2021 Lakeside Boulevard
Richardson, TX -- 1,230 5,660 8 1,230 5,668 6,898
adidas AMERICA, INC.
58 5675 North Blackstock Road
Spartanburg, SC -- 943 16,836 -- 943 16,836 17,779
GLOBAL CROSSING
59 12110 North Pecos Street
Westminster, CO -- 307 3,524 -- 307 3,524 3,831
RATIONAL SOFTWARE
60 18880 Homestead Road
Cupertino, CA -- 7,994 19,037 -- 7,994 19,037 27,031
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
FEDERAL EXPRESS CORPORATION
49-51 NonConnah Corporate Center
Memphis, TN (733) 1999 40.0
VACANT
52 500 Airline Drive
Coppell, TX (364) 1999 40.0
FRESENIUS USA, INC.
53 2637 Shadelands Drive
Walnut Creek, CA (242) 1999 40.0
TERADYNE, INC.
54 2625 Shadelands Drive
Walnut Creek, CA (171) 1999 40.0
LAM RESEARCH CORPORATION
55 1210 California Circle
Milpitas, CA (243) 1999 40.0
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
56 401 West Michigan Street
Milwaukee, WI (406) 1999 40.0
NORTHERN TELECOM INC.
57 2021 Lakeside Boulevard
Richardson, TX (165) 1999 40.0
adidas AMERICA, INC.
58 5675 North Blackstock Road
Spartanburg, SC (491) 1999 40.0
GLOBAL CROSSING
59 12110 North Pecos Street
Westminster, CO (103) 1999 40.0
RATIONAL SOFTWARE
60 18880 Homestead Road
Cupertino, CA (555) 1999 40.0
74
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
GALILEO INTERNATIONAL PARTNERSHIP
61 6901 S. Havana Street
Englewood, CO -- 2,967 15,008 -- 2,967 15,008 17,975
AVAYA INC.
62 6162 S. Willow Drive
Englewood, CO -- 1,757 16,930 5 1,757 16,935 18,692
INTERNATIONAL BUSINESS MACHINES
CORP.
63 13800 Diplomat Drive
Farmers Branch, TX -- 1,314 8,903 -- 1,314 8,903 10,217
RIVEREDGE SUMMIT
64 1500-1600 RiverEdge Parkway
Atlanta, GA -- 5,709 49,091 3,657 5,709 52,748 58,457
NORTHERN TELECOM INC.
65 Cardinal Commerce Center
Richardson, TX -- 858 8,556 -- 858 8,556 9,414
CANYON CORPORATE CENTER
66 5515 East La Palma Avenue
Anaheim, CA -- 3,512 13,379 46 3,512 13,425 16,937
67 5601 East La Palma Avenue
Anaheim, CA -- 2,227 8,519 -- 2,227 8,519 10,746
68 5605 East La Palma Avenue
Anaheim, CA -- 622 2,346 155 622 2,501 3,123
SUNBELT BEVERAGE CORP.
69 7621 Energy Parkway
Baltimore, MD -- 1,535 9,324 4 1,535 9,328 10,863
GLOBAL CROSSING
70 1499 West 121st. Street
Westminister, CO -- 616 7,291 -- 616 7,291 7,907
CHARLESTON PLACE
71 1545 Charleston Road
Mountain View, CA -- 5,798 12,720 -- 5,798 12,720 18,518
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
GALILEO INTERNATIONAL PARTNERSHIP
61 6901 S. Havana Street
Englewood, CO (438) 1999 40.0
AVAYA INC.
62 6162 S. Willow Drive
Englewood, CO (494) 1999 40.0
INTERNATIONAL BUSINESS MACHINES
CORP.
63 13800 Diplomat Drive
Farmers Branch, TX (260) 1999 40.0
RIVEREDGE SUMMIT
64 1500-1600 RiverEdge Parkway
Atlanta, GA (1,516) 1999 40.0
NORTHERN TELECOM INC.
65 Cardinal Commerce Center
Richardson, TX (250) 1999 40.0
CANYON CORPORATE CENTER
66 5515 East La Palma Avenue
Anaheim, CA (392) 1999 40.0
67 5601 East La Palma Avenue
Anaheim, CA (248) 1999 40.0
68 5605 East La Palma Avenue
Anaheim, CA (69) 1999 40.0
SUNBELT BEVERAGE CORP.
69 7621 Energy Parkway
Baltimore, MD (272) 1999 40.0
GLOBAL CROSSING
70 1499 West 121st. Street
Westminister, CO (213) 1999 40.0
CHARLESTON PLACE
71 1545 Charleston Road
Mountain View, CA (371) 1999 40.0
75
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
72 1565-1585 Charleston Road
Mountain View, CA -- 12,834 28,158 -- 12,834 28,158 40,992
BAY STATE GAS
73 300 Friberg Parkway
Westborough, MA -- 1,651 10,758 -- 1,651 10,758 12,409
WARNER CROSSING
74 1120 West Warner Road
Tempe, AZ -- 701 4,339 -- 701 4,339 5,040
75 1130 West Warner Road
Tempe, AZ -- 1,033 6,652 -- 1,033 6,652 7,685
76 1140 West Warner Road
Tempe, AZ -- 1,033 6,652 -- 1,033 6,652 7,685
77 8440 South Hardy Drive
Tempe, AZ -- 1,033 6,652 -- 1,033 6,652 7,685
78 8320 South Hardy Drive
Tempe, AZ -- 1,512 9,732 -- 1,512 9,732 11,244
GATEWAY LAKES
79 1551 102nd Avenue
St. Petersburg, FL -- 722 3,061 -- 722 3,061 3,783
80 1527 102nd Avenue
St. Petersburg, FL -- 634 2,685 8 634 2,693 3,327
EDENVALE BUSINESS PARK
81 5853-5863 Rue Ferrari Drive
San Jose, CA -- 9,677 23,288 -- 9,677 23,288 32,965
ELECTRONIC DATA SYSTEMS CORP.
82 105 West Bethany Drive
Allen, TX -- 1,238 9,224 -- 1,238 9,224 10,462
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
72 1565-1585 Charleston Road
Mountain View, CA (821) 1999 40.0
BAY STATE GAS
73 300 Friberg Parkway
Westborough, MA (314) 1999 40.0
WARNER CROSSING
74 1120 West Warner Road
Tempe, AZ (127) 1999 40.0
75 1130 West Warner Road
Tempe, AZ (194) 1999 40.0
76 1140 West Warner Road
Tempe, AZ (194) 1999 40.0
77 8440 South Hardy Drive
Tempe, AZ (194) 1999 40.0
78 8320 South Hardy Drive
Tempe, AZ (284) 1999 40.0
GATEWAY LAKES
79 1551 102nd Avenue
St. Petersburg, FL (89) 1999 40.0
80 1527 102nd Avenue
St. Petersburg, FL (78) 1999 40.0
EDENVALE BUSINESS PARK
81 5853-5863 Rue Ferrari Drive
San Jose, CA (679) 1999 40.0
ELECTRONIC DATA SYSTEMS CORP.
82 105 West Bethany Drive
Allen, TX (269) 1999 40.0
76
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
COMPUTER SCIENCES CORP
83 7700-7720 Hubble Drive
Lanham, MD -- 2,486 12,047 164 2,486 12,211 14,697
POLYCOM, INC.
84 1565 Barber Lane
Milpitas, CA -- 4,880 12,367 1,498 4,880 13,865 18,745
ALLIANCE DATA SYSTEMS
85 17201 Waterview Parkway
Dallas, TX -- 1,918 4,632 -- 1,918 4,632 6,550
HEWLETT PACKARD
86 3000 Waterview Parkway
Richardson, TX -- 2,932 31,235 -- 2,932 31,235 34,167
MULTILINK
87 Six Riverside Drive
Andover, MA -- 639 7,176 -- 639 7,176 7,815
WELLPOINT HEALTH NETWORK, INC.
88-89 2000 Corporate Center
Drive
Newbury Park, CA -- 4,563 24,911 -- 4,563 24,911 29,474
TRINET PROPERTY PARTNERS, L.P.
90 1022 Hingham Street
Rockland, MA -- 2,010 11,761 18 2,010 11,779 13,789
91 65 Dan Road
Canton, MA -- 742 3,155 86 742 3,241 3,983
92 One Longwater Circle
Norwell, MA -- 1,140 1,658 33 1,140 1,691 2,831
93 100 Longwater Circle
Norwell, MA -- 973 3,805 12 973 3,817 4,790
94 101 Philip Drive
Norwell, MA 2,232 506 2,277 11 506 2,288 2,794
95 30 Dan Road
Canton, MA -- 1,409 3,890 42 1,409 3,932 5,341
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
COMPUTER SCIENCES CORP
83 7700-7720 Hubble Drive
Lanham, MD (355) 1999 40.0
POLYCOM, INC.
84 1565 Barber Lane
Milpitas, CA (506) 1999 40.0
ALLIANCE DATA SYSTEMS
85 17201 Waterview Parkway
Dallas, TX (135) 1999 40.0
HEWLETT PACKARD
86 3000 Waterview Parkway
Richardson, TX (911) 1999 40.0
MULTILINK
87 Six Riverside Drive
Andover, MA (209) 1999 40.0
WELLPOINT HEALTH NETWORK, INC.
88-89 2000 Corporate Center
Drive
Newbury Park, CA (727) 1999 40.0
TRINET PROPERTY PARTNERS, L.P.
90 1022 Hingham Street
Rockland, MA (343) 1999 40.0
91 65 Dan Road
Canton, MA (92) 1999 40.0
92 One Longwater Circle
Norwell, MA (49) 1999 40.0
93 100 Longwater Circle
Norwell, MA (111) 1999 40.0
94 101 Philip Drive
Norwell, MA (67) 1999 40.0
95 30 Dan Road
Canton, MA (113) 1999 40.0
77
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
96 85 Dan Road
Canton, MA -- 1,077 2,746 67 1,077 2,813 3,890
97 300 Foxborough Boulevard
Foxborough, MA 3,191 1,218 3,756 -- 1,218 3,756 4,974
98 105 Forbes Boulevard
Mansfield, MA 1,005 584 1,443 -- 584 1,443 2,027
99 60 Columbian Street
Braintree, MA -- 2,225 7,403 9 2,225 7,412 9,637
100 76 Pacella Park Drive
Randolph, MA 2,754 615 3,471 -- 615 3,471 4,086
101 260 Kenneth W. Welch Drive
Lakeville, MA -- 1,012 4,048 -- 1,012 4,048 5,060
102 700 Longwater Drive
Norwell, MA -- 1,357 5,429 -- 1,357 5,429 6,786
103 3000 Longwater Drive
Norwell, MA 2,004 1,155 1,651 300 1,155 1,951 3,106
ICG HOLDINGS, INC.
104 161 Inverness Drive West
Englewood, CO -- 8,572 27,428 -- 8,572 27,428 36,000
CONCORD FARMS
105 Three Concord Farms
Concord, MA -- 1,024 4,367 502 1,024 4,869 5,893
106 Four Concord Farms
Concord, MA -- 1,852 10,839 64 1,852 10,903 12,755
107 Five Concord Farms
Concord, MA -- 2,206 11,715 108 2,206 11,823 14,029
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
96 85 Dan Road
Canton, MA (80) 1999 40.0
97 300 Foxborough Boulevard
Foxborough, MA (109) 1999 40.0
98 105 Forbes Boulevard
Mansfield, MA (42) 1999 40.0
99 60 Columbian Street
Braintree, MA (216) 1999 40.0
100 76 Pacella Park Drive
Randolph, MA (101) 1999 40.0
101 260 Kenneth W. Welch Drive
Lakeville, MA (118) 1999 40.0
102 700 Longwater Drive
Norwell, MA (158) 1999 40.0
103 3000 Longwater Drive
Norwell, MA (48) 1999 40.0
ICG HOLDINGS, INC.
104 161 Inverness Drive West
Englewood, CO (800) 1999 40.0
CONCORD FARMS
105 Three Concord Farms
Concord, MA (132) 1999 40.0
106 Four Concord Farms
Concord, MA (317) 1999 40.0
107 Five Concord Farms
Concord, MA (344) 1999 40.0
78
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
108 Six Concord Farms
Concord, MA -- 1,834 10,483 64 1,834 10,547 12,381
Two Concord Farms--Under
development
Concord, MA -- 1,656 -- 297 1,656 297 1,953
Seven Concord Farms--Land
Concord, MA -- 1,266 -- 7 1,266 7 1,273
ARBELLA CAPITAL CORP.
109 1100 Crown Colony Drive
Quincy, MA 12,989 3,562 23,420 237 3,562 23,657 27,219
MAST INDUSTRIES
110 100 Old River Road
Andover, MA -- 1,787 8,486 -- 1,787 8,486 10,273
HAEMONETICS CORP.
111 355 Wood Road
Braintree, MA -- 792 4,929 43 792 4,972 5,764
NOKIA
112 6000 Connection Drive
Irving, TX -- 6,083 42,016 -- 6,083 42,016 48,099
ANDERSEN CONSULTING
113 1661 Page Mill Road
Palo Alto, CA -- -- 19,168 -- -- 19,168 19,168
WINDWARD FOREST
114 960 Northpoint Parkway
Alpharetta, GA -- 905 6,744 -- 905 6,744 7,649
THE MITRE CORPORATION
115 11493 Sunset Hills Road
Fairfax, VA -- 4,436 22,362 52 4,436 22,414 26,850
VERIZON SELECT SERVICES, INC.
116 Sierra I at Los Colinas
Irving, TX -- 3,363 21,376 -- 3,363 21,376 24,739
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
108 Six Concord Farms
Concord, MA (308) 1999 40.0
Two Concord Farms--Under
development
Concord, MA 1999
Seven Concord Farms--Land
Concord, MA 1999
ARBELLA CAPITAL CORP.
109 1100 Crown Colony Drive
Quincy, MA (683) 1999 40.0
MAST INDUSTRIES
110 100 Old River Road
Andover, MA (248) 1999 40.0
HAEMONETICS CORP.
111 355 Wood Road
Braintree, MA (145) 1999 40.0
NOKIA
112 6000 Connection Drive
Irving, TX (1,225) 1999 40.0
ANDERSEN CONSULTING
113 1661 Page Mill Road
Palo Alto, CA (559) 1999 40.0
WINDWARD FOREST
114 960 Northpoint Parkway
Alpharetta, GA (197) 1999 40.0
THE MITRE CORPORATION
115 11493 Sunset Hills Road
Fairfax, VA (654) 1999 40.0
VERIZON SELECT SERVICES, INC.
116 Sierra I at Los Colinas
Irving, TX (623) 1999 40.0
79
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
POYDRAS PLAZA
117 Entergy Building
New Orleans, LA 77,860 1,427 24,252 603 1,427 24,855 26,282
118 Mobil Building
New Orleans, LA -- 1,664 16,653 1,149 1,664 17,802 19,466
119 Parking Garage
New Orleans, LA -- 4,239 6,462 5 4,239 6,467 10,706
ALCATEL
120 Campbell Commoms 1,233 $ 15,160 -- 1,233 15,160 16,393
EQUINIX
121 Great Oaks--Land
San Jose, CA 82,220 $ -- -- 82,220 -- 82,220
FEDERAL EXPRESS--Under development
3201 Columbia Road
Richfield, OH 2,327 $ -- 4,724 2,327 4,724 7,051
LEXMARK
122 1510 East 4th Street
Seymour, IN 550 $ 22,239 -- 550 22,239 22,789
HILTON HOTELS CORPORATION
123 18740 Pacific Highway South
Seattle, WA 153,618 5,101 32,080 -- 5,101 32,080 37,181
255 Southwest Temple
Salt Lake City, UT -- 5,620 32,695 -- 5,620 32,695 38,315
1401 Arden Way
Sacramento, CA -- 1,281 9,809 -- 1,281 9,809 11,090
7450 Hazard Center Drive
San Diego, CA -- 4,394 27,030 -- 4,394 27,030 31,424
One Doubletree Drive
Sonoma, CA -- 3,308 20,623 -- 3,308 20,623 23,931
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
POYDRAS PLAZA
117 Entergy Building
New Orleans, LA (703) 1999 40.0
118 Mobil Building
New Orleans, LA (499) 1999 40.0
119 Parking Garage
New Orleans, LA (181) 1999 40.0
ALCATEL
120 Campbell Commoms (158) 1999 40.0
EQUINIX
121 Great Oaks--Land
San Jose, CA -- 2000
FEDERAL EXPRESS--Under development
3201 Columbia Road
Richfield, OH -- 2000
LEXMARK
122 1510 East 4th Street
Seymour, IN (6) 2000 40.0
HILTON HOTELS CORPORATION
123 18740 Pacific Highway South
Seattle, WA (2,604) 1998 40.0
255 Southwest Temple
Salt Lake City, UT (2,713) 1998 40.0
1401 Arden Way
Sacramento, CA (1,062) 1998 40.0
7450 Hazard Center Drive
San Diego, CA (2,401) 1998 40.0
One Doubletree Drive
Sonoma, CA (1,447) 1998 40.0
80
ISTAR FINANCIAL INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS GROSS AMOUNT AT CLOSE OF PERIOD
----------------------- CAPITALIZED ------------------------------------
BUILDING AND SUBSEQUENT TO BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ----------- ------------ -------- ------------ ------------- -------- ------------ ----------
200 North Riverside
Medford, OR -- 609 4,668 -- 609 4,668 5,277
1800 Fairview Ave.
Boise, ID -- 968 6,405 -- 968 6,405 7,373
304 Southeast Nye Avenue
Pendleton, OR -- 556 4,245 -- 556 4,245 4,801
510 Kelso Drive
Kelso, WA -- 502 3,779 -- 502 3,779 4,281
100 Columbia Street
Vancouver, WA -- 507 3,981 -- 507 3,981 4,488
501 Camino Del Rio
Durango, CO -- 1,242 7,865 -- 1,242 7,865 9,107
1225 North Wenatchee Avenue
Wenatchee, WA -- 513 3,825 -- 513 3,825 4,338
1313 North Bayshore Drive
Coos Bay, OR -- 404 3,049 -- 404 3,049 3,453
205 Coburg Road
Eugene, OR -- 361 2,721 -- 361 2,721 3,082
499 Industrial Street
Astoria, OR -- 269 2,043 -- 269 2,043 2,312
700 West Broadway Street
Missoula, MT -- 210 1,607 -- 210 1,607 1,817
1415 Northeast Third Street
Bend, OR -- 233 1,729 -- 233 1,729 1,962
-------- -------- ---------- ------- -------- ---------- ----------
TOTAL REAL ESTATE SUBJECT TO
OPERATING LEASES $291,949 $344,490 $1,280,304 $14,268 $344,490 $1,294,572 $1,639,062
======== ======== ========== ======= ======== ========== ==========
DEPRECIABLE
ACCUMULATED DATE LIFE
DESCRIPTION DEPRECIATION ACQUIRED (YEARS)
- ----------- ------------ -------- -----------
200 North Riverside
Medford, OR (511) 1998 40.0
1800 Fairview Ave.
Boise, ID (637) 1998 40.0
304 Southeast Nye Avenue
Pendleton, OR (502) 1998 40.0
510 Kelso Drive
Kelso, WA (447) 1998 40.0
100 Columbia Street
Vancouver, WA (482) 1998 40.0
501 Camino Del Rio
Durango, CO (707) 1998 40.0
1225 North Wenatchee Avenue
Wenatchee, WA (435) 1998 40.0
1313 North Bayshore Drive
Coos Bay, OR (334) 1998 40.0
205 Coburg Road
Eugene, OR (320) 1998 40.0
499 Industrial Street
Astoria, OR (216) 1998 40.0
700 West Broadway Street
Missoula, MT (195) 1998 40.0
1415 Northeast Third Street
Bend, OR (198) 1998 40.0
--------
TOTAL REAL ESTATE SUBJECT TO
OPERATING LEASES $(46,975)
========
81
ISTAR FINANCIAL INC.
NOTES TO SCHEDULE III
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
1. RECONCILIATION OF REAL ESTATE SUBJECT TO OPERATING LEASES:
The following table reconciles Real Estate from January 1, 1998 to
December 31, 2000:
2000 1999 1998
---------- ---------- --------
Balance at January 1....................................... $1,669,038 $ 194,462 $ --
Additions (see Note 4 to the Consolidated Financial
Statements).............................................. 137,998 1,474,576 194,462
Dispositions............................................... (146,715) -- --
Impact of purchase accounting adjustments.................. (21,259) -- --
---------- ---------- --------
Balance at December 31..................................... $1,639,062 $1,669,038 $194,462
========== ========== ========
2. RECONCILIATION OF ACCUMULATED DEPRECIATION:
The following table reconciles Accumulated Depreciation from January 1, 1998
to December 31, 2000:
2000 1999 1998
-------- -------- --------
Balance at January 1........................................ $(14,860) $ (4,520) $ --
Additions................................................... (33,739) (10,340) (4,520)
Dispositions................................................ 1,624 -- --
-------- -------- -------
Balance at December 31...................................... $(46,975) $(14,860) $(4,520)
======== ======== =======
82
ISTAR FINANCIAL INC.
SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INTEREST ACCRUAL INTEREST PAYMENT FINAL MATURITY
TYPE OF LOAN/BORROWER DESCRIPTION/LOCATION RATES(3) RATES DATE
- --------------------- ---------------------------- -------------------- ---------------- --------------
Senior Mortgages:
Borrower A......................
Hotel, Various States 7.39% 7.39% 9/11/11
Borrower B......................
Retail, Chicago, IL 8.88% 8.88% 1/1/04
Borrower C(1)...................
Hotel, Various States LIBOR + 1.75% LIBOR + 1.75% 9/15/03
Borrower D......................
Office, San Diego, CA LIBOR + 1.50% LIBOR + 1.50% 12/31/04
Borrower E......................
Office, Dallas. TX LIBOR + 1.75% LIBOR + 1.75% 9/8/01
Borrower F(1)...................
Office, Dallas. TX LIBOR + 1.75% LIBOR + 1.75% 8/26/04
Borrower G......................
Resort/Conference Center Rye
Brook, NY 10.30% 10.30% 3/31/07
Borrower H......................
Office, Los Angeles, CA LIBOR + 4.50% LIBOR + 4.50% 11/30/02
Borrower I......................
Residential, South Florida LIBOR + 6.00% LIBOR + 6.00% 12/30/02
All other senior mortgages
individually < 3%.............
Subordinate Mortgages:
Borrower D(1)...................
Office, San Diego, CA 13.00% 10.00% 2/29/04
Borrower C(1)...................
Hotel, Various States LIBOR + 5.80% LIBOR + 5.80% 9/15/03
Borrower F(1)...................
Office, Dallas. TX 15.00% 11.00% 8/26/04
All other subordinate mortgages
individually < 3%.............
Corporate/Partnership
Loans/Unsecured Notes:
Borrower C(1)...................
Hotel, Various States LIBOR + 5.37% LIBOR + 5.37% 9/15/03
Borrower J(1)...................
Residential, Various States LIBOR + 7.00% LIBOR + 7.00% 3/1/05
Borrower K......................
Hotel, Various States LIBOR + 2.78% LIBOR + 2.78% 12/1/03
All other partnership
loans/unsecured notes
individually < 3%.............
Loan Participations:
Borrower L......................
Office, New York, NY LIBOR + 4.50% LIBOR + 4.50% 8/1/03
All other loan participations
individually < 3%.............
Other Lending Investments:
Borrower J(1)...................
Residential, Various States 10.00% 10.00% 3/1/05
All other lending investments
individually < 3%.............
Subtotal..........................
Provision for Possible Credit
Losses..........................
Total:............................
PERIODIC FACE CARRYING
PAYMENT PRIOR AMOUNT OF AMOUNT OF
TYPE OF LOAN/BORROWER TERMS(3) LIENS(2) LOANS LOANS
- --------------------- -------- ---------- ---------- ----------
Senior Mortgages:
Borrower A......................
P&I $ -- $ 129,500 $ 114,412
Borrower B......................
P&I -- 108,220 107,838
Borrower C(1)...................
P&I -- 106,405 106,405
Borrower D......................
IO -- 105,000 105,000
Borrower E......................
IO -- 97,124 95,404
Borrower F(1)...................
IO -- 86,313 86,314
Borrower G......................
P&I -- 77,892 78,469
Borrower H......................
IO -- 73,147 73,226
Borrower I......................
IO -- 72,495 72,495
All other senior mortgages
individually < 3%............. -- 376,211 371,429
---------- ---------- ----------
-- 1,232,307 1,210,992
---------- ---------- ----------
Subordinate Mortgages:
Borrower D(1)...................
IO -- 29,000 26,878
Borrower C(1)...................
IO -- 40,000 39,832
Borrower F(1)...................
IO -- 32,132 32,364
All other subordinate mortgages
individually < 3%............. -- 238,956 226,484
---------- ---------- ----------
-- 340,088 325,558
---------- ---------- ----------
Corporate/Partnership
Loans/Unsecured Notes:
Borrower C(1)...................
IO 133,100 78,000 77,651
Borrower J(1)...................
IO 1,087,607 25,000 24,894
Borrower K......................
IO 418,497 70,000 67,871
All other partnership
loans/unsecured notes
individually < 3%............. -- 228,795 228,562
---------- ---------- ----------
1,639,204 401,795 398,978
---------- ---------- ----------
Loan Participations:
Borrower L......................
IO 500,000 100,000 100,000
All other loan participations
individually < 3%............. -- 11,388 11,251
---------- ---------- ----------
500,000 111,388 111,251
---------- ---------- ----------
Other Lending Investments:
Borrower J(1)...................
IO 150,000 123,059
All other lending investments
individually < 3%............. -- 75,227 69,345
---------- ---------- ----------
-- 225,227 192,404
---------- ---------- ----------
Subtotal.......................... 2,139,204 2,310,805 2,239,183
---------- ---------- ----------
Provision for Possible Credit
Losses.......................... -- -- (14,000)
---------- ---------- ----------
Total:............................ $2,139,204 $2,310,805 $2,225,183
========== ========== ==========
EXPLANATORY NOTES:
- ----------------------------------
(1) Loan is a part of a common borrowing provided by the Company (see
corresponding letter reference).
(2) Represents only third-party liens and excludes senior loans held by the
Company from the same borrower on the same collateral.
(3) P&I = principal and interest, IO = interest only.
83
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Portions of the Company's definitive proxy statement for the 2001 annual
meeting of shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Portions of the Company's definitive proxy statement for the 2001 annual
meeting of shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Portions of the Company's definitive proxy statement for the 2001 annual
meeting of shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Portions of the Company's definitive proxy statement for the 2001 annual
meeting of the shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d). Financial statements and schedules--see Index to Financial
Statements and Schedules included in Item 8.
(b) Reports on Form 8-K.
None.
(c) Exhibits--see index on following page.
84
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------------------- ------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of June 15, 1999, by
and among Starwood Financial Trust, ST Merger Sub, Inc. and
TriNet Corporate Realty Trust, Inc. (4)
2.2 Agreement and Plan of Merger, dated as of June 15, 1999, by
and among Starwood Financial Trust, Starwood Financial, Inc.
and to the extent described therein, TriNet Corporate Realty
Trust, Inc. (4)
2.3 Agreement and Plan of Merger, dated as of June 15, 1999, by
and among Starwood Financial Trust, SA Merger Sub, Inc., STW
Holdings I, Inc., the Stockholders named therein, Starwood
Capital Group, L.L.C. and, to the extent described therein,
TriNet Corporate Realty Trust, Inc. (4)
3.1 Amended and Restated Charter of the Company (including the
Articles Supplementary for the Series A, B, C and D
Preferred Stock). (7)
3.2 Bylaws of the Company (8)
4.1 Amended and Restated Registration Rights Agreement dated
March 18, 1998 among Starwood Financial Trust and Starwood
Mezzanine Investors, L.P., SAHI Partners and SOFI-IV SMT
Holdings, L.L.C.(2)
4.2 Investor Rights Agreement, dated as of December 15, 1998
among Starwood Financial Trust, a Maryland real estate
investment trust, Starwood Mezzanine Investors, L.P., a
Delaware limited partnership, SOFI-IV SMT Holdings, L.L.C.,
a Delaware limited liability company, B Holdings, L.L.C., a
Delaware limited liability company, and Lazard Freres Real
Estate Fund II, L.P., a Delaware limited partnership, Lazard
Freres Real Estate Offshore Fund II L.P., a Delaware limited
Partnership, and LF Mortgage REIT, a Maryland real estate
investment trust.(3)
4.3 Form of warrant certificates. (3)
4.4 Form of stock certificate for the Company's Common Stock.
(6)
4.5 Form of certificate for Series A Preferred Shares of
beneficial interest. (3)
10.1 Starwood Financial Trust 1996 Share Incentive Plan. (2)
10.2 Contribution Agreement dated as of February 11, 1998,
between Starwood Financial Trust, Starwood Mezzanine
Investors, L.P. and Starwood Opportunity Fund IV, L.P. (2)
10.3 Second Amended and Restated Shareholder's Agreement dated
March 18, 1998 among B Holdings, L.L.C., SAHI Partners,
Starwood Mezzanine Investors, L.P., SOFI-IV SMT Holdings,
L.L.C., and Starwood Financial Trust. (2)
10.4 Securities Purchase Agreement, dated as of December 15,
1998, by and between Starwood Financial Trust, Lazard Freres
Real Estate Fund II, L.P., a Delaware limited partnership,
Lazard Freres Real Estate Offshore Fund II, L.P., a Delaware
limited partnership, and LF Mortgage REIT, a Maryland real
estate investment trust. (2)
10.5 Asset Purchase and Sale Agreement, dated as of December 15,
1998 by and between Lazard Freres Real Estate Fund, L.P., a
Delaware limited partnership, Lazard Freres Real Estate Fund
II, L.P., a Delaware limited partnership, Prometheus
Mid-Atlantic Holding, L.P., a Delaware limited partnership,
Pacific Preferred LLC, a New York limited liability company,
Atlantic Preferred II LLC, a New York limited liability
company, Indian Preferred LLC, a New York limited liability
company and Prometheus Investment Holding, L.P., a Delaware
limited partnership and Starwood Financial Trust. (3)
85
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------------------- ------------------------------------------------------------
10.6 Form of Advisor Lock-Up Agreement, dated as of June 15,
1999, among Greenhill & Co., LLC and each owner of interests
in the Advisor. (5)
10.7 Form of Option Standstill Agreement, dated as of June 15,
1999, among Starwood Financial Trust and each of George R.
Puskar, Willis Anderson, Jr., Stephen B. Oresman, Robert W.
Holman Jr. and John G. McDonald. (5)
10.8 Form of Starwood Financial Trust Affiliate Lock-Up
Agreement, dated as of June 15, 1999, between Greenhill &
Co., LLC and each of B Holdings L.L.C., SOFI-IV SMT
Holdings, L.L.C. and Starwood Mezzanine Investors, L.P. (5)
10.9 Stock Purchase Agreement dated as of June 15, 1999 among Jay
Sugarman, Spencer B. Haber, A. William Stein and Robert
Holman, Jr. (5)
10.10 Amendment No. 1 to the Stock Purchase Agreement dated as of
July 26, 1999, which amends the Stock Purchase Agreement
dated as of June 15, 1999 among Jay Sugarman, Spencer B.
Haber, A. William Stein and Robert Holman, Jr. (5)
10.11 Shareholder Agreement, dated as of June 15, 1999, among
SOFI-IV SMT Holdings, L.L.C., Starwood Mezzanine Investors,
L.P., B Holdings, L.L.C. and TriNet Corporate Realty Trust,
Inc. (5)
10.12 First Amendment to Shareholder Agreement dated as of July
15, 1999, which amends the Shareholder Agreement, dated as
of June 15, 1999, among SOFI-IV SMT Holdings, L.L.C.,
Starwood Mezzanine Investors, L.P., B Holdings L.L.C. and
TriNet Corporate Realty Trust, Inc. (5)
10.13 Employment Agreement, dated as of May 20, 1999, by and
between Starwood Financial Advisors, L.L.C. and Jay
Sugarman. (6)
10.14 Indenture, dated May 17, 2000, among iStar Asset Receivables
Trust, La Salle Bank National Association and ABN AMRO BANK
N.V.
12.1 Computation of Ratio of EBITDA to interest expense.
12.2 Computation of Ratio of EBITDA to combined fixed charges.
21.1 Subsidiaries of the Company.
23. Consents of PricewaterhouseCoopers LLP.
EXPLANATORY NOTES:
- ------------------------
(1) Incorporated by reference from the Company's Registration Statement on
Form S-4 filed on May 12, 1998.
(2) Incorporated by reference from the Company's Annual Report on Form 10- K
for the year ended December 31, 1997 filed on April 2, 1998.
(3) Incorporated by reference from the Company's Form 8-K filed on
December 23, 1998.
(4) Incorporated by reference to the Company's Current Report on Form 8-K filed
on June 22, 1999.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-4 filed on August 25, 1999.
(6) Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 filed on March 30, 2000.
(7) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000 filed on May 15, 2000.
(8) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 filed on August 14, 2000.
86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
iSTAR FINANCIAL INC.
REGISTRANT
Date March 30, 2001
------------------------------------------------
Jay Sugarman
CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following person on behalf of
the registrant and in the capacities and on the dates indicated.
Date March 30, 2001
-------------------------------------------
Jay Sugarman
CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR
Date March 30, 2001
-------------------------------------------
Spencer B. Haber
CHIEF FINANCIAL OFFICER, SECRETARY AND DIRECTOR
(EXECUTIVE VICE PRESIDENT--FINANCE)
Date March 30, 2001
-------------------------------------------
Willis Andersen Jr.
DIRECTOR
Date March 30, 2001
-------------------------------------------
Jeffrey G. Dishner
DIRECTOR
Date March 30, 2001
-------------------------------------------
Jonathan D. Eilian
DIRECTOR
Date March 30, 2001
-------------------------------------------
Madison F. Grose
DIRECTOR
87
Date March 30, 2001
-------------------------------------------
Robert W. Holman, Jr.
DIRECTOR
Date March 30, 2001
-------------------------------------------
Robin Josephs
DIRECTOR
Date March 30, 2001
-------------------------------------------
Merrick R. Kleeman
DIRECTOR
Date March 30, 2001
-------------------------------------------
William M. Matthes
DIRECTOR
Date March 30, 2001
-------------------------------------------
John G. McDonald
DIRECTOR
Date March 30, 2001
-------------------------------------------
Michael G. Medzigian
DIRECTOR
Date March 30, 2001
-------------------------------------------
Stephen B. Oresman
DIRECTOR
Date March 30, 2001
-------------------------------------------
George R. Puskar
DIRECTOR
Date March 30, 2001
-------------------------------------------
Barry S. Sternlicht
DIRECTOR
Date March 30, 2001
-------------------------------------------
Kneeland C. Youngblood
DIRECTOR
88
Exhibit 10.9
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Amendment") is
made as of October 29, 1999, by and among TRINET CORPORATE REALTY TRUST (the
"BORROWER"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
(the "LEAD AGENT"), BANK OF AMERICA, N.A. ("BAC"), and the BANKS listed on the
signature pages hereof.
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower and the Banks have entered into the Third
Amended and Restated Revolving Credit Agreement, dated as of June 1, 1998 (the
"CREDIT AGREEMENT"); and
WHEREAS, the parties desire to modify the Credit Agreement upon the
terms and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Credit Agreement.
2. LEAD AGENT. Simultaneously herewith, Morgan has assigned and transferred
its Commitment to BAC and Bank One, NA, and, in accordance with Section 7.8 of
the Credit Agreement, hereby resigns as Lead Agent. The Required Banks, with the
approval of the Borrower, hereby appoint BAC 257582.08-New York S3A as successor
Lead Agent, and Bank One, NA, as "syndication agent". The syndication agent has
no right, power, obligation, liability, responsibility or duty under this
Agreement other than those applicable to all Banks as such. From and after the
date hereof, all references to Morgan shall be deemed to be references to BAC.
3. BAS. The Required Banks acknowledge and agree that Banc of America
Securities LLC ("BAS") is hereby appointed "book manager" and "lead arranger".
4. APPLICABLE MARGIN. The grid set forth in the definition "Applicable
Margin" is hereby deleted and the following substituted therefor:
Range of Applicable
Borrower's Margin for Applicable Applicable
Credit Rating Base Rate Margin for Margin for Euro
(S&P/Moody's Loans CD Loans Dollar Loans
RATINGS) (% PER ANNUM) (% PER ANNUM) (% PER ANNUM)
- --------- ------------------- ------------------- ---------------
BBB+/Baa1 0.25 0.975 0.85
BBB/Baa2 0.25 1.125 1.00
BBB-/Baa3 0.25 1.1875 1.0625
Non-Invest-
ment Grade 0.50 1.675 1.55
5. LETTERS OF CREDIT. The references in Sections 2.2(b) and 2.6(c) to "10:00
A.M., New York City time" are hereby deleted, and "11:00 A.M., New York City
time" substituted therefor. In addition, the following is hereby inserted after
the second sentence of Section 2.2(b): "In addition, together with such notice,
the Borrower shall deliver to the designated Fronting Bank an "Application and
Agreement for Standby Letter of Credit" in the form attached hereto as EXHIBIT
A, or in such other form as may reasonably be required by the designated
Fronting Bank."
6. EXTENSION FEE. Section 2.9(c) is hereby deleted, and the following
substituted therefor:
(c) EXTENSION FEE. Simultaneously with the delivery by Borrower of
the Notice to Extend pursuant to Section 2.10(b), the Borrower shall
pay to the Lead Agent for the account of the Banks ratably in
proportion to their Commitments an extension fee (each, the
"EXTENSION FEE") of .20% of the Commitments then outstanding
(provided, with respect to any Bank's share of such fee, such Bank
has honored its Commitment in accordance herewith).
7. EXTENSION OPTION. Section 2.10(c) of the Credit Agreement, and all
references to Section 2.10(c) and to the Request to Extend, are hereby deleted.
8. REPRESENTATIONS. Section 4.15 of the Credit Agreement is hereby deleted.
9. FINANCIAL INFORMATION. The reference to "Borrower" in Section 5.1(k) of
the Credit Agreement is hereby deleted and "Starwood" substituted therefor.
10. DIVIDENDS. Section 5.8(d) is hereby deleted and the following substituted
therefor:
(d) DIVIDENDS. The Borrower will not, as determined as of the last
day of each quarter, with respect to the previous four quarters, pay
or declare any dividends on common stock in excess of 85% of CFFOA
(as hereinafter defined) for such previous four quarters, provided,
however, that dividends may exceed 85% of CFFOA if required in order
for Starwood Financial Inc. ("STARWOOD") to maintain its status as a
real estate investment trust under the Code, assuming, however, that
all other Subsidiaries of Starwood shall have dividended or
distributed 100% of their disposable cash during the applicable
twelve (12) month period to Starwood. For purposes hereof, "CFFOA"
means the "net cash provided by operating activity", as shown on the
Borrower's consolidated statements of cash flows,
2
and calculated in a manner consistent with the Borrower's historical
methods of calculating the same.
11. ACQUISITION. Notwithstanding the provisions of Section 5.9 of the Credit
Agreement, the Required Banks hereby consent to the acquisition by merger (the
"MERGER") of 100% of the stock of the Borrower by Starwood and hereby waive any
Event of Default that would otherwise arise under Sections 6.1(i), (j) and (k)
of the Credit Agreement.
12. CHANGES IN BUSINESS. Section 5.10 is hereby amended by adding after the
reference to "Section 5.17" the following: "and Section 5.23".
13. BORROWER STATUS. Section 5.13 of the Credit Agreement is hereby deleted
and the following substituted therefor: "Borrower shall at all times maintain
its status as a "qualified REIT subsidiary" of Starwood."
14. ASSET SALES AND TRANSFERS. The following Section 5.20 is hereby added to
the Credit Agreement:
SECTION 5.20 ASSET SALES AND TRANSFERS. The Borrower shall not sell,
transfer or otherwise convey any Real Property Asset to any
Affiliate, other than a wholly-owned Subsidiary or a newly formed
joint venture with an unaffiliated third party, except that any such
sale, transfer or
3
conveyance shall be permitted if the same is for a price not less
than the then fair market value of the applicable Real Property
Asset, shall be on an all cash basis, and shall otherwise be on fair
market, arms' length terms. For purposes of this Section, the term
"AFFILIATE" shall mean as applied to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under
common control with, that Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly,
of the power to vote fifteen percent (15%) or more of the equity
securities having voting power for the election of directors of such
Person or otherwise to direct or cause the direction of the
management and policies of that Person, whether through the
ownership of voting equity securities or by contract or otherwise.
15. INTERCOMPANY DEBT. The following Section 5.21 is hereby added to the
Credit Agreement: SECTION 5.21. The Borrower may not incur any Debt from
Starwood or any Affiliate of Starwood ("AFFILIATE DEBT"), unless repayment of
such Debt, by its express written terms, is fully subordinated to the repayment
of the Loans and all other Obligations, as well as all other Debt from
un-Affiliated third parties. In addition, all Affiliate Debt shall be on then
market terms, and at no time shall, in the aggregate, exceed fifteen percent
(15%) of the total Debt permitted pursuant to Section 5.8(b) of the Credit
Agreement. In addition, at no time may the Borrower or any Subsidiary of the
Borrower lend any amounts to Starwood or any of its wholly-owned Subsidiaries or
any Affiliates of Starwood
4
that in the aggregate would exceed five percent (5%) of Consolidated Tangible
Net Worth.
16. BOARD OF DIRECTORS. The following Section 5.22 is hereby added to the
Credit Agreement:
SECTION 5.22. From and after the Effective Date, the members
of the board of directors of the Borrower (the "Board") shall at all
times be identical with the members of the board of directors of
Starwood, except that at all times there shall be one additional
member of the Board (the "SPECIAL DIRECTOR"), which member shall be
"independent" (in accordance with S&P's standard requirement from
time to time). A unanimous vote of all members of the Board,
including the Special Director, shall be required in accordance with
the organizational documents of the Borrower (the "UNANIMOUS VOTING
REQUIREMENT", for the Borrower to (i) file a voluntary insolvency
proceeding, or (ii) to sell, transfer or convey in any three (3)
month period, any Real Property Asset(s) to Starwood or any
wholly-owned Subsidiary of Starwood or any Affiliates of Starwood
other than a wholly-owned Subsidiary of the Borrower or a newly
formed joint venture of the Borrower with an unaffiliated third
party, that exceed, either individually or in the aggregate, five
percent (5%) of Combined Asset Value as of the last day of the most
recently ended fiscal quarter for which financial information has
been delivered in accordance with Section 5.1 (a) and (b).
17. ALTERNATIVE INVESTMENTS. The following Section 5.23 is hereby added to the
Credit Agreement:
5
SECTION 5.23. ALTERNATIVE INVESTMENTS. Borrower may use proceeds of
the Loans to make Alternative Investments, provided, however, that
as of the last day of each calender quarter, the total book value,
calculated in accordance with GAAP but without deduction for
depreciation, of Alternative Investments made from and after the
closing of the Merger shall not exceed 20% of Combined Asset Value.
For purposes hereof, "ALTERNATIVE INVESTMENTS" means any investment
other than (i) the acquisition of a Real Property Asset more than
75% of the rentable area of which is leased to a single tenant,
whether directly or through a joint venture, or (ii) development
activities as described in Section 5.17. Whether directly or through
a joint venture.
18. EVENTS OF DEFAULT. (a) Section 6.1(i) of the Credit Agreement is hereby
deleted and the following substituted therefor: "(i) Starwood shall cease to
own, directly or indirectly, 100% of the issued and outstanding shares of stock
of the Borrower;".
(b) Section 6.1(j) of the Credit Agreement is hereby deleted and the
following substituted therefor: "(j) there shall not be at all times
at least one Special Director on the Board, or the Unanimous Voting
Requirements shall be amended, modified or terminated without the
prior written consent of the Required Banks;"
(c) Section 6.1(k) of the Credit Agreement is hereby deleted and the
following substituted therefor: "(k) Starwood shall cease at any
time to qualify as a real estate investment trust under the Code;".
19. NOTICES. The reference in Section 9.1 of the Credit Agreement to "One
Embarcadero Center, 33rd Floor, San Francisco, CA 94111, Attn.: A. William
Stein" is hereby deleted and the following substituted therefor: "1114 Avenue of
the Americas, 27th Floor, New York, NY 10036, Attn.: Spencer Haber, with a copy
to Nina Matis, Esq."
20. ADDITIONAL COMMITMENT. Section 9.18 of the Credit Agreement is hereby
deleted.
21. EFFECTIVE DATE. This Amendment shall become effective when each of the
following conditions is satisfied (or waived by the Required Banks) (the date
such conditions are satisfied or waived being deemed the "EFFECTIVE DATE"):
(a) the Borrower shall have executed and delivered to the Lead Agent
a duly executed original of this Amendment;
6
(b) the Required Banks shall have executed and delivered to the Lead
Agent a duly executed original of this Amendment;
(c) the Lead Agent shall have received all documents the Lead Agent
may reasonably request relating to the existence of the Borrower,
the authority for and the validity of this Amendment, and the other
documents executed in connection therewith, and any other matters
relevant hereto, all in form and substance reasonably satisfactory
to the Lead Agent. Such documentation shall include, without
limitation, the organizational documents of the Borrower, as
amended, modified or supplemented prior to the Effective Date, each
certified to be true, correct and complete by an officer of the
Borrower, as of a date not more than twenty (20) days prior to the
Effective Date, together with a good standing certificate from the
Secretary of State (or the equivalent thereof) of the State of
Maryland with respect to
7
the Borrower, to be dated not more than twenty (20) days prior to
the Effective Date;
(d) the Lead Agent shall have received all certificates, agreements
and other documents and papers referred to in this Amendment, unless
otherwise specified, in sufficient counterparts, satisfactory in
form and substance to the Administrative Agent in its reasonable
discretion;
(e) the Borrower shall have taken all actions required to authorize
the execution and delivery of this Amendment and the performance
hereof by the Borrower;
(f) the Lead Agent shall have received from the Borrower, for the
account of the Banks, an amendment fee equal to .30% of the
Commitments;
(g) the Lead Agent shall have received the reasonable fees and
expenses accrued through the Effective Date of Skadden, Arps, Slate,
Meagher & Flom LLP, together with any other fees or expenses of the
Lead Agent;
8
(h) the representations and warranties of the Borrower contained in
the Credit Agreement, as amended hereby, shall be true and correct
in all material respects on and as of the Effective Date, as the
same may be amended by virtue of the Merger transactions with
Starwood described in the Proxy, dated September 22, 1999, a copy of
which has previously been delivered by the Borrower to the Banks
(the "PROXY");
(i) receipt by the Lead Agent and the Banks of a certificate of an
officer of the Borrower certifying that the Borrower is in
compliance with all covenants of the Borrower contained in the
Credit Agreement, as amended hereby, including, without limitation,
the requirements of Section 5.8, as of the Effective Date, as the
same may be amended by virtue of the Merger transactions with
Starwood described in the Proxy; and
(j) receipt by the Lead Agent of proof reasonably satisfactory to
the Lead Agent that Starwood shall have acquired by merger 100% of
the stock of the Borrower.
22. ENTIRE AGREEMENT. This Amendment constitutes the entire and final agreement
among the parties hereto with
9
respect to the subject matter hereof and there are no other agreements,
understandings, undertakings, representations or warranties among the parties
hereto with respect to the subject matter hereof except as set forth herein.
23. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the law of the State of New York.
24. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
25. HEADINGS, ETC. Section or other headings contained in this Amendment are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Amendment.
26. NO FURTHER MODIFICATIONS. Except as modified herein, all of the terms and
conditions of the Credit Agreement, as modified hereby shall remain in full
force and effect and, as modified hereby, the Borrower confirms and ratifies all
of the terms, covenants and conditions of the Credit Agreement in all respects.
10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER: TRINET CORPORATE REALTY TRUST, INC.
By:
------------------------------
Name:
Title:
Facsimile number: (415) 391-6259
Address: One Embarcadero Center
33rd Floor
San Francisco, CA 94111
Attn: Chief Financial
Officer
11
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Bank and as resigning Lead Agent
By:
------------------------------
Name:
Title:
12
BANK OF AMERICA, N.A., as a Bank
and as successor Lead Agent
By:
------------------------------
Name:
Title:
600 Montgomery Street
37th Floor
Mail Code: CA5-801-37-01
San Francisco, CA 94111
Attention:
Telecopy:
DOMESTIC AND EURO-CURRENCY LENDING
OFFICE:
Attention:
Telecopy:
13
BANKERS TRUST COMPANY, as Co-Agent and as a Bank
By:
------------------------------
Name:
Title:
14
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
as Bank and as Co-Agent
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
15
BANK ONE, NA (f/k/a The First National Bank of Chicago,
as a Bank, as Co-Agent, and as Syndication Agent
By:
------------------------------
Name:
Title:
16
PNC BANK, NATIONAL ASSOCIATION, as a Bank
and as Co-Agent
By:
------------------------------
Name:
Title:
17
AMSOUTH BANK
By:
------------------------------
Name:
Title:
18
BANK OF MONTREAL, CHICAGO BRANCH
By:
------------------------------
Name:
Title:
19
FIRST UNION NATIONAL BANK
By:
------------------------------
Name:
Title:
20
UBS AG, STAMFORD BRANCH
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
21
KEY BANK NATIONAL ASSOCIATION
(f/k/a Society Bank)
By:
------------------------------
Name:
Title:
22
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY
By:
------------------------------
Name:
Title:
23
COMMERZBANK AKTIENGESELLSCHAFT,
NEW YORK AND GRAND CAYMAN BRANCHES
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
24
BANQUE NATIONALE DE PARIS
By:
------------------------------
Name:
Title:
Exhibit 10.14
- --------------------------------------------------------------------------------
iSTAR ASSET RECEIVABLES TRUST,
Issuer
and
LASALLE BANK NATIONAL ASSOCIATION,
Indenture Trustee
and
ABN AMRO BANK N.V.
Fiscal Agent
---------------------------------
INDENTURE
Dated as of May 17, 2000
---------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS 1
Section 1.01 Definitions; Interpretation..............................1
ARTICLE II
THE BONDS.............................................................13
Section 2.01 Form Generally..........................................13
Section 2.02 Denominations...........................................13
Section 2.03 Execution, Authentication, and Delivery.................13
Section 2.04 Authenticating Agent....................................14
Section 2.05 Registration of and Limitations on
Transfer and Exchange of Bonds..........................15
Section 2.06 Mutilated, Destroyed, Lost or Stolen Bonds..............16
Section 2.07 Persons Deemed Owners...................................17
Section 2.08 Appointment of Paying Agent.............................17
Section 2.09 Access to List of Bondholders' Names and
Addresses...............................................18
Section 2.10 Cancellation............................................18
Section 2.11 New Issuances...........................................18
Section 2.12 Book-Entry Bonds........................................20
Section 2.13 Notices to Clearing Agency..............................21
Section 2.14 Definitive Bonds........................................21
Section 2.15 Arrangements with Substantially Similar Issuers.........22
ARTICLE III
REPRESENTATIONS AND COVENANTS OF THE ISSUER...........................23
Section 3.01 Payment of Principal and Interest.......................23
Section 3.02 Maintenance of Office or Agency.........................23
Section 3.03 Establishment of Collection Accounts....................24
Section 3.04 Establishment of Bond Distribution Account..............24
Section 3.05 Establishment of Certificate Distribution Account.......24
Section 3.06 Money for Bond Payments to Be Held in Trust.............25
Section 3.07 Allocation of Collections...............................26
Section 3.08 Unclaimed Funds.........................................29
Section 3.09 Existence...............................................29
Section 3.10 Protection of Issuer....................................30
Section 3.11 Performance of Obligations; Servicing of
Issuer Assets...........................................30
Section 3.12 Negative Covenants......................................32
Section 3.13 Issuer May Consolidate, Etc., Only on
Certain Terms...........................................32
Section 3.14 Successor Substituted...................................34
Section 3.15 No Other Business.......................................34
Section 3.16 No Borrowing............................................34
Section 3.17 Guarantees, Loans, Advances and Other
Liabilities.............................................35
i
Section 3.18 Capital Expenditures....................................35
Section 3.19 Restricted Payments.....................................35
Section 3.20 Further Instruments and Acts............................35
ARTICLE IV
SATISFACTION AND DISCHARGE............................................36
Section 4.01 Satisfaction and Discharge of this Indenture............36
Section 4.02 Application of Trust Money..............................37
ARTICLE V
DEFAULTS AND REMEDIES.................................................37
Section 5.01 Indenture Events of Default.............................37
Section 5.02 Controlling Holder......................................37
Section 5.03 Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee........................37
Section 5.04 Remedies; Rescission of Acceleration....................39
Section 5.05 Allocation of Available Series Funds....................41
Section 5.06 Indenture Trustee May Enforce Claims
Without Possession of Bonds.............................42
Section 5.07 Limitation on Suits.....................................42
Section 5.08 Unconditional Rights of Bondholders to
Receive Principal and Interest..........................43
Section 5.09 Restoration of Rights and Remedies......................43
Section 5.10 Rights and Remedies Cumulative..........................43
Section 5.11 Delay or Omission Not Waiver............................43
Section 5.12 Rights of Bondholders to Direct Indenture Trustee.......44
Section 5.13 Waiver of Past Defaults.................................44
Section 5.14 Undertaking for Costs...................................44
Section 5.15 Waiver of Stay or Extension Laws........................45
Section 5.16 Sale of Issuer Assets...................................45
Section 5.17 Action on Bonds.........................................46
ARTICLE VI
THE INDENTURE TRUSTEE.................................................46
Section 6.01 Duties of the Indenture Trustee.........................46
Section 6.02 Notice of Indenture Event of Default....................48
Section 6.03 Rights of Indenture Trustee.............................49
Section 6.04 Not Responsible for Recitals or Issuance of Bonds.......50
Section 6.05 May Hold Bonds..........................................50
Section 6.06 Money Held in Trust.....................................50
Section 6.07 Compensation, Reimbursement, and Indemnification........50
Section 6.08 Replacement of Indenture Trustee........................51
Section 6.09 Successor Indenture Trustee by Merger...................52
Section 6.10 Appointment of Co-Indenture Trustee or
Separate Indenture Trustee..............................53
Section 6.11 Eligibility; Disqualification...........................54
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Section 6.12 Representations and Covenants of the
Indenture Trustee.......................................54
ARTICLE VII
BONDHOLDERS' LIST AND REPORTS BY INDENTURE TRUSTEE AND ISSUER.........55
Section 7.01 Issuer to Furnish Indenture Trustee Names
and Addresses of Bondholders............................55
Section 7.02 Preservation of Information;
Communications to Bondholders...........................55
ARTICLE VIII
ACCOUNTING AND RELEASES...............................................56
Section 8.01 Collection of Money.....................................56
Section 8.02 Release of Collateral...................................56
ARTICLE IX
SUPPLEMENTAL INDENTURES...............................................57
Section 9.01 Supplemental Indentures Without Consent of
Bondholders.............................................57
Section 9.02 Supplemental Indentures with Consent of Bondholders.....59
Section 9.03 Execution of Supplemental Indentures....................61
Section 9.04 Effect of Supplemental Indenture........................61
Section 9.05 Reference in Bonds to Supplemental Indentures...........61
Section 9.06 Amendments in General...................................61
ARTICLE X
MISCELLANEOUS.........................................................61
Section 10.01 Form of Documents Delivered to Indenture Trustee........61
Section 10.02 Acts of Bondholders.....................................62
Section 10.03 Notices, Etc. to Indenture Trustee,
Issuer, and Rating Agencies.............................63
Section 10.04 Notices to Bondholders; Waiver.........................64
Section 10.05 Administrator to Act for Issuer........................65
Section 10.06 Alternate Payment and Notice Provisions................65
Section 10.07 Effect of Headings and Table of Contents...............65
Section 10.08 Successors and Assigns.................................65
Section 10.09 Separability...........................................65
Section 10.10 Benefits of Indenture..................................65
Section 10.11 Legal Holidays.........................................66
Section 10.12 Governing Law..........................................66
Section 10.13 Counterparts...........................................66
Section 10.14 Issuer Obligation......................................66
Section 10.15 No Petition............................................66
Section 10.16 Limitation of Owner Trustee Liability..................67
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INDENTURE, dated as of May 17, 2000, among iStar Asset Receivables
Trust, a business trust established under the laws of the State of Delaware (the
"ISSUER"), and LaSalle Bank National Association, a national banking
association, as indenture trustee (the "INDENTURE Trustee") and ABN AMRO BANK
N.V., a Netherlands banking corporation, as fiscal agent (the "FISCAL AGENT").
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for issues of Series of its mortgage backed bonds called
"STARS." All covenants and agreements made by the Issuer in this Indenture are
for the benefit and security of the Bondholders.
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS; INTERPRETATION.
(1) Except as otherwise specified herein or as the context otherwise may
require, capitalized terms used but not defined herein are defined in Appendix I
hereto, which also contains rules as to usage that shall be applicable herein.
(2) If, with respect to any Series, a conflict exists between the
provisions of this Indenture and any Supplemental Indenture, the provisions of
the Supplemental Indenture shall be controlling for the related Series.
(3) As used in this Indenture and unless the context requires a
different meaning, capitalized terms are used in this Indenture with the
following meanings:
"ACT" has the meaning specified in SECTION 10.02.
"AGGREGATE INTEREST/INTEREST FUNDS AMOUNT" means, with respect to any
Interest Surplus Series and any Payment Date, an amount equal to the sum of the
Allocated Interest/Interest Funds Amounts on such Payment Date with respect to
each Series that is an Eligible Interest Deficit Series related to such Interest
Surplus Series.
"AGGREGATE INTEREST/PRINCIPAL FUNDS AMOUNT" means, with respect to any
Interest Surplus Series and any Payment Date, an amount equal to the sum of the
Allocated Interest/Principal
Funds Amounts on such Payment Date with respect to each Series that is an
Eligible Principal Deficit Series related to such Interest Surplus Series.
"AGGREGATE PRINCIPAL/INTEREST FUNDS AMOUNT" means, with respect to any
Principal Surplus Series and any Payment Date, an amount equal to the sum of the
Allocated Principal/Interest Funds Amounts on such Payment Date with respect to
each Series that is an Eligible Interest Deficit Series related to such
Principal Surplus Series.
"AGGREGATE PRINCIPAL/PRINCIPAL FUNDS AMOUNT" means, with respect to any
Principal Surplus Series and any Payment Date, an amount equal to the sum of the
Allocated Principal/Principal Funds Amounts on such Payment Date with respect to
each Series that is an Eligible Principal Deficit Series related to such
Principal Surplus Series.
"ALLOCATED INTEREST/INTEREST FUNDS AMOUNT" means, with respect to any
Payment Date, any Interest Surplus Series and any Interest Deficit Series which
is an Eligible Interest Deficit Series with respect to such Interest Surplus
Series, the amount of the Shared Interest Funds from to such Interest Surplus
Series allocated to make payments on such Interest Deficit Series pursuant to
SECTION 3.07(e)(i) on such Payment Date, which is an amount equal to the product
of (i) a fraction, the numerator of which is the Remaining Shared Interest Funds
of such Interest Surplus Series on such Payment Date, and the denominator of
which is the sum of the Remaining Shared Interest Funds of each Interest Surplus
Series for which the Interest Deficit Series is also an Eligible Interest
Deficit Series on such Payment Date, and (ii) the Interest Deficit Amount for
such Interest Deficit Series, in each case, prior to the application of Shared
Interest Funds to reduce the Interest Deficit Amount of such Interest Deficit
Series on such Payment Date.
"ALLOCATED INTEREST/PRINCIPAL FUNDS AMOUNT" means, with respect to any
Payment Date, any Interest Surplus Series and any Principal Deficit Series which
is an Eligible Principal Deficit Series with respect to such Interest Surplus
Series after application of Shared Principal Funds pursuant to SECTION
3.07(f)(i) on such Payment Date, the amount of the Shared Interest Funds from
such Interest Surplus Series allocated to make payments on such Principal
Deficit Series pursuant to SECTION 3.07(f)(ii) on such Payment Date, which is an
amount equal to the product of (i) a fraction, the numerator of which is the
Remaining Shared Interest Funds of such Interest Surplus Series on such Payment
Date, and the denominator of which is sum of the Remaining Shared Interest Funds
of each Interest Surplus Series for which the Principal Deficit Series is also
an Eligible Principal Deficit Series on such Payment Date, and (ii) the
Principal Deficit Amount for such Principal Deficit Series remaining after
application of SECTION 3.07(f)(i) on such Payment Date, in each case prior to
the application of Shared Interest Funds to reduce the Principal Deficit Amount
of such Principal Deficit Series on such Payment Date .
"ALLOCATED PRINCIPAL/INTEREST FUNDS AMOUNT" means, with respect to any
Payment Date, any Principal Surplus Series and any Series which is an Eligible
Interest Deficit Series with respect to such Principal Surplus Series after
application of Shared Interest Funds pursuant to
SECTION 3.07(e)(i) on such Payment Date, the amount of the Shared Principal
Funds from such Principal Surplus Series allocated to make payments on such
Interest Deficit Series pursuant to SECTION 3.07(e)(ii) on such Payment Date,
which is an amount equal to the product of (i) a fraction, the numerator of
which is the Remaining Shared Principal Funds of such Principal Surplus Series
on such Payment Date, and the denominator of which is the sum of the Remaining
Shared Principal Funds of each other Principal Surplus Series with respect to
which such Eligible Interest Deficit Series is also an Eligible Interest Deficit
Series on such Payment Date, and (ii) the Interest Deficit Amount for such
Interest Deficit Series remaining after application of SECTION 3.07(e)(i) on
such Payment Date, in each case prior to the application of Shared Principal
Funds to reduce the Interest Deficit Amount of such Interest Deficit Series on
such Payment Date.
"ALLOCATED PRINCIPAL/PRINCIPAL FUNDS AMOUNT" means, with respect to any
Payment Date, any Principal Surplus Series and any Series which is an Eligible
Principal Deficit Series with respect to such Principal Surplus Series, the
amount of the Shared Principal Funds from such Principal Surplus Series
allocated to make payments on such Principal Deficit Series pursuant to SECTION
3.07(f)(i) on such Payment Date, which is an amount equal to the product of (i)
a fraction, the numerator of which is the Remaining Shared Principal Funds of
such Principal Surplus Series on such Payment Date, and the denominator of which
is sum of the Remaining Shared Principal Funds of each Principal Surplus Series
with respect to which the Principal Deficit Series is also an Eligible Principal
Deficit Series on such Payment Date, and (ii) the Principal Deficit Amount for
such Principal Deficit Series, in each case, prior to the application of Shared
Principal Funds to reduce the Principal Deficit Amount of such Principal Deficit
Series on such Payment Date.
"AUTOMATIC INDENTURE EVENT OF DEFAULT" has the meaning specified in
SECTION 5.01.
"AVAILABLE SERIES FIXED RATE INTEREST FUNDS" means, with respect to any
Series and any Collection Period, the sum of the following amounts (as amended
or modified by the applicable Supplemental Indenture):
(i) the total amount of all cash received in respect of
interest payments (including any deferred interest
payments) and other non-principal payments due in such
Collection Period on the Loans included in the related
Fixed Rate Series Issuer Assets or on any Equity
Interests related to such Loans that are on deposit in
the Primary Collection Account on the Business Day
preceding the related Remittance Date exclusive of (a)
interest payments on the related Fixed Rate Series
Issuer Assets collected but due on a Due Date subsequent
to such Collection Period, (b) the interest portion of
Principal Prepayments, Balloon Payments, Liquidation
Proceeds, Insurance Proceeds, Condemnation Proceeds and
other unscheduled Recoveries with respect to the related
Fixed Rate Series Issuer Assets received subsequent to
such Collection Period, (c) all amounts in the Primary
Collection Account on the last day of the Collection
Period that are due to persons other than
3
the Bondholders of such Series, including any amounts allocable to
the reimbursement of Control Advances made by SFI pursuant to the
applicable Servicing Agreement and reimbursement of Protective
Advances that have been deemed to be Nonrecoverable Advances, and
(d) amounts deposited in the Primary Collection Account in error
during such Collection Period;
(ii) all Bond Interest Advances made with respect to the related Bonds or
the related Fixed Rate Series Issuer Assets, as specified in the
applicable Supplemental Indenture, during such Collection Period;
(iii) all Control Advances in respect of interest made on the Fixed Rate
Series Issuer Assets;
(iv) all payments in respect of interest deposited into the Primary
Collection Account during such Collection Period with respect any
related Fixed Rate Series Issuer Asset which SFI is required to
repurchase pursuant to the Company Purchase Agreement;
(v) all payments made during such Collection Period by the Issuer in
respect of the interest portion of optional redemptions of the Bonds
of such Series not made from payments on the related Fixed Rate
Series Issuer Assets;
(vi) Recoveries with respect to the related Fixed Rate Series Issuer
Assets received during such Collection Period; and
(vii) all other fees collected with respect to the Fixed Rate Series
Issuer Assets which are payable to the Issuer, as specified in the
applicable Supplemental Indenture, which fees may include, but are
not limited to, Prepayment Premiums, Exit Fees, Loan Fees and
Extension Fees.
"AVAILABLE SERIES FIXED RATE PRINCIPAL FUNDS" means, with respect to any
Series and any Collection Period, the sum of the following amounts (as amended
or modified by the applicable Supplemental Indenture):
(i) the total amount of all cash received during such
Collection Period in respect of principal payments,
including, but not limited to, Principal Prepayments,
Balloon Payments, Net Insurance Proceeds, Net
Liquidation Proceeds and Condemnation Proceeds, made on
the related Fixed Rate Series Issuer Assets that is on
deposit in the Primary Collection Account on the
Business Day preceding the related Remittance Date,
exclusive of (a) scheduled principal payments on the
related Fixed Rate Series Issuer Assets collected during
such Collection Period but due on a Due Date subsequent
to the related Collection Period, (b) Principal
Prepay
4
ments, Balloon Payments, Net Liquidation Proceeds, Net Insurance
Proceeds, Condemnation Proceeds and other unscheduled Recoveries
with respect to the related Fixed Rate Series Issuer Assets received
during such Collection Period which were due in a subsequent
Collection Period, (c) all amounts in the Collection Account on the
last day of such Collection Period that are due to persons other
than the Bondholders of such Series, including any amounts allocable
to the reimbursement of Control Advances made by SFI pursuant to the
applicable Servicing Agreement and reimbursement of Protective
Advances, (d) any deferred interest payments on the related Fixed
Rate Series Issuer Assets, and (e) amounts deposited in the Primary
Collection Account during such Collection Period in error;
(ii) all Principal Advances made with respect to the related Bonds or the
related Fixed Rate Series Issuer Assets, as specified in the
applicable Supplemental Indenture, during such Collection Period;
(iii) all Control Advances in respect of principal made on the Fixed Rate
Series Issuer Assets;
(iv) all payments in respect of principal deposited into the Primary
Collection Account during such Collection Period with respect any
related Fixed Rate Series Issuer Asset which SFI is required to
repurchase pursuant to the Company Purchase Agreement; and
(v) all payments during such Collection Period by the Issuer in respect
of the principal portion of payments in respect of optional
redemptions of the Bonds of such Series not made from payments on
the related Fixed Rate Series Issuer Assets.
"AVAILABLE SERIES FLOATING RATE INTEREST FUNDS" means, with respect to any
Series and any Collection Period, the sum of the following amounts (as amended
or modified by the applicable Supplemental Indenture):
(i) the total amount of all cash received in respect of
interest payments (including any deferred interest
payments) and other non-principal payments due in such
Collection Period on the Loans included in the related
Floating Rate Series Issuer Assets or on any Equity
Interests related to such Loans that are on deposit in
the Primary Collection Account on the Business Day
preceding the related Remittance Date exclusive of (a)
interest payments on the related Floating Rate Series
Issuer Assets collected but due on a Due Date subsequent
to such Collection Period, (b) the interest portion of
Principal Prepayments, Balloon Payments, Liquidation
Proceeds, Insurance Proceeds, Condemnation Proceeds and
other unscheduled Recoveries with respect to the related
Floating Rate Series Issuer Assets received
5
subsequent to such Collection Period, (c) all amounts in the Primary
Collection Account on the last day of the Collection Period that are
due to persons other than the Bondholders of such Series, including
any amounts allocable to the reimbursement of Control Advances made
by SFI pursuant to the applicable Servicing Agreement and
reimbursement of Protective Advances that have been deemed to be
Nonrecoverable Advances, and (d) amounts deposited in the Primary
Collection Account in error during such Collection Period;
(ii) all Bond Interest Advances made with respect to the related Bonds or
the related Floating Rate Series Issuer Assets, as specified in the
applicable Supplemental Indenture, during such Collection Period;
(iii) all Control Advances in respect of interest made on the Floating
Rate Series Issuer Assets;
(iv) all payments in respect of interest deposited into the Primary
Collection Account during such Collection Period with respect any
related Floating Rate Series Issuer Asset which SFI is required to
repurchase pursuant to the Company Purchase Agreement;
(v) all payments made during such Collection Period by the Issuer in
respect of the interest portion of optional redemptions of the Bonds
of such Series not made from payments on the related Floating Rate
Series Issuer Assets;
(vi) Recoveries with respect to the related Floating Rate Series Issuer
Assets received during such Collection Period; and
(vii) all other fees collected with respect to the Floating Rate Series
Issuer Assets which are payable to the Issuer, as specified in the
applicable Supplemental Indenture, which fees may include, but are
not limited to, Prepayment Premiums, Exit Fees, Loan Fees and
Extension Fees.
"AVAILABLE SERIES FLOATING RATE PRINCIPAL FUNDS" means, with respect to
any Series and any Collection Period, the sum of the following amounts (as
amended or modified by the applicable Supplemental Indenture):
(i) the total amount of all cash received during such
Collection Period in respect of principal payments,
including, but not limited to, Principal Prepayments,
Balloon Payments, Net Insurance Proceeds, Net
Liquidation Proceeds and Condemnation Proceeds, made on
the related Floating Rate Series Issuer Assets that is
on deposit in the Primary Collection Account on the
Business Day preceding the related Remittance Date,
exclusive of (a) scheduled principal payments on the
related Floating Rate Series Issuer Assets collected
during such Collection Period but due on a Due Date
subsequent to the related Collection Period, (b)
Principal Prepayments, Balloon Payments, Net Liquidation
Proceeds, Net Insurance Proceeds, Condemnation Proceeds
and other unscheduled Recoveries with respect to the
related Floating Rate Series Issuer Assets received
during such Collection Period which were due in a
subsequent Collection Period, (c) all amounts in the
Collection Account on the last day of such Collection
Period that are due to persons other than the
Bondholders of such Series, including any amounts
allocable to the reimbursement of Control Advances made
by SFI pursuant to the applicable Servicing Agreement
and reimbursement of Protective Advances, (d) any
deferred interest payments on the related
6
Floating Rate Series Issuer Assets, and (e) amounts deposited in the
Primary Collection Account during such Collection Period in error;
(ii) all Principal Advances made with respect to the related Bonds or the
related Floating Rate Series Issuer Assets, as specified in the
applicable Supplemental Indenture, during such Collection Period;
(iii) all Control Advances in respect of principal made on the Floating
Rate Series Issuer Assets;
(iv) all payments in respect of principal deposited into the Primary
Collection Account during such Collection Period with respect any
related Floating Rate Series Issuer Asset which SFI is required to
repurchase pursuant to the Company Purchase Agreement; and
(v) all payments during such Collection Period by the Issuer in respect
of the principal portion of payments in respect of optional
redemptions of the Bonds of such Series not made from payments on
the related Floating Rate Series Issuer Assets.
"AVAILABLE SERIES FUNDS" means, with respect to any Series and any
Collection Period, the sum of the Available Series Interest Funds and Available
Series Principal Funds.
"AVAILABLE SERIES INTEREST FUNDS" means, with respect to any Series and
any Collection Period, the sum of Available Series Fixed Rate Interest Funds and
Available Series Floating Rate Interest Funds.
"AVAILABLE SERIES PRINCIPAL FUNDS" means, with respect to any Series and
any Collection Period, the sum of Available Series Fixed Rate Principal Funds
and Available Series Floating Rate Principal Funds.
7
"BOND OWNER" means, with respect to a Bond in book-entry form, the Person
who is the owner of the beneficial interest of such book-entry Bond, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or a day on
which national banking associations or state banking institutions in The City of
New York or the city in which the principal corporate trust office of the
Indenture Trustee is located are authorized or obligated by law or executive
order or governmental decree to be closed.
"CLEARING AGENCY" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934.
"CREDIT ENHANCEMENT" means, for any Series, the subordination, cash
collateral guaranty or account, collateral interest, letter of credit, surety
bond, insurance policy, spread account, reserve account, cross-support feature,
or any other credit support feature for the benefit of the holders of one or
more Classes of securities of that Series.
"CREDIT ENHANCEMENT AGREEMENT" means any agreement, instrument or document
governing the terms of any Credit Enhancement of any Series or Class or pursuant
to which any Credit Enhancement of any Series or Class is issued or outstanding.
"ELIGIBLE INTEREST DEFICIT SERIES" means, with respect to any (i) Interest
Surplus Series and any Payment Date, all subsequently issued Interest Deficit
Series (by chronological order of date of issuance) on such Payment Date, and
(ii) Principal Surplus Series and any Payment Date, all subsequently issued
Interest Deficit Series (by chronological order of date of issuance) on such
Payment Date.
"ELIGIBLE PRINCIPAL DEFICIT SERIES" means, with respect to any (i)
Interest Surplus Series and any Payment Date, all subsequently issued Principal
Deficit Series (by chronological order of date of issuance) on such Payment
Date, and (ii) Principal Surplus Series and any Payment Date, all subsequently
issued Principal Deficit Series (by chronological order of date of issuance) on
such Payment Date.
"FITCH" means Fitch IBCA, Inc. and its successors.
"FIXED RATE SERIES ISSUER ASSETS" means, with respect to any Series, the
Series Issuer Assets identified in the related Supplemental Indenture as Fixed
Rate Issuer Assets.
"FLOATING RATE SERIES ISSUER ASSETS" means, with respect to any Series,
the Series Issuer Assets identified in the related Supplemental Indenture as
Floating Rate Issuer Assets.
8
"FOREIGN CLEARING AGENCY" means Clearstream, societe anonyme, or the
Euroclear system.
"GRANT" means mortgage, pledge, bargain, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a Lien upon and a security
interest in and a right of set-off against, deposit, set over, and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers, and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive, and give receipt for all
payments on the Collateral and all other moneys payable under or in connection
with it, to give and receive notices and other communications, to make waivers
or other agreements, to exercise all rights and options, to bring proceedings in
the name of the granting party or otherwise, and generally to do and receive
anything that the granting party is or may be entitled to do or receive under
the Collateral.
"INDENTURE" means this Indenture, as supplemented by each Supplemental
Indenture relating to any Series of Bonds that may be issued on or after the
date hereof.
"INDENTURE EVENT OF DEFAULT" has the meaning specified in SECTION 5.01.
"INDENTURE TRUSTEE" means LaSalle Bank National Association, a national
banking association, in its capacity as indenture trustee, or any successor
indenture trustee.
"INSOLVENCY EVENT" means, with respect to a specified Person, (a)(i) the
entry of a decree or order for relief by a court having jurisdiction in the
premises against that Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency, or other similar
law now or hereafter in effect, (ii) the appointment of a conservator, receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
that Person or for all or any substantial part of its property, or (iii) the
ordering of the winding-up or liquidation of that Person's business, if such
decree or order remains unstayed and in effect for a period of 60 consecutive
days; (b) the commencement by that Person of a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or the consent by the Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Person to the
appointment of or taking possession by a conservator, receiver, liquidator,
assignee for the benefit of creditors, custodian, trustee, sequestrator or
similar official for the particular party or for all or any substantial part of
its property, or the making by the Person of any general assignment for the
benefit of creditors; or (c) the failure by the Person generally to pay its
debts as they become due or the admission by it in writing (as to which
admission the Indenture Trustee has written notice) of its inability to pay its
debts generally as they become due.
9
"INTEREST DEFICIT AMOUNT" means, with respect to any Series, the excess,
if any, of the Series Interest Required Amount over the Available Series
Interest Funds for such Series on such Payment Date.
"INTEREST DEFICIT SERIES" means, with respect to any Payment Date, each
Series for which the related Interest Deficit Amount is greater than zero.
"INTEREST SHORTFALL" means, with respect to any Series, the amount
specified as the "Interest Shortfall" in the related Supplemental Indenture.
"INTEREST SURPLUS SERIES" means, with respect to any Payment Date, each
Series for which the related Shared Interest Funds on such Payment Date is
greater than zero.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other), preference, participation
interest, priority or other security agreement or preferential arrangement of
any nature whatsoever resulting in an encumbrance against real or personal
property of a Person, including any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the UCC or
comparable law of any jurisdiction to evidence any of the foregoing.
"MAJORITY IN INTEREST" of any Series or any Class has the meaning given to
it in the related Supplemental Indenture.
"MATURITY DATE" means, with respect to each Class of Bonds of each
outstanding Series, the date on which the entire unpaid principal amount of such
Class is due and payable in the absence of default, as specified in the
applicable Supplemental Indenture for each Class under the definition "Class
Maturity Date."
"PAYING AGENT" has the meaning specified in SECTION 2.08.
"PAYMENT DATE" means, for each Series, the date specified in the related
Supplemental Indenture.
"PRINCIPAL DEFICIT AMOUNT" means, with respect to any Series and any
Payment Date, the excess, if any, of the Series Principal Required Amount for
such Series on such Payment Date over the Available Series Principal Funds for
such Series on such Payment Date.
"PRINCIPAL DEFICIT SERIES" means, with respect to any Payment Date, each
Series for which the related Principal Deficit Amount is greater than zero.
10
"PRINCIPAL SURPLUS SERIES" means, with respect to any Payment Date, each
Series for which the Shared Principal Funds on such Payment Date is greater than
zero.
"RELEASED SHARED FUNDS" has the meaning specified in SECTION 3.07(g).
"REMAINING SHARED INTEREST FUNDS" means, with respect to any Payment Date,
any Interest Surplus Series and (i) any Eligible Interest Deficit Series with
respect to such Interest Surplus Series on such Payment Date, the excess of (a)
the Shared Interest Funds from such Interest Surplus Series prior to any
allocations thereof pursuant to SECTIONS 3.07(e)(i) and 3.07(f)(ii) over (b) the
sum of the Allocated Interest/Interest Funds Amounts from such Interest Surplus
Series allocated to each other Series issued prior to such Eligible Interest
Deficit Series which is also an Eligible Interest Deficit Series with respect to
such Interest Surplus Series on such Payment Date and the sum of the Allocated
Interest/Principal Funds Amounts with respect to such Interest Surplus Series
allocated to each Series issued prior to such Eligible Principal Deficit Series
which is also an Eligible Principal Deficit Series with respect to such Interest
Surplus Series on such Payment Date and (ii) any Eligible Principal Deficit
Series with respect to such Interest Surplus Series on such Payment Date, the
excess of the Shared Interest Funds from such Interest Surplus Series, over the
sum of (x) the amounts in the foregoing CLAUSE (I) (B), plus (y) the Allocated
Interest/Interest Funds Amount, if any, with respect to such Eligible Principal
Deficit Series (if also an Eligible Interest Deficit Series on such Payment
Date).
"REMAINING SHARED PRINCIPAL FUNDS" means, with respect to any Payment
Date, any Principal Surplus Series and (i) any Eligible Principal Deficit Series
with respect to such Principal Surplus Series on such Payment Date, the excess
of (a) the Shared Principal Funds from such Principal Surplus Series prior to
any allocations thereof pursuant to SECTIONS 3.07(e)(ii) and 3.07(f)(i) on such
Payment Date, over (b) the sum of the Allocated Principal/Principal Funds
Amounts from such Principal Surplus Series allocated to each Series issued prior
to such Eligible Principal Deficit Series which is also an Eligible Principal
Deficit Series with respect to such Principal Surplus Series on such Payment
Date and the sum of the Allocated Principal/Interest Funds amounts with respect
to such Principal Surplus Series allocated to each Series issued prior to such
Eligible Principal Deficit Series which is also an Eligible Interest Deficit
Series with respect to such Principal Surplus Series on such Payment Date and
(ii) any Eligible Interest Deficit Series with respect to such Principal Surplus
Series on such Payment Date, the excess of the Shared Principal Funds from such
Principal Surplus Series, over the sum of (x) the amounts in the foregoing
CLAUSE (I)(B), plus (y) the Allocated Principal/Principal Funds Amount, if any,
with respect to such Eligible Interest Deficit Series (if also an Eligible
Principal Deficit Series on such Payment Date).
"REQUIRED PAYOFF AMOUNT" means, with respect to any Series, the sum of the
(i) outstanding principal amount of the Bonds of such Series, (ii) the accrued
and unpaid interest with respect to such Series and (iii) the Yield Maintenance
Premiums, if any, due with respect to such Series.
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"RESPONSIBLE OFFICER" means, (i) when used with respect to the initial
Indenture Trustee, any officer of its Asset-Backed Securities Trust Services
Group with direct responsibility for the matters contemplated by this Indenture
and the related Supplemental Indentures and with respect to any other Indenture
Trustee, any officer within the corporate trust department of the Indenture
Trustee, including any vice president, assistant vice president, treasurer,
assistant treasurer, trust officer, secretary or any assistant secretary, or any
other officer who customarily performs functions similar to those performed by
any of the above designated officers, and also, regarding a particular matter,
any other officer of the Indenture Trustee to whom the matter is referred
because of that officer's knowledge of and familiarity with the particular
subject and (ii) when used with respect to any other Person, any of the
Chairman, the President, any Vice President, the Treasurer, any Assistant
Treasurer, the Secretary, or any Assistant Secretary of that Person.
"SERIES INDENTURE EVENT OF DEFAULT" has the meaning specified in SECTION
5.01.
"SERIES INTEREST REQUIRED AMOUNT" means, with respect to any Series, the
amount, if any, specified in the related Supplemental Indenture.
"SERIES ISSUER ASSETS" means, with respect to any Series, the Issuer
Assets identified in the Schedule of Issuer Assets attached to the related
Supplemental Indenture, the payments of interest and principal on which serve as
the primary source of payment with respect to the Bonds of such Series.
"SERIES PRINCIPAL REQUIRED AMOUNT" means, with respect to any Series, the
amount, if any, specified in the related Supplemental Indenture.
"SERIES TERMINATION DATE" means, for any Series, the date specified in the
related Supplemental Indenture.
"SHARED INTEREST FUNDS" means, with respect to any Series and any Payment
Date, the Available Series Interest Funds remaining, if any, after application
thereof to pay the Series Interest Required Amount of such Series on such
Payment Date.
"SHARED FUNDS" means Shared Interest Funds and Shared
Principal Funds.
"SHARED PRINCIPAL FUNDS" means, with respect to any Series and any Payment
Date, the Available Series Principal Funds remaining, if any, after application
thereof to pay the Series Principal Required Amount of such Series on such
Payment Date.
"TRANSACTION DOCUMENTS" means the Indenture, the Trust Agreement, any
Servicing Agreement, any Primary Servicing Agreement, the Company Purchase
Agreement, the Issuer Purchase Agreement and any Supplemental Indenture.
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"TRANSFER AGENT AND REGISTRAR" means, initially, the Indenture Trustee
and, if the Indenture Trustee is at any time no longer the Transfer Agent and
Registrar, the Person appointed Transfer Agent and Registrar by the Issuer for
the purpose of effecting transfers or exchanges of Bonds, and registering Bonds,
pursuant to SECTION 2.05.
"YIELD MAINTENANCE PREMIUMS" means, with respect to any Series, the amount
specified as the "Yield Maintenance Premium" in the related Supplemental
Indenture.
ARTICLE II
THE BONDS
Section 1.2 FORM GENERALLY.
Any Series or Class of Bonds, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form of an exhibit
to the related Supplemental Indenture with appropriate insertions, omissions,
substitutions, and other variations permitted by this Indenture, and may have
letters, numbers or other marks of identification and any legends or
endorsements that the officers executing them deem appropriate and that are
consistent with this Indenture. Any portion of the text of any Bond may be set
forth on its reverse, with an appropriate reference to the reverse on the face
of the Bond.
The Bonds may be typewritten, printed, lithographed or engraved, or
produced by any combination of these methods, all as determined by the officers
executing them.
Each Bond other than a Definitive Bond shall be dated the related
Closing Date, and each Definitive Bond shall be dated as of the date of its
authentication.
Section 1.3 DENOMINATIONS.
The Bonds of each Series shall be issued in fully registered form
in minimum amounts specified in the related Supplemental Indenture. Bonds shall
be issued without coupons attached.
Section 1.4 EXECUTION, AUTHENTICATION, AND DELIVERY.
Each Bond shall be executed by manual or facsimile signature on
behalf of the Issuer by the Owner Trustee.
Bonds bearing the manual or facsimile signature of an individual who
was, at the time when the signature was affixed, authorized to sign on behalf of
the Issuer shall not be rendered invalid notwithstanding the fact that the
individual ceased to be so authorized prior to
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the authentication and delivery of the Bonds or does not hold that office at the
date of issuance of the Bonds.
At any time and from time to time after the execution and delivery
of this Indenture, the Issuer may deliver Bonds executed by the Issuer to the
Indenture Trustee for authentication and delivery, and the Indenture Trustee
shall authenticate and deliver the Bonds as provided in this Indenture and not
otherwise, except as may otherwise be specified in the Supplemental Indenture
related to a Series of Bonds.
No Bond shall be entitled to any benefit under this Indenture or be
valid for any purpose unless a certificate of authentication appears on the Bond
substantially in the form provided for in this Indenture executed by the
Indenture Trustee by the manual signature of a duly authorized signatory. The
certificate of authentication upon any Bond shall be conclusive evidence, and
the only evidence, that a Bond has been duly authenticated and delivered.
Section 1.1 AUTHENTICATING AGENT.
(1) The Indenture Trustee may appoint authenticating agents for the
Bonds. Any authenticating agent shall be authorized to act on behalf of the
Indenture Trustee in authenticating the Bonds in connection with the issuance,
delivery, registration of transfer, exchange or repayment of the Bonds. Whenever
reference is made in this Indenture to the authentication of Bonds by the
Indenture Trustee or the Indenture Trustee's certificate of authentication, that
reference includes authentication on behalf of the Indenture Trustee by an
authenticating agent and a certificate of authentication executed on behalf of
the Indenture Trustee by an authenticating agent. The authenticating agent with
respect to any Series must be acceptable to the Issuer and the applicable Master
Servicer.
(2) Any institution succeeding to the corporate agency business of an
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any power or any further act on the part of the Indenture
Trustee or the authenticating agent.
(3) An authenticating agent may at any time resign by giving written
notice of resignation to the Indenture Trustee and to the Issuer. The Indenture
Trustee may at any time terminate the agency of an authenticating agent by
giving notice of termination to that authenticating agent and to the Issuer and
the applicable Master Servicer.
(4) The Issuer agrees to pay to each authenticating agent from time to
time reasonable compensation for its services under this Section.
(5) The provisions of SECTION 6.04 shall be applicable to any
authenticating agent.
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(6) Pursuant to an appointment made under this Section, the Bonds may be
endorsed using, in lieu of or in addition to the Indenture Trustee's certificate
of authentication, an alternative certificate of authentication in substantially
the following form:
"This is one of the Bonds described in the within-mentioned
Agreement.
-------------------------------
-------------------------------
as Authenticating Agent
for the Indenture Trustee
By:
----------------------------
Authorized Signatory"
Section 1.2 REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF
BONDS.
The Issuer shall cause to be kept a register in which the Issuer
shall provide for the registration of Bonds and the registration of transfers of
Bonds. The Indenture Trustee initially shall be the transfer agent and registrar
for the purpose of registering Bonds and transfers of Bonds. Upon any
resignation of any Transfer Agent and Registrar, the Issuer shall promptly
appoint a successor or assume the duties of Transfer Agent and Registrar if it
elects not to appoint a successor.
If, after the date hereof, a Person other than the Indenture Trustee
is appointed by the Issuer as Transfer Agent and Registrar, the Issuer shall
give the Indenture Trustee prompt written notice of that appointment and of the
location, and any change in the location, of the Bond Register. The Indenture
Trustee may inspect the Bond Register at all reasonable times and obtain copies
of it, and the Indenture Trustee may rely upon a certificate executed by the
Transfer Agent and Registrar as to the names, addresses and taxpayer
identification numbers of the Bondholders and the principal amounts and numbers
of the Bonds.
Subject to any applicable restrictions on transfer provided for in
the Supplemental Indenture for the related Series of Bonds, upon surrender for
registration of transfer of any Bond at the office or agency of the Issuer
maintained pursuant to SECTION 3.02, the Issuer shall execute and the Indenture
Trustee shall authenticate and deliver, in the name of the designated
transferees, new Bonds (of the same Series and Class) in any authorized
denominations of like aggregate principal amount.
At the option of a Bondholder, Bonds may be exchanged for other
Bonds (of the same Series and Class) in any authorized denominations and of like
aggregate principal amount,
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upon surrender of the Bonds to be exchanged at the office or agency of the
Issuer. Whenever any Bonds are so surrendered for exchange, the Issuer shall
execute and the Indenture Trustee shall authenticate and deliver the Bonds that
the Bondholder making the exchange is entitled to receive.
All Bonds issued upon any registration of transfer or exchange of
Bonds shall evidence the same obligations and the same debt, and their Holders
shall be entitled to the same rights and privileges under this Indenture, as the
surrendered Bonds or the Holders thereof, as applicable.
Every Bond presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in a form satisfactory to the Indenture Trustee and duly executed by,
its Bondholder or any attorney-in-fact thereof duly authorized in writing, and
by any other documents as may be required pursuant to the Supplemental Indenture
for the related Series. Each Bondholder must satisfy all transfer restrictions
described in the applicable Bond.
The registration of transfer of any Bond shall be subject to any
specific requirements set forth in the related Supplemental Indenture.
No service or other charge shall be imposed for any registration of
transfer or exchange of Bonds. The Issuer and the Transfer Agent and Registrar
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed on any registration of transfer or exchange of the
Bonds.
Section 1.3 MUTILATED, DESTROYED, LOST OR STOLEN BONDS.
If: (a) the Indenture Trustee receives evidence to its reasonable
satisfaction of the destruction, loss or theft of any Bond, and there is
delivered to the Indenture Trustee such security or indemnity as may be required
by it to hold the Issuer, the Transfer Agent and Registrar and the Indenture
Trustee harmless; or (b) any mutilated Bond is surrendered to the Indenture
Trustee, then, in the absence of notice to the Issuer, the Transfer Agent and
Registrar, or the Indenture Trustee that the Bond has been acquired by a bona
fide purchaser, the Issuer shall execute, and the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Bond, a replacement Bond of like Series, Class, tenor
(including the same date of issuance) and denomination, bearing a number not
contemporaneously outstanding. However, if the mutilated, destroyed, lost or
stolen Bond shall have become or within seven days shall be due and payable, or
shall have been selected or called for redemption, instead of issuing a
replacement Bond, the Issuer may pay the Bond when so due or payable or upon the
applicable scheduled redemption date without its surrender, except that any
mutilated Bond shall be surrendered. If a bona fide purchaser of the original
Bond in lieu of which a replacement Bond was issued (or payment was made)
presents for payment the original
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Bond, the Issuer and the Indenture Trustee shall be entitled to recover on the
security or indemnity therefor to the extent of any loss, damage, cost or
expense incurred by the Issuer or the Indenture Trustee in connection therewith
the replacement Bond (or the payment) from the Person to whom it was delivered
or any Person taking the replacement Bond from the Person to whom the
replacement Bond was delivered or any assignee of that Person, except a bona
fide purchaser.
Upon the issuance of any replacement Bond under this Section, the
Issuer may require the payment by the Holder of the Bond of a sum sufficient to
cover any tax or other governmental charge that may be imposed on that issuance
and any other reasonable expenses (including the fees and expenses of the
Indenture Trustee or the Transfer Agent and Registrar) connected with that
issuance.
Every replacement Bond issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Bond shall constitute
complete and indefeasible evidence of an obligation of the Issuer, as if
originally issued, whether or not the destroyed, lost or stolen Bond shall be
found at any time and shall be entitled to all of the benefits of this Indenture
equally and proportionately with any other duly issued Bonds of the same Series
and Class.
The provisions of this Section are exclusive and shall preclude all
other rights and remedies regarding the replacement or payment of mutilated,
destroyed, lost or stolen Bonds.
Section 1.4 PERSONS DEEMED OWNERS.
Prior to due presentation for registration of transfer of any Bond,
the Issuer, the Indenture Trustee, and any agent of the Issuer or the Indenture
Trustee shall treat the Person in whose name any Bond is registered as the owner
of that Bond on the related Record Date for the purpose of receiving
distributions pursuant to the terms of the applicable Supplemental Indenture and
for all other purposes whatsoever. Neither the Issuer, the Indenture Trustee,
nor any agent of the Issuer or the Indenture Trustee shall be affected by any
notice to the contrary.
Section 1.5 APPOINTMENT OF PAYING AGENT.
The Indenture Trustee shall initially be a paying agent ("PAYING
AGENT") for the Bonds. The Issuer may appoint additional Paying Agents and may
vary or terminate the appointment of any Paying Agent.
As long as the Bonds of any Class are listed on the Luxembourg Stock
Exchange and that stock exchange so requires, the Issuer shall maintain a Paying
Agent and transfer agent with a specified office in Luxembourg. The Issuer shall
enter into any appropriate agency agreement with a Paying Agent and transfer
agent not a party to this Indenture to implement the provisions of this
Indenture relating to that agent. The Issuer initially appoints Banque de
17
Luxembourg, at its office located at 27, Avenue Monterey L-2163 Luxembourg, as
Paying Agent and transfer agent for each Series of Bonds listed on the
Luxembourg Stock Exchange.
Notice of all changes in the identity or specified office of a
Paying Agent shall be delivered promptly to the Bondholders by the Issuer.
Notwithstanding the foregoing, if the Supplemental Indenture for any
Series requires the Indenture Trustee to make payments to Bondholders of such
Series from the related Bond Distribution Account, then only the Indenture
Trustee shall be authorized to make such payments.
Section 1.6 ACCESS TO LIST OF BONDHOLDERS' NAMES AND ADDRESSES.
(1) The Issuer shall furnish to the Indenture Trustee, any Master
Servicer, any Bondholder or any Paying Agent requesting it a list of the names
and addresses of the Bondholders within five Business Days after receipt by the
Issuer of a written request therefor from that Person.
(2) Every Bondholder, by receiving and holding a Bond, agrees that none of
the Issuer, the Indenture Trustee, the Transfer Agent and Registrar and the
Master Servicers nor any of their respective agents and employees shall be held
accountable for the disclosure of any information as to the names and addresses
of the Bondholders, regardless of the sources from which that information was
derived.
Section 1.7 CANCELLATION.
All Bonds surrendered for payment, registration of transfer,
exchange or redemption shall be delivered to the Indenture Trustee and promptly
canceled by it. The Issuer may at any time deliver to the Indenture Trustee for
cancellation any Bonds previously authenticated and delivered that the Issuer
may have acquired in any lawful manner. All Bonds so delivered shall be promptly
canceled by the Indenture Trustee. No Bonds shall be authenticated in lieu of or
in exchange for any Bonds canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Bonds held by the Indenture
Trustee shall be destroyed unless the Issuer directs by a timely order that they
be returned to it.
Section 1.8 NEW ISSUANCES.
(1) Pursuant to one or more Supplemental Indentures executed after the
execution and delivery of the initial Supplemental Indenture and only to the
extent permitted by the terms of this Indenture, the Issuer from time to time
may direct the Indenture Trustee, on behalf of the Issuer, to authenticate and
deliver one or more new Series of Bonds. The Bonds of all outstanding Series
shall be equally and ratably entitled to the benefits of this Indenture without
preference, priority or distinction under the terms of this Indenture and the
applicable Supplemental Indenture except, with respect to any Series or Class,
as provided in such Supplemental Inden
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ture. Principal, premium and interest on the Bonds of each outstanding Series
shall be paid as specified in the related Supplemental Indenture.
(2) On or before the issuance date of any new Series of Bonds, the
Issuer and the Indenture Trustee shall execute and deliver a Supplemental
Indenture that will specify the principal terms of that Series and its
constituent Classes. Any such Supplemental Indenture may, but shall not be
required to, specify the principal terms of up to two separate Series of Bonds
to be issued on the same date. The terms of such Supplemental Indenture may
modify or amend the terms of this Indenture solely as applied to such Series.
Other than any such Series issued pursuant to a Supplemental Indenture dated as
of the date hereof, the obligation of the Indenture Trustee to authenticate and
deliver the Bonds of any Series and to execute and deliver the related
Supplemental Indenture is subject to the satisfaction of the following
conditions:
(1) on or before the tenth Business Day immediately preceding the
issuance date of the new Series, the Issuer shall have given the Indenture
Trustee, any provider of Credit Enhancement (which does not include
holders of subordinate securities) and the applicable Master Servicer or
the applicable Special Servicer (but only if it is not SFI or an
Affiliate) written notice of the issuance of such Series and the issuance
date thereof. Such notice shall state the designation of such Series (and
any Classes within such Series) and (A) the anticipated initial principal
amount of each Class of Bonds in such Series, (B) the approximate interest
rates of each Class of Bonds in such Series, in the case of a Fixed Rate
Series, or the method of calculating the rates, in the case of a Floating
Rate Series and (C) if applicable, the provider of any Credit Enhancement
for any Classes in such Series;
(2) the Issuer shall have executed and delivered to the Indenture
Trustee the related Supplemental Indenture, in a form reasonably
satisfactory to the Indenture Trustee and specifying the principal terms
of the Bonds of such new Series;
(3) the Issuer shall have delivered to the Indenture Trustee (A)
notice of the form of any Credit Enhancement and (B) any related Credit
Enhancement Agreement executed by the Issuer and the provider of the
Credit Enhancement;
(4) each Rating Agency shall have delivered to the Issuer, the
Master Servicer for each outstanding Series, the Special Servicer for each
outstanding Series, the Indenture Trustee, and any provider of Credit
Enhancement for each outstanding Series Rating Agency Confirmation with
respect to each outstanding Series;
(5) the issuance of the new Series will not result in the
occurrence of an Indenture Event of Default with respect to any then
outstanding Series, and the Issuer shall have delivered to the Indenture
Trustee an officer's certificate of the Issuer dated the issuance date of
the new Series (upon which the Indenture Trustee shall conclusively
19
rely) to the effect that the Issuer reasonably believes that such issuance
will not result in the occurrence of an Indenture Event of Default with
respect to any then outstanding Series;
(6) the principal balance of the Issuer Assets newly pledged as
Collateral simultaneously with the issuance of the new Series shall be
equal to or exceed the principal amount of such newly-issued Series;
(7) the Issuer shall have delivered to the Indenture Trustee and any
provider of Credit Enhancement an Opinion of Counsel to the effect that
the issuance of the new Series: (A) has been duly authorized, executed and
delivered, and the Issuer is duly organized and in good standing under the
laws of the jurisdiction of its organization and is in good standing in
any jurisdiction where it is required to be qualified at the time such
Series is issued and that the Issuer has the power and authority to
execute and deliver the Supplemental Indenture and this Indenture and to
issue the Series at the time such Series is issued, (B) will not result in
the requirement that any outstanding Bonds not registered under the
Securities Act be so registered, (C) will not result in the Issuer being
required to be registered as an investment company under the Investment
Company Act of 1940 and (D) will not require this Indenture or the related
Supplemental Indenture to be qualified under the Trust Indenture Act of
1939;
(8) the Issuer shall have delivered to the Indenture Trustee a Tax
Opinion, dated the issuance date of the new Series, with respect to such
issuance;
(i) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate of SFI, dated the issuance date of the new Series,
to the effect that (A) the Transaction Documents are in full force and
effect and (B) the principal balance of the Issuer Assets pledged as
Collateral in connection with the issuance of the new Series is equal to
or exceeds the principal amount of such newly-issued Series;
(ii) if applicable, the Bonds representing a Series to be
exchanged shall be delivered to the Indenture Trustee for
cancellation;
(iii) no other Series shall have been issued within six months prior
to the date of issuance of the new Series.
(3) Upon satisfaction of the conditions to issuance, the Issuer shall
execute and the Indenture Trustee shall authenticate and deliver the Bonds of
the new Series as provided in this Indenture and the applicable Supplemental
Indenture. Notwithstanding the provisions of this Section, prior to the
execution of any Supplemental Indenture, the Indenture Trustee shall be entitled
to receive and rely upon an Opinion of Counsel stating that the execution of
such Supplemental Indenture is authorized or permitted by this Indenture and any
Supplemental
20
Indenture relating to any then outstanding Series. The Indenture Trustee may,
but shall not be obligated to, enter into any Supplemental Indenture that
adversely affects the Indenture Trustee's own rights, duties or immunities under
this Indenture.
Section 1.9 BOOK-ENTRY BONDS.
Unless otherwise provided in any related Supplemental Indenture, the
Bonds of each Series, upon original issuance, shall be issued in the form of
typewritten Bonds delivered to the Clearing Agency specified in the Supplemental
Indenture. The Clearing Agency shall hold the deposited Bonds against its
delivery of Bonds in book-entry form.
The Bonds of each Series shall, unless otherwise provided in the
related Supplemental Indenture, initially be registered in the Bond Register in
the name of the nominee of the Clearing Agency for the Bonds delivered in
book-entry form. The Clearing Agency may direct that the Bonds be held by the
Indenture Trustee (or the Indenture Trustee's agent) as custodian for the
Clearing Agency.
Unless otherwise provided in any related Supplemental Indenture or
unless and until Definitive Bonds are issued under the limited circumstances
described in SECTION 2.14, no holder of a book-entry Bond shall be entitled to
receive a Definitive Bond representing that holder's interest. Unless and until
Definitive Bonds have been issued pursuant to SECTION 2.14:
(1) the provisions of this Section shall be in full force and
effect with respect to each Series;
(2) the Indenture Trustee shall be entitled to deal with the Clearing
Agency for all purposes of this Indenture as the authorized representative of
the holders of book-entry Bonds (including the payment of principal of and
interest on the Bonds of each Series);
(3) to the extent that the provisions of this Section conflict with any
other provisions of this Indenture, the provisions of this Section shall
control; and
(4) the rights of holders of book-entry Bonds shall be exercised only
through the Clearing Agency. Pursuant to the depository agreement applicable to
a Series, unless and until Definitive Bonds of that Series are issued pursuant
to SECTION 2.14, the initial Clearing Agency shall make book-entry transfers
among its participants and receive and transmit payments of principal and
interest on the Bonds to its participants.
Section 1.10 NOTICES TO CLEARING AGENCY.
Whenever a notice or other communication to the Bondholders is
required under this Indenture, unless and until Definitive Bonds have been
issued pursuant to SECTION 2.14,
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the Indenture Trustee shall give all notices and communications to be given to
Bondholders to the Clearing Agency.
Section 1.11 DEFINITIVE BONDS.
If:
(1) (i)the Issuer advises the Indenture Trustee in writing that the
Clearing Agency is no longer willing or able to discharge its responsibilities
as Clearing Agency for the Bonds of a given Class and (ii) the Issuer is unable
to locate, or reach an agreement on satisfactory terms with, a qualified
successor,
(2) the Issuer, at its option, advises the Indenture Trustee in writing
that it elects to terminate the book-entry system through the Clearing Agency
for a given Class, or
(3) after the occurrence of a default by the Master Servicer or the
Special Servicer under the Servicing Agreement for a Series and the expiration
of any applicable cure or grace period, or an Indenture Event of Default with
respect to the Bonds of such Series, Holders of book-entry Bonds of any Class of
such Series representing not less than 50 percent of the initial Principal
Amount of the Class advise the Indenture Trustee and the applicable Clearing
Agency in writing that the continuation of a book-entry system is no longer in
the best interests of the Holders of book-entry Bonds of that Class of such
Series,
then the Indenture Trustee shall notify all Holders of book-entry Bonds of that
Class of such Series of the occurrence of the event and of the availability of
Definitive Bonds to holders of book-entry Bonds of that Class requesting the
same. Upon surrender to the Indenture Trustee of the book-entry Bonds of that
Class (unless the Indenture Trustee is already holding them on behalf of the
Clearing Agency), accompanied by registration instructions from the Clearing
Agency, the Issuer shall execute and the Indenture Trustee shall authenticate
Definitive Bonds of that Class and shall recognize the registered holders of
those Definitive Bonds as Bondholders under this Indenture. Neither the Issuer
nor the Indenture Trustee shall be liable for any delay in delivery of such
instructions, and the Issuer and the Indenture Trustee may conclusively rely on,
and shall be protected in relying on, such instructions. Upon the issuance of
Definitive Bonds, all references in this Indenture to obligations of the
Clearing Agency shall be obligations of the Indenture Trustee, to the extent
applicable to the Definitive Bonds, and the Indenture Trustee shall recognize
the registered holders of the Definitive Bonds as Bondholders. Definitive Bonds
will be transferable and exchangeable at the offices of the Transfer Agent and
Registrar.
Section 1.12 ARRANGEMENTS WITH SUBSTANTIALLY SIMILAR ISSUERS.
The Issuer may enter into agreements with other issuers of
mortgage-backed securities pursuant to which the Issuer will assign, pledge,
transfer or otherwise convey to such
22
other issuers the right to receive Shared Funds with respect to any Series, if
(i) such other issuers are Affiliates of SFI having substantially similar form
and purpose as the Issuer, (ii) such agreements are to executed in connection
with the issuance by such other issuers of mortgage-backed securities which are
substantially similar to the Bonds, (iii) prior to entering into any such
agreements the Issuer, the Indenture Trustee, and any provider of Credit
Enhancement for each outstanding Series entitled to receive such Shared Funds
shall have obtained Rating Agency Confirmation from each Rating Agency then
rating any such Series; (iv) the entering into of such agreement will not result
in the occurrence of an Indenture Event of Default with respect to any
outstanding Series, and the Issuer shall have delivered to the Indenture Trustee
an officer's certificate of the Issuer dated the issuance date of the new Series
(upon which the Indenture Trustee shall conclusively rely) to the effect that
the Issuer reasonably believes that such the transaction contemplated by such
agreement will not result in the occurrence of an Indenture Event of Default
with respect to any outstanding Series; and (v) the principal balance of the
collateral for the series of mortgage-backed securities entitled to such Shared
Funds pursuant to the agreement shall be equal to or exceed the principal amount
of such securities. Nothing in this SECTION 2.15 shall limit the ability of the
Issuer to assign, pledge, convey or otherwise transfer Released Shared Funds.
ARTICLE III
REPRESENTATIONS AND COVENANTS OF THE ISSUER
Section 1.13 PAYMENT OF PRINCIPAL AND INTEREST.
(1) The Issuer shall duly and punctually pay principal of, premium (if
any) and interest on the Bonds in accordance with the terms of the Bonds and the
related Supplemental Indenture.
(2) The Bondholders of a Series as of any Record Date shall be entitled to
the interest accrued and payable, the premium (if any) and the principal payable
on the related Payment Date as specified in the related Supplemental Indenture.
All payment obligations under a Bond are discharged to the extent payments are
made to the Bondholder of record.
(3) The obligations of the Issuer under this Indenture are recourse
obligations of the Issuer.
Section 1.18 MAINTENANCE OF OFFICE OR AGENCY.
The Issuer shall maintain an office or agency within the Borough of
Manhattan, The City of New York where Bonds may be presented or surrendered for
payment, where Bonds may be surrendered for registration of transfer or
exchange, and where notices and demands to the Issuer regarding the Bonds and
this Indenture may be served. The Issuer initially appoints
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SFI, currently located at 1114 Avenue of the Americas, 27th Floor, New York, NY
10036 to serve as its agent for these purposes. The Issuer will give prompt
written notice to the Indenture Trustee and the Bondholders of the location, and
of any change in the location, of this office or agency. If the Issuer ever
fails to maintain this office or agency or fails to furnish the Indenture
Trustee with its address, then presentations, surrenders, notices and demands
may be made or served at the Indenture Trustee Office. The Issuer appoints the
Indenture Trustee at its principal corporate trust office as its agent to
receive any presentations, surrenders, notices and demands.
Section 1.19 ESTABLISHMENT OF COLLECTION ACCOUNTS.
(1) Pursuant to a Servicing Agreement executed in connection with each
Series of Bonds, there shall be established and there shall be maintained for
such Series of Bonds a Primary Collection Account and a Secondary Collection
Account in the name of the Indenture Trustee until the Principal Amount of the
Bonds of such Series has been reduced to zero, and thereafter in the name of the
Issuer. Each of the Collection Accounts shall be under the sole dominion and
control of the Indenture Trustee until the Principal Amount of the Bonds of such
Series has been reduced to zero, and thereafter under the dominion and control
of the Issuer; provided, that the related Master Servicer may make deposits to,
and make withdrawals from, either of the Collection Accounts in accordance with
the related Servicing Agreement, this Indenture and, if applicable, the related
Supplemental Indenture. All deposits to and withdrawals from the Collection
Accounts shall be made only upon the terms and conditions of the related
Transaction Documents.
(2) Any amounts on deposit in the Collection Accounts shall be invested
as provided in such Servicing Agreements until the Principal Amount of the Bonds
of each Series has been reduced to zero, and thereafter by the Issuer, only in
Permitted Investments. No such investment shall be sold prior to maturity. All
investment earnings on amounts deposited to either of the Collection Accounts,
including any proceeds thereof, shall be credited to such Collection Account,
and losses, if any, and investment expenses resulting from Permitted Investments
in either of the Collection Accounts shall be charged to such Collection
Account. All such investment income shall be reported for federal income tax
purposes as earned by the Issuer. The authority of the applicable Master
Servicer to make deposits to and withdrawals from each of the Collection
Accounts is revocable at any time by the Indenture Trustee until the Principal
Amount of the Senior Bonds has been reduced to zero, and thereafter by the Owner
Trustee. If any Collection Account ceases to be an Eligible Account, then the
applicable Master Servicer shall be required under the related Master Servicing
Agreement to re-establish such Collection Account as an Eligible Account within
10 Business Days (or such longer period not to exceed 30 calendar days as to
which a Rating Agency Confirmation shall have been received).
Section 1.20 ESTABLISHMENT OF BOND DISTRIBUTION ACCOUNTS.
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On or prior to the date of issuance of any Series, the Indenture
Trustee shall establish and maintain a Bond Distribution Account for such Series
in the name of the Indenture Trustee in trust for the benefit of the Bondholders
of such Series, all in such manner and in such circumstances as are specified in
the related Supplemental Indenture. Funds on deposit in any Bond Distribution
Account shall not be invested.
Section 1.21 ESTABLISHMENT OF CERTIFICATE DISTRIBUTION ACCOUNT.
(1) On or prior to the Closing Date, the Indenture Trustee shall
establish and maintain the Certificate Distribution Account as an Eligible
Account in the name of the Indenture Trustee for the benefit of the
Certificateholders of all Series until the Principal Amount of the Bonds of all
Series has been reduced to zero, and thereafter the Issuer may establish such
account in the name of the Issuer. The Certificate Distribution Account shall be
under the sole dominion and control of the Indenture Trustee until the Principal
Amount of the Bonds of all Series has been reduced to zero, and thereafter under
the dominion and control of the Issuer. All deposits to and withdrawals from the
Certificate Distribution Account shall be made only upon the terms and
conditions of the Transaction Documents and, except as provided therein, the
Indenture Trustee shall not be permitted to withdraw any other amounts from the
Certificate Distribution Account other than (i) to withdraw any amount deposited
into the Certificate Distribution Account that was not required to be deposited
therein and (ii) to clear and terminate the Certificate Distribution Accounts
upon the termination of this Indenture.
(2) Funds on deposit in the Certificate Distribution Account shall not
be invested. If the Certificate Distribution Account ceases to be an Eligible
Account, then the Indenture Trustee shall reestablish the Certificate
Distribution Account as an Eligible Account within 10 Business Days (or such
longer period not to exceed 30 calendar days as to which a Rating Agency
Confirmation shall have been received).
Section 1.22 MONEY FOR BOND PAYMENTS TO BE HELD IN TRUST.
All payments of amounts due and payable on the Bonds of any Series
that are to be made from amounts withdrawn from the Secondary Collection Account
shall be made on behalf of the Issuer by the Indenture Trustee or by another
Paying Agent, and no amounts so withdrawn from the Secondary Collection Account
shall be paid at the direction of the Issuer except as provided in this SECTION
3.06 and in the related Supplemental Indenture.
No later than 10:00 a.m. on the Business Day prior to each
Remittance Date, the Issuer shall cause the Master Servicer with respect to any
outstanding Series to withdraw from the Secondary Collection Account for such
Series and to deposit in the Bond Distribution Account for such Series a sum
sufficient to pay the amounts then becoming due under the Bonds of such Series.
This sum shall be held in trust for the benefit of the Persons entitled to it.
Unless
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the Paying Agent for such Series is the Indenture Trustee, the Issuer shall
promptly notify the Indenture Trustee in writing of its action or failure so to
act.
The Issuer shall cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
that Paying Agent agrees with the Indenture Trustee that it will, and the
Indenture Trustee hereby agrees in its capacity as Paying Agent, subject to the
provisions of this Section, that it will:
(1) hold all sums held by it for the payment of amounts due on the
Bonds in trust for the benefit of the Persons entitled to them until those
sums are paid to the Persons entitled to them or otherwise disposed of as
provided in this Indenture, and pay those sums to the Persons entitled to
them as provided in this Indenture;
(2) give the Indenture Trustee notice of any default by the Issuer
(or any other obligor upon the Bonds) in the making of any payment
required to be made on the Bonds of which it has actual knowledge;
(3) at any time during the continuance of any payment default on
the Bonds, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums held in trust by it for the payment
of Bonds;
(4) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Bonds if
at any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment; and
(5) comply with all requirements of the Internal Revenue Code of
1986 for the withholding from any payments made by it on any Bonds of any
applicable withholding taxes imposed on them and comply with any
applicable withholding reporting requirements.
To obtain the satisfaction and discharge of this Indenture or for
any other purpose, the Issuer may at any time in writing direct any Paying Agent
to pay to the Indenture Trustee all sums held in trust by the Paying Agent.
Those sums shall be held by the Indenture Trustee upon the same trusts as those
upon which they were held by the Paying Agent. Upon that payment by any Paying
Agent to the Indenture Trustee, that Paying Agent shall be released from all
further liability regarding that money.
Section 1.23 ALLOCATION OF COLLECTIONS.
(1) Collections shall be allocated to each Series based on the Available
Series Funds of such Series as specified in the related Supplemental Indenture.
Available Series Funds of each
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Series shall not be available to make payments of interest and principal on the
Bonds of any other Series except as Shared Funds to the extent specifically set
forth in this Indenture and in the related Supplemental Indenture.
(2) Unless otherwise specified in the related Supplemental Indenture,
Available Series Funds and Shared Funds allocable to any Series pursuant to the
related Supplemental Indenture shall be allocated sequentially to each Class of
such Series in alphabetical order commencing with the Class designated as "CLASS
A."
(3) All Shared Funds for any Series shall be allocated sequentially to
other Series entitled to receive Shared Funds from prior-issued Series in
chronological order of issuance commencing with the first Series issued
subsequent to the Series from which Shared Funds are available. The extent to
which each Series is entitled to receive Shared Funds from prior issued Series
shall be set forth in the Supplemental Indenture for such Series. Shared Funds
allocated to any Series shall be applied to make the payments specified in the
related Supplemental Indenture.
(4) On or prior to each Determination Date, the Issuer shall determine
with respect to each Series whether such Series is an Interest Deficit Series,
an Interest Surplus Series, a Principal Deficit Series or a Principal Surplus
Series with respect to the related Collection Period. The Supplemental Indenture
with respect to each Series shall identify each prior issued Series with respect
to which such Series shall be an Eligible Interest Deficit Series and each prior
issued Series with respect to which such Series shall be an Eligible Principal
Deficit Series. On or prior to each Determination Date, the Issuer shall
determine (and deliver to the Indenture Trustee a certificate stating) with
respect to (i) each Interest Deficit Series,(a) each prior issued Interest
Surplus Series with respect to which such Interest Deficit Series is an Eligible
Interest Deficit Series, (b) each prior issued Principal Surplus Series with
respect to which such Interest Deficit Series is an Eligible Interest Deficit
Series, and (ii) each Principal Deficit Series (a) each prior issued Interest
Surplus Series with respect to which such Principal Deficit Series is an
Eligible Principal Deficit Series and (b) each prior issued Principal Surplus
Series with respect to which such Principal Deficit Series is an Eligible
Principal Deficit Series.
(5) On each Payment Date, Shared Funds shall be allocated in accordance
with SECTION 3.07(c) to reduce Interest Deficit Amounts of Eligible Interest
Deficit Series in the following order of priority:
(i) FIRST, SHARED INTEREST FUNDS SHALL BE APPLIED TO REDUCE
THE INTEREST DEFICIT AMOUNTS OF ELIGIBLE INTEREST
DEFICIT SERIES ON SUCH PAYMENT DATE. Shared Interest
Funds shall be applied to the first issued Interest
Deficit Series on such Payment Date to which Shared
Interest Funds have not been applied to reduce the
Interest Deficit Amount of such Interest Deficit Series
on such
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Payment Date, in an amount equal to the Allocated
Interest/Interest Funds Amount from each Interest Surplus
Series in respect of which such Interest Deficit Series is an
Eligible Interest Deficit Series on such Payment Date.
(ii) SECOND, SHARED PRINCIPAL FUNDS SHALL BE APPLIED TO REDUCE ANY
INTEREST DEFICIT AMOUNTS OF ELIGIBLE INTEREST DEFICIT SERIES
REMAINING AFTER APPLICATION OF SHARED INTEREST FUNDS PURSUANT
TO SECTION 3.07(e)(i) ON SUCH PAYMENT DATE. Shared Principal
Funds shall be applied to the first issued Interest Deficit
Series on such Payment Date to which Shared Principal Funds
have not been applied to reduce the Interest Deficit Amount of
such Interest Deficit Series on such Payment Date, in an
amount equal to the Allocated Principal/Interest Funds Amount
from each Principal Surplus Series in respect of which such
Interest Deficit Series is an Eligible Interest Deficit Series
on such Payment Date, without duplication of any amounts paid
pursuant to SECTION 3.07(e)(i) on such Payment Date.
(6) On each Payment Date, Shared Funds remaining after application
pursuant to SECTION 3.07(e) shall be allocated in accordance with SECTION
3.07(c) in the following order of priority:
(i) FIRST, SHARED PRINCIPAL FUNDS REMAINING AFTER
APPLICATION THEREOF TO REDUCE INTEREST DEFICIT AMOUNTS
ON SUCH PAYMENT DATE SHALL BE APPLIED TO REDUCE
PRINCIPAL DEFICIT AMOUNTS OF ELIGIBLE PRINCIPAL DEFICIT
SERIES ON SUCH PAYMENT DATE. Shared Principal Funds
shall be applied to the first issued Principal Deficit
Series on such Payment Date to which Shared Principal
Funds have not been applied to reduce the Principal
Deficit Amount of such Principal Deficit Series on such
Payment Date, in an amount equal to the Allocated
Principal/Principal Funds Amount from each Principal
Surplus Series in respect of which such Principal
Deficit Series is an Eligible Principal Deficit Series
on such Payment Date.
(ii) SECOND, SHARED INTEREST FUNDS REMAINING AFTER APPLICATION
THEREOF TO REDUCE INTEREST DEFICIT AMOUNTS ON SUCH PAYMENT
DATE SHALL BE APPLIED TO REDUCE ANY PRINCIPAL DEFICIT AMOUNTS
OF ELIGIBLE PRINCIPAL DEFICIT SERIES REMAINING AFTER
APPLICATION OF SHARED INTEREST FUNDS PURSUANT TO SECTION
3.07(f)(i) ON SUCH PAYMENT DATE. Shared Interest Funds shall
be applied to the first issued Principal Deficit Series on
such Payment Date to which Shared Interest Funds have not been
applied to reduce the Principal Deficit Amount of such
Principal Deficit Series on such Payment Date, in an amount
equal to the Allocated Interest/Principal Funds Amount from
each Interest Surplus Series in respect of which such
Principal Deficit Series is an Eligible Principal Deficit
Series on such Payment Date, without dupli
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cation of any amounts paid pursuant to SECTION 3.07(f)(i) on
such Payment Date.
(7) The Indenture Trustee hereby irrevocably agrees to release to the
Issuer free from the Lien of this Indenture any Shared Funds from any Series
remaining on each Payment Date after application thereof to the provisions of,
and in accordance with, this Indenture and the related Supplemental Indenture
(any such amount, "RELEASED SHARED FUNDS"). The Indenture Trustee hereby
releases to the Issuer all of its right, title and interest in, to and under all
Released Shared Funds immediately upon identification thereof, which release
shall be automatic and shall require no further act by the Indenture Trustee,
PROVIDED, that the Indenture Trustee shall execute and deliver to, or to the
order of, the Issuer such instruments of release and assignment, or otherwise
confirm the foregoing release of any Released Shared Funds, as may reasonably be
requested by the Issuer. The Issuer shall prepare and deliver to the Indenture
Trustee the necessary forms of release and assignment. Upon such release of
Released Shared Funds, such Released Shared Funds shall not constitute and shall
not be included in the Collateral, and shall be paid to the Issuer in accordance
with the terms of the related Supplemental Indenture.
(a) If any withholding tax is imposed on the Issuer's payment (or
allocations of income) to the Bondholders of any Series, that withholding tax
shall reduce the amount otherwise distributable to the Bondholders of that
Series in accordance with this Section. The Indenture Trustee is hereby
authorized and directed upon receiving notification in writing that any
withholding tax is due to retain from amounts otherwise distributable to the
Bondholders sufficient funds for the payment of any withholding tax that is
legally owed by the Issuer. This authorization shall not prevent the Indenture
Trustee from contesting any tax in appropriate proceedings and withholding
payment of the tax, if permitted by law, pending the outcome of the proceedings.
The amount of any withholding tax imposed on any distributions shall be treated
as cash distributed to the Bondholder at the time it is withheld by the Issuer
and remitted to the appropriate taxing authority. If withholding tax might be
payable on a distribution to a non-U.S. Bondholder, the Indenture Trustee may in
its sole discretion withhold an appropriate amount to cover that possibility.
Section 1.24 UNCLAIMED FUNDS.
Subject to abandoned property laws, on the request of the Issuer,
any money deposited with the Indenture Trustee or any Paying Agent, or then held
by the Issuer, in trust for the payment of the principal of or interest on any
Bond and remaining unclaimed for three years after it has become due and payable
shall be discharged from the trust and paid to the Issuer. The Holder of the
Bond on which payment was due shall thereafter look only to the Issuer for
payment as an unsecured general creditor. All liability of the Indenture Trustee
or the Paying Agent regarding that trust money to the extent so paid to the
Issuer shall thereupon cease. The Indenture Trustee or the Paying Agent, before
being required to make any payment, may at the expense of the Issuer cause to be
published once, in a newspaper of general circulation published in the English
language and customarily published on each Business Day in The City of New York
and
29
in the city in which the principal corporate trust office of the Indenture
Trustee is located, notice that such money remains unclaimed and that, after a
date specified therein, which shall be not less than 30 days from the date of
the publication, any unclaimed balance of that money then remaining will be
repaid to the Issuer. The Indenture Trustee may also adopt and employ, at the
expense of the Issuer, any other reasonable means of notification of a release
of payment (including, mailing notice of the release to Bondholders whose Bonds
have been called but have not been surrendered for redemption or whose right to
monies payable but not claimed is determinable from the records of any Paying
Agent, at the last address of record of the Holder).
Section 1.25 EXISTENCE.
The Issuer shall keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it or any successor becomes organized under the laws of any other state or of
the United States of America, in which case the Issuer will keep in full effect
its existence, rights and franchises under the laws of that other jurisdiction)
and will obtain and preserve its qualification to do business in each
jurisdiction in which qualification to do business is necessary to protect the
validity and enforceability of this Indenture, the Transaction Documents
executed in connection with each Series, the Bonds and the Collateral and each
other related instrument or agreement.
Section 1.22 PROTECTION OF ISSUER.
Subject to the provisions of this Indenture, the Issuer will
prepare, execute and deliver any supplements and amendments to this Indenture
and any financing statements, continuation statements, instruments of further
assurance and other instruments, and will take any other action advisable:
(1) to Grant more effectively all or any portion of the
Collateral as security for the Bonds;
(2) to maintain or preserve the Lien (and the priority of the Lien) of
this Indenture or to carry out more effectively the purposes of this Indenture;
(3) to perfect, publish notice of, or protect the validity of any
Grant made or to be made by this Indenture; or
(4) to preserve and defend title to the Collateral and the rights of the
Indenture Trustee and the Bondholders in the Collateral against the claims of
all persons and parties.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required pursuant to this Section, provided that such
designation shall not impose upon the Indenture Trustee any duty to execute any
such instruments except as directed in writing by the Issuer.
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The Issuer shall pay or cause to be paid any taxes levied on all or
any part of the Collateral.
Section 1.26 PERFORMANCE OF OBLIGATIONS; SERVICING OF ISSUER
ASSETS.
(1) The Issuer shall not take any action (and shall use its best efforts
to prevent others from taking any action) that would release any Person from any
of that Person's material covenants or obligations under any instrument or
agreement included in the Issuer Assets or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any instrument or agreement included in the Issuer
Assets, except as expressly provided in this Indenture, the related Supplemental
Indenture, the Servicing Agreement or other instrument or agreement included in
the Issuer Assets.
(2) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of its duties by
a Person identified to the Indenture Trustee in an Officer's Certificate of the
Issuer shall be action taken by the Issuer.
(3) The Issuer shall punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Transaction
Documents, and in the instruments and agreements relating to the Issuer Assets,
including properly filing all UCC financing statements and continuation
statements required to be filed by the terms of this Indenture and the Servicing
Agreement.
(4) If the Issuer has actual knowledge of the occurrence of a default by
the Master Servicer or the Special Servicer under the Servicing Agreement for an
outstanding Series, the Issuer shall notify the Indenture Trustee of such
default and the actions being taken by the Issuer with respect thereto, shall
instruct the Indenture Trustee to notify the Rating Agencies promptly of the
default and shall cause the Indenture Trustee to specify in the notice any
action being taken by the Issuer (as reported by it) or the Indenture Trustee
about the default. If a default by a Master Servicer or a Special Servicer
arises because the Master Servicer or the Special Servicer fails to perform any
of their respective duties or obligations under the Servicing Agreement for the
related Series regarding the related Series Issuer Assets, the Issuer shall take
all reasonable steps available to it to remedy the failure.
(5) The Issuer agrees (i) that it will not, without the prior written
consent of the Indenture Trustee, waive timely performance or observance by any
Master Servicer or SFI under the related Company Purchase Agreement or the
related Servicing Agreement (except to the extent otherwise provided in such
Servicing Agreement or Company Purchase Agreement) and (ii) that any amendment
of a Transaction Documents shall not (A) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, payments that are required to
be made for the benefit of the Bondholders of the related Series or (B) reduce
the percentage of the Bonds of any Series that is required to consent to any
amendment, without the consent of the Holders of
31
all the outstanding Bonds of such Series. If any amendment, modification,
supplement, or waiver of the Issuer Assets or the Transaction Documents is
consented to by the Indenture Trustee and the required number of Bondholders of
each outstanding Series, the Issuer agrees, promptly following a request by the
Indenture Trustee to do so, to execute and deliver, in its own name and at its
own expense, such agreements, instruments, consents, and other documents as the
Indenture Trustee may deem appropriate in the circumstances.
In the case of any amendment, modification, supplement or waiver of
the Issuer Assets or any Transaction Document requested by a Master Servicer, as
to which the consent of the Indenture Trustee or the Bondholders of the related
Series is not required by the terms of this Indenture or the related
Supplemental Indenture, the Issuer shall execute any such amendment,
modification, supplement or waiver upon delivery to the Issuer by such Master
Servicer of a certificate stating that no such consent is required.
Section 1.28 NEGATIVE COVENANTS.
The Issuer shall not:
(1) sell, transfer, exchange, pledge or otherwise dispose of any part of
the Collateral for any Series except as expressly permitted by the Basic
Documents for such Series;
(2) claim any credit on, or make any deduction from, the principal and
interest payable on the Bonds of any Series due to the payment of any taxes
levied or assessed upon any part of the Collateral;
(3) incur, assume, or guarantee any direct or contingent indebtedness
other than as permitted by this Indenture or incurred pursuant to the
Transaction Documents;
(4) (A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the Lien of this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be released from
any covenants or obligations relating to the Bonds under this Indenture except
as may be expressly permitted by this Indenture, (B) permit any Lien, charge,
excise, claim, security interest, mortgage or other encumbrance (other than the
Lien of this Indenture and other liens arising by operation of law and without
the consent of the Issuer) to exist relating to any part of the Collateral or
(C) permit the Lien of this Indenture not to constitute a valid first priority
security interest (other than with respect to a tax, mechanics' or similar Lien)
in the Collateral;
(5) voluntarily file a petition for bankruptcy or reorganization,
make an assignment for the benefit of creditors or commence any similar
proceeding;
(6) act or fail to act in a manner that would endanger its status
as a REIT under Section 856(i) of the Code;
32
(7) dissolve or liquidate in whole or in part; or
(8) with respect to any Series, take any other action that is prohibited
under the Basic Documents for such Series.
Section 1.25 ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
Terms.
(1) The Issuer shall not consolidate or merge with or into any other
Person, or transfer its assets substantially as an entirety to any Person,
unless:
(2) the Person (if other than the Issuer) formed by or surviving the
consolidation or merger or that acquires the assets of the Issuer
substantially as an entirety is organized under the laws of the United
States or any state or the District of Columbia, is treated as a REIT or
QRS (as defined in Section 856(i) of the Code), and expressly assumes the
due and punctual payment of the principal of and interest on all of the
Bonds and the performance of the terms of this Indenture and the
Transaction Documents to which it is a party on the part of the Issuer to
be performed, by a Supplemental Indenture, executed and delivered to the
Indenture Trustee, in form and substance satisfactory to the Indenture
Trustee;
(3) no Indenture Event of Default has occurred and is
continuing prior to or after giving effect to such merger or
consolidation;
(4) the Issuer has delivered to the Indenture Trustee (A) an
Officer's Certificate stating that (1) the consolidation, merger or
transfer and the Supplemental Indenture described in clause (i) above
comply with this Section, (2) all conditions precedent in this Section
have been complied with and (3) the Supplemental Indenture described in
clause (i) above is duly authorized, executed, and delivered and is valid,
binding and enforceable against the successor entity, and (B) an Opinion
of Counsel with respect to subclause (3) above;
(5) each Rating Agency has delivered a Rating Agency
Confirmation prior to the consummation of the transaction;
(6) the Issuer has received a tax opinion dated the date of the
consolidation, merger, or transfer (and has delivered copies of it to the
Indenture Trustee) to the effect that the transaction will not have any
material adverse tax consequence to the successor entity or the
Bondholders of any Series; and
(7) any action that is necessary to maintain the Lien and security
interest created by this Indenture has been taken.
(2) Except as permitted by the Transaction Documents, the Issuer shall not
transfer any of its assets to any Person unless:
33
(1) the Person that acquires assets of the Issuer (A) is a United
States citizen or a Person organized and existing under the laws of the
United States of America or any state, (B) expressly assumes the due and
punctual payment of the principal of and interest on all of the Bonds and
the performance of the terms of this Indenture on the part of the Issuer
to be performed by a Supplemental Indenture, executed and delivered to the
Indenture Trustee, in form and substance satisfactory to the Indenture
Trustee, (C) expressly agrees in that Supplemental Indenture that all
right, title and interest transferred to it shall be subject and
subordinate to the rights of Holders of the Bonds, (D) expressly agrees to
indemnify the Issuer against any loss, liability or expense related to
this Indenture and the Bonds, and (E) expressly agrees in that
Supplemental Indenture that it shall make all filings with the Securities
and Exchange Commission (and any other appropriate Person) required by the
Securities Exchange Act of 1934 in connection with the Bonds;
(2) no Indenture Event of Default has occurred and is
continuing prior to or after giving effect to such transfer;
(3) each Rating Agency has delivered a Rating Agency
Confirmation prior to the consummation of the transaction;
(4) the Issuer has received a tax opinion (and has delivered copies
of it to the Indenture Trustee) to the effect that such transfer will not
have any material adverse tax consequence to the transferee or any
Bondholder;
(5) any action that is necessary to maintain the Lien and
security interest created by this Indenture has been taken;
(6) the Issuer has delivered to the Indenture Trustee (A) an
Officer's Certificate stating that (1) the transfer and the Supplemental
Indenture comply with this Section, (2) that all conditions precedent in
this Section have been complied with, and (3) such Supplemental Indenture
is duly authorized, executed and delivered and is valid, binding and
enforceable against the transferee, and (B) an Opinion of Counsel to the
effect of the matters discussed in subclause (3) above.
Section 1.26 SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger or any transfer of the assets of
the Issuer substantially as an entirety complying with SECTION 3.13(a), the
Person formed by or surviving the consolidation or merger (if other than the
Issuer) or the Person to which the transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under
this Indenture with the same effect as if that Person had been named as the
Issuer. Upon any transfer complying with SECTION 3.13, the entity that was the
Issuer prior to the transfer shall
34
be released from its obligations under this Indenture as Issuer immediately upon
the effectiveness of the transfer but shall not be released from any obligations
or liabilities to the Indenture Trustee or the Bondholders arising prior to such
effectiveness.
Section 1.31 NO OTHER BUSINESS.
The Issuer shall not engage in any business other than financing,
purchasing, owning, selling, and managing the Collateral in the manner
contemplated by this Indenture and the other Transaction Documents and all
activities incidental thereto.
Section 1.32 NO BORROWING.
Except as contemplated by this Indenture, the Issuer shall not
issue, incur, assume, guarantee or otherwise become liable, directly or
indirectly, for any indebtedness except for the Bonds and the obligation to
reimburse each Master Servicer, the Indenture Trustee and the Fiscal Agent for
Advances, to pay accrued Advance Interest on such Advances and for the
obligations of the Issuer under the Transaction Documents.
Section 1.33 GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES.
Except as contemplated by this Indenture, the Issuer shall not make
any loan or advance or credit to, or guarantee (directly or indirectly or by an
instrument having the effect of assuring another's payment or performance on any
obligation or capability of so doing or otherwise), endorse or otherwise become
contingently liable, directly or indirectly, in connection with the obligations,
stocks or dividends of, or own (or agree contingently to acquire) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person other than in connection with the
issuance of Bonds pursuant to a Supplemental Indenture.\
Section 1.34 CAPITAL EXPENDITURES.
The Issuer shall not make any expenditure (by long-term or operating
lease or otherwise) for capital assets (either realty or personally). The Issuer
may repurchase Bonds from any Bondholder, including any Affiliate of SFI,
provided that immediately upon any such purchase, the Issuer shall submit such
Bond to the Indenture Trustee for cancellation.
Section 1.35 RESTRICTED PAYMENTS.
The Issuer shall not, directly or indirectly: (i) pay any dividend
or make any distribution, whether in cash, property, securities, or a
combination of them, to any Person because of any ownership interest in the
Issuer; (ii) redeem, purchase, retire, or otherwise acquire for value any
ownership interest in the Issuer; or (iii) set aside any amounts for any such
purpose. Notwithstanding the foregoing, the Issuer may make any distributions
contemplated by, and to the extent funds are available for such purpose under,
the Servicing Agreement or the Trust
35
Agreement. The Issuer will not, directly or indirectly, make payments to or
distributions from either of the Collection Accounts except in accordance with
this Indenture, the related Supplemental Indenture and the Servicing Agreement.
Section 1.36 FURTHER INSTRUMENTS AND ACTS.
Upon request of the Indenture Trustee, the Issuer shall execute and
deliver any further instruments and do any further acts that may be appropriate
to carry out more effectively the purpose of this Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 1.37 SATISFACTION AND DISCHARGE OF THIS INDENTURE.
With respect to any Series, except as to (a) rights of registration
of transfer and exchange of the Bonds of such Series, (b) substitution of
mutilated, destroyed, lost or stolen Bonds of such Series, (c) the rights of
Bondholders of such Series to receive payments of principal of and interest on
such Bonds as provided in this Article, (d) SECTIONS 3.03, 3.06, 3.07, 3.09,
3.10 and 3.13 and this SECTION 4.01, (e) the rights and immunities of the
Indenture Trustee under this Indenture with respect to such Series, including
the rights of the Indenture Trustee under SECTION 6.07 and the obligations of
the Indenture Trustee under SECTION 4.02, and (f) the rights of Bondholders of
such Series as beneficiaries of this Indenture regarding property deposited
under SECTION 4.02 with the Indenture Trustee and payable to any of them, this
Indenture shall cease to be of further effect with respect to the Bonds of that
Series, and, if provided in the related Supplemental Indenture, the Indenture
Trustee shall execute proper instruments delivered to it acknowledging
satisfaction and discharge of this Indenture with respect to those Bonds, on
demand of and at the expense of the Issuer, when either:
(1) all Bonds of that Series and, if so provided in any applicable
Supplemental Indenture(s), the Bonds of any other outstanding Series
entitled to receive Shared Funds from the aforementioned Series
theretofore authenticated and delivered have been delivered to the
Indenture Trustee for cancellation in accordance with the terms hereof
(other than (A) Bonds that have been destroyed, lost, or stolen and that
have been replaced or paid as provided in SECTION 2.06 and (B) Bonds for
whose full payment money has theretofore been deposited in trust or
segregated and held in trust by the Indenture Trustee and thereafter
repaid to the Issuer or discharged from such trust, as provided in SECTION
3.06); or
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(2) The Bonds of that Series have become due and payable or are to
be called for redemption in full on the immediately succeeding Payment
Date and (A) the Issuer has deposited or caused to be deposited with the
Indenture Trustee cash in the amount of all sums payable under the
Indenture by the Issuer with respect to the Bonds of that Series and, if
so provided in any applicable Supplemental Indenture(s), the Bonds of any
other outstanding Series entitled to receive Shared Funds from the
aforementioned Series; and
(B) the Issuer has delivered to the Indenture Trustee an
Officer's Certificate of the Issuer stating that all amounts payable under
this Indenture to the Holders of Bonds of such Series have been paid.
Notwithstanding the satisfaction and discharge of this Indenture or
of any Series, the obligations of the Issuer to the Indenture Trustee under
SECTION 6.07 and of the Indenture Trustee to the Bondholders under SECTION 4.02
shall survive.
Section 1.38 APPLICATION OF TRUST MONEY.
All monies deposited with the Indenture Trustee pursuant to SECTION
4.01 shall be held in trust and applied by it to the payment of all sums due and
to become due on the Bonds for principal and interest to the Bondholders for
whose payment the monies have been deposited with the Indenture Trustee. These
payments may be made either directly or through any Paying Agent, as the
Indenture Trustee may determine. These monies need not be segregated from other
funds except to the extent required herein or in the Servicing Agreement.
ARTICLE V
DEFAULTS AND REMEDIES
Section 1.39 INDENTURE EVENTS OF DEFAULT.
For all Series, "Indenture Events of Default" shall include any
voluntary or involuntary event of bankruptcy, insolvency, reorganization or
similar proceedings with respect to the Issuer. Such Indenture Event of Default
shall be referred to as an "Automatic Indenture Event of Default." Indenture
Events of Default with respect to specific Series of Bonds shall be defined in
the related Supplemental Indenture. Such Indenture Events of Default shall be
defined as "Series Indenture Event of Default" in the related Supplemental
Indenture.
Section 1.40 CONTROLLING HOLDER.
(1) If an Indenture Event of Default shall occur and for so long as it
is continuing with respect to any Series (unless rescinded pursuant to SECTION
5.04(c) or SECTION 5.04(d) hereof or waived pursuant to SECTION 5.13 hereof),
the Company shall cease to be the Controlling
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Holder of such Series, and shall no longer be afforded the opportunity to direct
the related Master Servicer and the related Special Servicer with respect to the
servicing and administration of the related Series Issuer Assets as provided in
the Servicing Agreement for such Series.
Section 1.41 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE.
The Issuer covenants that upon the acceleration of the maturity of
the Bonds of any Series pursuant to SECTION 5.04 and the demand of the Indenture
Trustee, the Issuer will immediately pay to the Indenture Trustee for the
benefit of the Bondholders of such Series the whole amount then due and payable
on the Bonds of such Series for principal, premium (if any), interest and Yield
Maintenance Premiums, if any, with interest upon the overdue principal and, to
the extent that payments of such interest shall be legally enforceable, upon
overdue installments of interest, in the order set forth in the applicable
Supplemental Indenture and, in addition thereto, any further amount necessary to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee, its
agents and counsel.
If the Issuer fails to pay these amounts forthwith upon the demand
of the Indenture Trustee, the Indenture Trustee, in its own name and as
Indenture Trustee of an express trust, may institute a proceeding for the
collection of the sums so due and unpaid, and may prosecute the proceeding to
judgment or final decree, and may enforce the same against the Issuer and
collect the monies adjudged or decreed to be payable in the manner provided by
law.
If an Indenture Event of Default occurs and is continuing as to any
Series, the Indenture Trustee may, subject to the provisions of SECTION 5.02,
SECTION 5.12 and SECTION 6.01, proceed to protect and enforce its rights and the
rights of the Bondholders of such Series under this Indenture by whatever
appropriate proceedings the Indenture Trustee deems most effectual to protect
and enforce any of those rights, whether for the specific enforcement of any
covenant or agreement contained in this Indenture or in aid of the exercise of
any power granted in this Indenture or to enforce any other proper remedy or
legal or equitable right vested in the Indenture Trustee by this Indenture or by
law.
If proceedings relating to the Issuer under Title 11 of the United
States Code or any other applicable federal or state bankruptcy, insolvency or
other similar law are pending, or if a receiver, assignee, or trustee in
bankruptcy or reorganization, liquidator, sequestrator or similar official has
been appointed for or taken possession of the Issuer or its property, or if any
other comparable judicial proceedings relating to the Issuer or the creditors or
property of the Issuer are pending, then the Indenture Trustee shall be entitled
and empowered, by intervention in the proceedings or otherwise:
(1) to file and prove a claim for the whole amount of principal and
interest owing and unpaid on the Bonds of such Series, and to file any other
papers or documents and take any other action, including participating as a
member of any committee of creditors, that the Indenture
38
Trustee may deem appropriate to have the claims of the Indenture Trustee and of
the Bondholders of such Series allowed in any proceedings relating to the Issuer
upon the Bonds of such Series, or to the creditors or property of the Issuer,
(2) to vote on behalf of the Bondholders of such Series in any election
of a trustee or a standby trustee in any arrangement, reorganization,
liquidation or other bankruptcy or insolvency proceedings or in any election of
any Person performing similar functions in comparable proceedings, and
(3) to collect any monies or other property payable or deliverable on
any such claims, and to distribute all amounts received on the claims of the
Bondholders of such Series and of the Indenture Trustee on their behalf, and any
trustee, receiver, liquidator, custodian or other similar official is authorized
by each Bondholder to make payments to the Indenture Trustee, and, if the
Indenture Trustee consents to payments going directly to the Bondholders, to pay
to the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Bondholders any plan of reorganization, arrangement, adjustment or
composition affecting the Bonds or the rights of any Bondholder, or to authorize
the Indenture Trustee to vote regarding the claim of any Bondholder in any such
proceeding except, as aforesaid, to vote for the election of a trustee in
bankruptcy or Person performing similar functions.
In any proceedings involving this Indenture or the Bonds the
Indenture Trustee shall represent all the Bondholders, and it shall not be
necessary to make any Bondholders parties to the proceedings.
Section 1.42 REMEDIES; RESCISSION OF ACCELERATION.
(1) Upon the occurrence of any Indenture Event of Default as to any
Series (a "Defaulted Series"), the Issuer shall promptly give written notice of
that Indenture Event of Default to the Indenture Trustee. The Indenture Trustee
shall within five (5) Business Days of its receipt of such notice or of
obtaining actual knowledge of the occurrence of an Indenture Event of Default,
send a notice of such Indenture Event of Default to the Bondholders of each
Series, the Master Servicer with respect to the Defaulted Series, the Special
Servicer of the Defaulted Series and each Rating Agency.
(2) If an Indenture Event of Default has occurred with respect to any
Series and is continuing and the maturity of the Bonds of the Defaulted Series
has been accelerated, the
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Indenture Trustee shall do one or more of the following with respect to such
Defaulted Series only:
(1) institute proceedings in its own name, as trustee for an
express trust, or in both such capacities, for the collection of all
amounts then payable on the Bonds of the Defaulted Series (whether by
declaration or otherwise), prosecute such proceedings, enforce any
judgment obtained, and collect amounts adjudged due from the collateral
for that Series;
(2) at the written direction of at least 66_% of the Bondholders
of the Outstanding Bonds of the Defaulted Series voting as a single class,
sell or cause the sale of all or a portion of the Series Issuer Assets of
the Defaulted Series pursuant to SECTION 5.16 at one or more public or
private sales called and conducted in any manner permitted by law;
(3) institute proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the collateral for
the Defaulted Series;
(4) exercise any remedies of a secured party under the UCC,
maintain possession of the collateral for that Series and collect or
otherwise receive in accordance with the related Servicing Agreement any
money or property at any time payable or receivable on account of or in
exchange for the collateral of that Series and take any other appropriate
action to protect and enforce the rights and remedies of the Indenture
Trustee or the Bondholders of the Defaulted Series under this Indenture;
or
(5) take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee hereunder.
(3) In the case of a Series Indenture Event of Default, upon the written
direction of at least a Majority in Interest of the Bondholders of the Defaulted
Series (voting as a single class), the Indenture Trustee shall accelerate the
maturity of the Bonds of such Defaulted Series unless, within ten (10) Business
Days of the date of the notice given to Bondholders, the Indenture Trustee
receives written instructions from Bondholders of the requisite amount of
Outstanding Bonds of the Defaulted Series, as specified in the related
Supplemental Indenture of such Defaulted Series, rescinding the acceleration of
the maturity of Bonds of the Defaulted Series; PROVIDED, that no acceleration of
the maturity of the Bonds of a Defaulted Series, which occurred as a result of a
default (i) in the payment of the principal or interest on any Bond of the
Defaulted Series, or (ii) with respect to any of the provisions under SECTION
9.02 that cannot be modified or amended without the consent of the Bondholder of
each Outstanding Bond of the Defaulted Series, may be rescinded without the
consent of each Bondholder of the Defaulted Series affected by such default.
Following any declaration of acceleration of a Series of Bonds in connection
with a Series Indenture Event of Default, the Indenture Trustee or its designee
shall solicit bids
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for the related Series Issuer Assets and provide the Bondholders of the
Defaulted Series with an estimate of the anticipated proceeds of a sale of such
Issuer Assets, and Bondholders of the Outstanding Bonds of the Defaulted Series
representing at least 66_% of the Principal Amount of the Bonds of the Defaulted
Series may direct the Indenture Trustee to, and if so directed the Indenture
Trustee shall, sell the related Series Issuer Assets. The proceeds of the sale
or other liquidation of the Series Issuer Assets of such Defaulted Series shall
be deposited into the Primary Collection Account established with respect to the
Defaulted Series and shall be treated as Available Series Funds and shall be
applied in accordance with SECTION 5.05 hereof and the related Supplemental
Indenture.
(4) In the case of an Automatic Indenture Event of Default, the
Indenture Trustee shall, immediately and without seeking direction from the
Bondholders, accelerate the maturity of the Bonds of all Series unless, within
ten (10) Business Days of the date of the notice given to Bondholders, the
Indenture Trustee receives written instructions from a Majority in Interest of
any Series of Bonds (voting as a single class) rescinding the acceleration of
the maturity of Bonds of such Series; PROVIDED, that no acceleration of the
maturity of the Bonds of a Defaulted Series, which occurred as a result of a
default (i) in the payment of the principal or interest on any Bond, or (ii)
with respect to any of the provisions under SECTION 9.02 that cannot be modified
or amended without the consent of the Bondholders of each Outstanding Bond
affected, may be rescinded without the consent of each Bondholder affected by
such default. Following an acceleration of all Series of Bonds in connection
with an Automatic Indenture Event of Default, the Indenture Trustee or its
designee shall solicit bids for the Series Issuer Assets related to each
outstanding Series and provide the Bondholders of each such Defaulted Series
with an estimate of the anticipated proceeds of a sale of such Issuer Assets,
and the Bondholders of the Outstanding Bonds of each Defaulted Series
representing at least 66_% of the Principal Amount of the Bonds of the Defaulted
Series may direct the Indenture Trustee, and if so directed the Indenture
Trustee shall, sell the related Series Issuer Assets of such Defaulted Series.
The proceeds of the sale or other liquidation of the Series Issuer Assets of
each Defaulted Series shall be deposited into the Primary Collection Account
with respect to such Defaulted Series, shall be used solely for making payments
on the Bonds of that Defaulted Series and shall be treated as Available Series
Funds and shall be applied in accordance with SECTION 5.05 hereof and the
related Supplemental Indenture.
(5) The Bondholders of any Series will be entitled to participate in any
vote required in connection with an Indenture Event of Default to direct actions
and resolve matters with respect to such Series only and not with respect to any
other Series of Bonds. Without limiting the generality of the foregoing, upon
the occurrence of an Indenture Event of Default, whether a Series Indenture
Event of Default or an Automatic Indenture Event of Default, the Bondholders of
a Defaulted Series shall not be entitled to direct the Indenture Trustee to, and
the Indenture Trustee shall not, exercise any remedy provided for in this
Indenture or in the Supplemental Indenture for such Defaulted Series with
respect to the Series Issuer Assets of any other Series.
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(6) The Indenture Trustee may fix a record date and payment date for any
payment to Bondholders pursuant to this Section. At least 15 days before that
record date, the Indenture Trustee shall mail to each Bondholder of a Defaulted
Series and the Issuer a notice that states the record date, the payment date,
and the amount to be paid.
Section 1.43 ALLOCATION OF AVAILABLE SERIES FUNDS.
Upon liquidation of the Series Issuer Assets following an Indenture
Event of Default, the proceeds thereof shall be applied to each Class of the
related Series of Bonds in the same priority as is specified for such Series in
the related Supplemental Indenture, except that in each case where a payment in
reduction of the principal of any such Class of Bonds is required in accordance
with the terms of such Supplemental Indenture, the outstanding principal amount
of such Class must be paid in full before any further payments may be made on
any Class of Bonds of such Series having a later alphabetical designation or of
any other Series entitled to Shared Funds from such Series.
Section 1.44 INDENTURE TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION
OF BONDS.
All rights of action and claims under this Indenture or the Bonds
may be prosecuted and enforced by the Indenture Trustee without the possession
of any of the Bonds or their production in any proceeding relating to them. Any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee, its
agents and counsel, be for the ratable benefit of the Bondholders of the
Defaulted Series and any other parties entitled thereto pursuant to the
applicable Supplemental Indenture upon which the judgment has been obtained.
Section 1.45 LIMITATION ON SUITS.
No Bondholder of a Defaulted Series shall have any right to
institute any proceedings, judicial or other, regarding this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy under this
Indenture, unless:
(1) the Bondholders of not less than 25% of the Principal Amount of the
Outstanding Bonds of the Defaulted Series have made written request to the
Indenture Trustee to institute the proceeding in its own name as Indenture
Trustee;
(2) those Bondholders have previously given written notice to the
Indenture Trustee of a continuing Indenture Event of Default;
(3) those Bondholders have offered to the Indenture Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with their request;
42
(4) the Indenture Trustee for 60 days after its receipt of that notice,
request and offer of indemnity has failed to institute appropriate proceedings;
and
(5) no direction inconsistent with the written request has been given to
the Indenture Trustee during the 60-day period by a Majority in Interest of the
Defaulted Series.
No one or more Bondholders may in any manner whatever under any
provision of this Indenture affect, disturb or prejudice the rights of any other
Bondholder or obtain or seek to obtain priority or preference over any other
Bondholder or enforce any right under this Indenture, except in the manner
provided in this Indenture and in the Supplemental Indenture related to the
Series of Bonds held by such Bondholder.
If the Indenture Trustee receives conflicting or inconsistent
requests and indemnity from two or more groups of Bondholders, each representing
less than a Majority in Interest of the related Series, the Indenture Trustee in
its sole discretion may determine what action, if any, shall be taken,
notwithstanding any other provisions of this Indenture and shall have no
liability for taking such action or for taking no action.
Section 1.46 UNCONDITIONAL RIGHTS OF BONDHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST.
Notwithstanding any other provision in this Indenture, each
Bondholder shall have the absolute and unconditional right to receive payment of
the principal, of premium (if any) and interest on its Bond, as such amounts
become due and payable and to institute suit for the enforcement of that
payment. This right shall not be impaired without the consent of the affected
Bondholder.
Section 1.47 RESTORATION OF RIGHTS AND REMEDIES.
If the Indenture Trustee or any Bondholder has instituted any
proceeding to enforce any right or remedy under this Indenture and that
proceeding has been discontinued or abandoned, or has been determined adversely
to the Indenture Trustee or to the Bondholder, then the Issuer, the Indenture
Trustee and the Bondholder shall, subject to any determination in that
proceeding, be restored to their former positions under this Indenture, and
thereafter all rights and remedies of the Indenture Trustee and the Bondholders
shall continue as though no proceeding had been instituted.
Section 1.48 RIGHTS AND REMEDIES CUMULATIVE.
No right, remedy, power or privilege herein conferred upon or
reserved to the Indenture Trustee or to the Bondholders is intended to be
exclusive of any other right, remedy, power or privilege. Every right, remedy,
power or privilege shall be cumulative and in addition to every other right,
remedy, power or privilege given under this Indenture or now or hereafter
existing at law or in equity or otherwise. The assertion or exercise of any
right, remedy, power
43
or privilege shall not preclude any other further assertion or the exercise of
any other appropriate right, remedy, power or privilege.
Section 1.49 DELAY OR OMISSION NOT WAIVER.
No failure to exercise and no delay in exercising, on the part of
the Indenture Trustee or any Bondholder or other Person, any right, remedy,
power or privilege upon any Indenture Event of Default shall impair that right,
remedy, power or privilege or constitute a waiver of it or of the Indenture
Event of Default or an acquiescence in the Indenture Event of Default. Every
right, remedy, power or privilege given by this Article or by law to the
Indenture Trustee or to the Bondholders may be exercised as often as may be
deemed expedient by the Indenture Trustee or by the Bondholders, as the case may
be.
Section 1.50 RIGHTS OF BONDHOLDERS TO DIRECT INDENTURE TRUSTEE.
A Majority in Interest of the Outstanding Bonds of each outstanding
Series may direct the time, method and place of conducting any proceeding for
any remedy available to the Indenture Trustee regarding the Bonds of that Series
or exercising any trust or power conferred on the Indenture Trustee regarding
the Bonds of that Series.
Notwithstanding the foregoing and subject to SECTION 6.01:
(1) the Indenture Trustee may decline any direction if the Indenture
Trustee, after being advised by counsel, determines that the action so directed
is in conflict with any rule of law or with this Indenture; and
(2) the Indenture Trustee may decline any direction if the Indenture
Trustee in good faith, by a Responsible Officer of the Indenture Trustee,
determines that the proceedings so directed would be illegal or involve the
Indenture Trustee in personal liability or be unjustly prejudicial to
Bondholders of the same Series who are not parties to that direction.
Section 1.51 WAIVER OF PAST DEFAULTS.
At any time prior to or following the declaration of the
acceleration of the maturity of the Bonds and before a judgment or decree for
the payment of the money due in respect of the Bonds of any Defaulted Series has
been obtained by the Indenture Trustee following any Series Indenture Event of
Default, 66_% of the Holders (by Principal Amount) of the Outstanding Bonds of
such Series (voting as a single class) may, after payment to Indenture Trustee
of all expenses of the Indenture Trustee incurred in connection with such
default and prior to its waiver, on behalf of all the Bondholders of such Series
only, waive in writing any such Series Indenture Event of Default or rescind or
annul the declaration of acceleration. However, no Series Indenture Event of
Default due to a default in the payment of the principal or
44
interest on any Class of Bonds may be waived without the consent of each
Bondholder of such Class and no Automatic Indenture Event of Default may be
waived without the consent of all of the Bondholders of all Series.
Upon any written waiver of, or recession of, a declaration of
acceleration by the Bondholders of the Defaulted Series, the default shall cease
to exist as to such Series, and any Indenture Event of Default as to such Series
arising from it shall be deemed to have been cured for every purpose of this
Indenture. No such waiver shall extend to any subsequent or other default or
impair any right consequent to it.
Section 1.52 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Bondholder by its
acceptance of a Bond shall be deemed to have agreed, that in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, any court may in its discretion require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit, and
that the court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by that party
litigant. The provisions of this Section shall not apply to any suit instituted
by the Indenture Trustee, to any suit instituted by any Bondholders (in
compliance with SECTION 5.07) holding in the aggregate more than 10% of the
principal balance of the outstanding Bonds of any Series, or to any suit
instituted by any Bondholder for the enforcement of the payment of the principal
or interest on any Bond on or after the Payment Date on which the principal or
interest was due (or, in the case of redemption, on or after the applicable
redemption date).
Section 1.53 WAIVER OF STAY OR EXTENSION LAWS.
The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, that may adversely affect the covenants
or the performance of this Indenture. The Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Indenture Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 1.54 SALE OF ISSUER ASSETS.
(1) The method, manner, time, place and terms of any sale of all or any
portion of the Issuer Assets pursuant to SECTION 5.04 shall be commercially
reasonable. The Indenture Trustee may from time to time postpone any sale by
public announcement made at the time and place of
45
the sale. The Indenture Trustee hereby expressly waives its right to any amount
fixed by law as compensation for any sale.
(2) In any sale of all or any portion of the Issuer Assets, any
Bondholder may bid for and purchase the property offered for sale, and upon
compliance with the terms of the sale may hold, retain and possess and dispose
of the property, without further accountability, and may, in paying the purchase
money for the property, deliver any outstanding Bonds of such Series or claims
for interest on the Bonds of such Series in lieu of cash up to the amount that
shall, upon distribution of the net proceeds of the sale, be payable thereon,
and those Bonds of such Series, if the amounts so payable are less than the
amount due on the Bonds of such Series, shall be returned to the Bondholder
after being appropriately stamped to show partial payment.
(3) The Indenture Trustee may bid for and acquire any portion of the
Issuer Assets securing the Bonds of such Series in a public sale, and may pay
all or part of the purchase price by crediting against amounts owing to the
Indenture Trustee under this Indenture, including, without limitation, the
costs, charges and expenses incurred by the Indenture Trustee in connection with
the sale notwithstanding the provisions of SECTION 6.07.
(4) The Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
collateral for any Series upon its sale. In addition, the Indenture Trustee is
hereby irrevocably appointed the agent and attorney-in-fact of the Issuer to
transfer and convey its interest in any portion of the collateral for that
Series upon its sale, and to take all action necessary to effect its sale. No
purchaser or transferee of any portion of the Issuer's interest in the
collateral for that Series shall be bound to ascertain the Indenture Trustee's
authority, inquire into the satisfaction of any conditions precedent, or see to
the application of any monies.
Section 1.55 ACTION ON BONDS.
The Indenture Trustee's right to seek and recover judgment on the
Bonds of any Series or under this Indenture shall not be affected by the seeking
or obtaining of or application for any other relief under this Indenture.
Neither the Lien of this Indenture nor any rights or remedies of the Indenture
Trustee or the Bondholders of such Series shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under that judgment upon any portion of the Collateral. Any money or
property collected by the Indenture Trustee shall be applied as specified in the
applicable Supplemental Indenture.
ARTICLE VI
THE INDENTURE TRUSTEE
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Section 1.56 DUTIES OF THE INDENTURE TRUSTEE.
(1) If an Indenture Event of Default has occurred and is continuing and
a Responsible Officer of the Indenture Trustee has actual knowledge or written
notice of that Indenture Event of Default, the Indenture Trustee shall, before
receiving written direction from at least 66_% of the Bondholders of the
Outstanding Bonds of the Defaulted Series pursuant to SECTION 5.04(c), in the
case of a Series Event of Default, or at least 66_% of the Outstanding Bonds of
the Bondholders of all Series voting as a single class pursuant to SECTION
5.04(d), in the case of an Automatic Indenture Event of Default, exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(2) Except during the continuance of an Indenture Event of Default,
(1) the Indenture Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture against
the Indenture Trustee; and
(2) in the absence of bad faith or negligence on its part, the
Indenture Trustee may conclusively rely (as to their truth and
correctness) upon certificates or opinions furnished to the Indenture
Trustee and conforming to the requirements of this Indenture.
(3) The Indenture Trustee, upon receipt of any resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Indenture Trustee that are specifically required to
be furnished pursuant to any provision of this Indenture, shall examine them to
determine whether they substantially conform to the requirements of this
Indenture. The Indenture Trustee shall give prompt written notice to the
Bondholders and each Rating Agency of any material lack of conformity of any
such instrument to the applicable requirements of this Indenture discovered by
the Indenture Trustee that would entitle a Majority in Interest of the
Bondholders to take any action pursuant to this Indenture.
(4) No provision of this Indenture shall be construed to relieve the
Indenture Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the
effect of Subsection (b) of this Section;
(2) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Indenture
Trustee absent proof that the Indenture Trustee was negligent in
ascertaining the pertinent facts; and
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(3) the Indenture Trustee shall not be liable for any action
taken, suffered or omitted to be taken by it in good faith in accordance
with the Indenture or at the direction of the Bondholders of the requisite
amount of Outstanding Bonds, as specified in the related Supplemental
Indenture of each outstanding Series of Bonds relating to the time, method
and place of conducting any proceeding for any remedy available to the
Indenture Trustee, or for exercising any trust or power conferred upon the
Indenture Trustee, under this Indenture. The Indenture Trustee shall not
be liable for any action taken, suffered or omitted to be taken by it in
good faith at the direction of a Master Servicer or a Special Servicer if
such action is authorized under the applicable Servicing Agreement. In
connection with any such direction, the Master Servicer or the Special
Servicer, as the case may be, shall execute and deliver to the Indenture
Trustee a certificate expressly stating that such action is authorized
pursuant to the applicable Servicing Agreement, and the Indenture Trustee
may conclusively rely on such certificate.
(5) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties under this Indenture or in the exercise of
any of its rights or powers if it has reasonable grounds for believing that
repayment of its funds or adequate indemnity against any risk or liability is
not reasonably assured to it.
(6) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to Subsections (a), (b), (d) and (e) of this
Section.
(7) The Indenture Trustee shall have no responsibility or liability for
investment losses on Eligible Investments.
(8) The Indenture Trustee shall notify each Rating Agency immediately of
the occurrence of any Indenture Event of Default of which the Indenture Trustee
has actual knowledge or has actual notice from the Master Servicer or the
Special Servicer.
(9) The Indenture Trustee shall hold directly, or through a custodian,
any Loans delivered to it that are evidenced by any "instruments" within the
meaning of any applicable enactment of the UCC and may release any such Issuer
Asset to the Master Servicer, the Special Servicer or as otherwise provided in
the Servicing Agreement at its written request.
(10) For all purposes under this Indenture, the Indenture Trustee shall
not be deemed to have notice or knowledge of any Indenture Event of Default or
default by the Master Servicer or the Special Servicer under the Servicing
Agreement, unless a Responsible Officer of the Indenture Trustee has actual
knowledge of the event or has received written notice of it. For the purposes of
determining the Indenture Trustee's responsibility and liability under this
Indenture, any reference to an Indenture Event of Default or default by the
Master Servicer or the Special
48
Servicer under the Servicing Agreement, shall be construed to refer only to such
event of which the Indenture Trustee is deemed to have notice as described in
this Subsection.
(11) The Indenture Trustee shall not be responsible for the actions or
omission of the Master Servicer or the Special Servicer.
Section 1.57 NOTICE OF INDENTURE EVENT OF DEFAULT.
Upon the occurrence of any Indenture Event of Default of which a
Responsible Officer of the Indenture Trustee has actual knowledge or has
received written notice, the Indenture Trustee shall transmit by mail to the
Rating Agencies and to the Bondholders of all Series as their names and
addresses appear on the Bond Register, notice of the Indenture Event of Default
within 30 days after it receives notice or obtains actual knowledge of the
event.
Section 1.58 RIGHTS OF INDENTURE TRUSTEE.
Except as otherwise provided in SECTION 6.01:
(1) the Indenture Trustee may conclusively rely and shall fully be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, note or other document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(2) whenever in the administration of this Indenture the Indenture
Trustee deems it desirable that a matter be proved or established prior to
taking, suffering or omitting any action, the Indenture Trustee (unless other
evidence is specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officer's Certificate of the Issuer;
(3) as a condition to the taking, suffering or omitting of any action by
it, the Indenture Trustee may consult with counsel, and the advice of counsel or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it in good faith and in
reliance thereon;
(4) the Indenture Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture or to honor the request
or direction of any of the Bondholders of any Series pursuant to this Indenture,
unless the Bondholders of such Series shall have offered to the Indenture
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with the request or
direction;
(5) the Indenture Trustee shall not be bound to make any investigation
into the matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
document, but the Indenture Trustee, in its
49
discretion, may make any further inquiry or investigation into those matters
that it deems appropriate, and, if the Indenture Trustee determines to inquire
further, it shall be entitled to examine the books, records and premises of the
Issuer, any Master Servicer and any Special Servicer, personally or by agent or
attorney;
(6) the Indenture Trustee may execute any of the trusts or powers under
this Indenture or perform any duties under this Indenture either directly or
through agents, attorneys, custodians, or nominees and the Indenture Trustee
shall not be responsible for (i) any misconduct or negligence on the part of any
agent, attorney, custodians, or nominees appointed with due care by it or (ii)
the supervision of those agents, attorneys, custodians or nominees appointed
with due care;
(7) the Indenture Trustee shall not be liable for any actions taken,
suffered, or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights conferred upon the Indenture Trustee by this
Indenture; and
(8) if the Indenture Trustee is also acting as Paying Agent and as
Transfer Agent and Registrar, the rights and protections afforded to the
Indenture Trustee pursuant to this Article shall also be afforded to it as
Paying Agent and as Transfer Agent and Registrar.
Section 1.59 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF BONDS.
The recitals contained in this Indenture and in the Bonds, except
the certificate of authentication of the Indenture Trustee, shall be taken as
the statements of the Issuer, and the Indenture Trustee assumes no
responsibility for their correctness. The Indenture Trustee makes no
representation as to the validity or sufficiency of this Indenture, the Bonds or
any related document. The Indenture Trustee shall not be accountable for the use
or application by the Issuer of the proceeds from the Bonds.
Section 1.60 MAY HOLD BONDS.
The Indenture Trustee, any Paying Agent, any Transfer Agent and
Registrar or any other agent of the Issuer, in its individual or any other
capacity, may become the owner or pledgee of Bonds and may otherwise deal with
the Issuer with the same rights it would have if it were not Indenture Trustee,
Paying Agent, Transfer Agent and Registrar, or other agent.
Section 1.61 MONEY HELD IN TRUST.
Any money held by the Indenture Trustee in trust under this
Indenture need not be segregated from any other funds held by the Indenture
Trustee in trust under this Indenture except to the extent required by this
Indenture. The Indenture Trustee shall be under no liability for interest on any
money received by it under this Indenture except as otherwise agreed upon in
writing by the Indenture Trustee.
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Section 1.62 COMPENSATION, REIMBURSEMENT, AND INDEMNIFICATION.
(1) The Issuer agrees:
(1) to pay the Indenture Trustee (no less frequently than each
Payment Date) the compensation required under the Supplemental Indenture
for each Series (which compensation shall not be limited by any provision
of law regarding the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided in this Indenture, to
reimburse the Indenture Trustee and the Fiscal Agent upon its request for
all reasonable expenses, disbursements and advances incurred or made by
the Indenture Trustee pursuant to this Indenture and any Transaction
Document (including all costs and expenses incurred by the Indenture
Trustee and the Fiscal Agent exercising any remedies under this Indenture
and the reasonable compensation and the expenses and disbursements of its
agents and counsel, except any such expense, disbursement or advance that
may be attributable to its negligence or bad faith); and
(3) to indemnify the Indenture Trustee, the Fiscal Agent and their
respective officers, directors, employees and agents against any loss,
liability, expense, damage or injury suffered or sustained without
negligence or bad faith on its part, arising in connection with the
acceptance or administration of this trust, including (x) the costs and
expenses of defending itself against any claim or liability from the
exercise or performance of any of its powers or duties under this
Indenture and the Transaction Documents and (y) to the extent such Person
has not been indemnified therefor under any other Transaction Document,
the maintenance and administration of any account.
(2) If, on any date when a fee is payable to the Indenture Trustee
pursuant to this Indenture, sufficient funds are not available for its payment,
any portion of a fee not paid shall be deferred and payable, together with
compensatory interest (at a rate not to exceed the federal funds rate), on the
next date on which a fee is payable and sufficient funds are available.
(3) Amounts payable or reimburseable to the Indenture Trustee by the
Issuer shall not be funded from the collateral for any Series other than the
Series in respect of which such losses, costs or expenses were incurred.
Section 1.63 REPLACEMENT OF INDENTURE TRUSTEE.
No resignation or removal of the Indenture Trustee and no
appointment of a successor Indenture Trustee shall become effective until the
acceptance of appointment by the successor Indenture Trustee pursuant to this
Section. The Indenture Trustee may resign at any
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time upon 30 days' written notice to the Issuer. Holders of a Majority in
Interest of all outstanding Series, voting in the aggregate, may remove the
Indenture Trustee by so notifying the Indenture Trustee and may appoint a
successor Indenture Trustee. The removal or resignation of the Indenture Trustee
shall be deemed to be the simultaneous removal or resignation of the Fiscal
Agent. The Issuer shall remove the Indenture Trustee, if:
(1) the Indenture Trustee fails to satisfy SECTION 6.11;
(2) the Indenture Trustee is adjudged a bankrupt or insolvent, or
a receiver of the Indenture Trustee or of its property shall be appointed,
or any public officer takes charge of the Indenture Trustee or its
property or its affairs for the purpose of rehabilitation, conservation or
liquidation; or
(3) the Indenture Trustee otherwise becomes legally unable
to act.
If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture Trustee
in such event being referred to as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee and obtain a Rating Agency
Confirmation from each Rating Agency in connection therewith.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Issuer. Thereupon
the resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights, powers
and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to the Bondholders of
all Series. The retiring Indenture Trustee shall promptly transfer all property
held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or a Majority in Interest of all outstanding
Series may petition any court of competent jurisdiction for the appointment of a
successor Indenture Trustee.
If the Indenture Trustee fails to satisfy SECTION 6.11, any
Bondholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under SECTION 6.07 shall continue for the
benefit of the retiring Indenture Trustee and the retiring Fiscal Agent.
In the event of the Indenture Trustee's removal without cause, all
expenses incurred by the Indenture Trustee and the Fiscal Agent in connection
with such removal shall be
52
reimbursed to the Indenture Trustee and the Fiscal Agent, as applicable, from
the Primary Collection Account.
In connection with the appointment of a successor Indenture Trustee,
the Issuer shall deliver an Opinion of Counsel to such successor Indenture
Trustee and each Rating Agency to the effect that such successor Indenture
Trustee shall have a perfected security interest of first priority in the Issuer
Assets.
Section 1.64 SUCCESSOR INDENTURE TRUSTEE BY MERGER.
If the Indenture Trustee consolidates with, merges or converts into,
or transfers all or substantially all its corporate trust business or assets to,
another corporation or banking association, the resulting, surviving or
transferee corporation without any further act shall be the successor Indenture
Trustee if that corporation or banking association is otherwise qualified and
eligible under SECTION 6.11. The Indenture Trustee shall provide the Rating
Agencies written notice of any such transaction and obtain a Rating Agency
Confirmation in connection with such transaction.
If any Bonds have been authenticated but not delivered at the time a
successor to the Indenture Trustee by merger, conversion, consolidation or
transfer succeeds to the trusts created by this Indenture, the successor to the
Indenture Trustee may adopt the certificate of authentication of the predecessor
Indenture Trustee and deliver the Bonds so authenticated.
Any successor to the Indenture Trustee may authenticate Bonds in the
name of either the predecessor Indenture Trustee or the successor Indenture
Trustee and those certificates of authentication shall have the full force that
it is anywhere provided in the Bonds or in this Indenture that certificates of
authentication of the Indenture Trustee shall have.
Section 1.65 APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE
INDENTURE TRUSTEE.
(1) Notwithstanding any other provisions of this Indenture, at any time,
for the purpose of meeting any legal requirement of any jurisdiction in which
any part of the Collateral may at the time be located, the Indenture Trustee may
execute and deliver all instruments to appoint one or more Persons to act as a
co-trustee or co-trustees, or separate trustee or separate trustees, of any part
of the Issuer Assets, and to vest in those Persons, in such capacity and for the
benefit of the Bondholders, title to any part of the Issuer Assets and, subject
to the other provisions of this Section, the powers, duties, obligations, rights
and trusts that the Indenture Trustee considers appropriate. No co-trustee or
separate trustee under this Indenture shall be required to meet the terms of
eligibility as a successor trustee under SECTION 6.11 and no notice to
Bondholders of the appointment of any co-trustee or separate trustee shall be
required under SECTION 6.08.
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(2) Every separate trustee and co-trustee shall be appointed and act
subject to the following provisions and conditions:
(1) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee and the separate trustee
or co-trustee jointly (the separate trustee or co-trustee is not
authorized to act separately without the Indenture Trustee joining in the
act), except to the extent that under any law of any jurisdiction in which
any particular acts are to be performed the Indenture Trustee is
incompetent or unqualified to act, in which event the rights, powers,
duties and obligations shall be performed singly by the separate trustee
or co-trustee, but solely at the direction of the Indenture Trustee;
(2) no trustee under this Indenture shall be personally liable by
reason of any act or omission of any other trustee under this Indenture;
and
(3) the Indenture Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(3) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Indenture
Trustee or separately, as may be provided therein, subject to all the provisions
of this Indenture, specifically including every provision of this Indenture
relating to the conduct of, affecting the liability of, or affording protection
to, the Indenture Trustee. Every instrument of appointment shall be filed with
the Indenture Trustee.
(4) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and authority to
do any lawful act under this Indenture on its behalf and in its name. If any
separate trustee or co-trustee shall die, become incapable of acting, resign or
be removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Indenture Trustee, without the appointment of a
new or successor trustee.
Section 1.66 ELIGIBILITY; DISQUALIFICATION.
The Indenture Trustee shall have a combined capital and surplus of
at least $50,000,000 as set forth in its most recent published annual report of
condition, and the long term unsecured debt ratings of the Indenture Trustee
shall be rated at least "AA" by S&P, "A2"
54
by Moody's and "AA" by Fitch or the long term unsecured debt ratings of the
Fiscal Agent shall be rated at least "AA" by S&P, "Aa3" by Moody's and "AA" by
Fitch.
Section 1.67 REPRESENTATIONS AND COVENANTS OF THE INDENTURE
TRUSTEE.
The Indenture Trustee represents, warrants, and covenants that:
(1) It is duly organized and validly existing as a national
banking association;
(2) It has full power and authority to deliver and perform this
Indenture and has taken all necessary action to authorize the execution,
delivery and performance by it of this Indenture and the other Transaction
Documents to which it is a party; and
(3) Each of this Indenture and the other Transaction Documents to
which it is a party has been duly executed and delivered by the Indenture
Trustee and constitutes its valid and legal binding obligation enforceable
in accordance with its terms.
ARTICLE VII
BONDHOLDERS' LIST AND REPORTS BY
INDENTURE TRUSTEE AND ISSUER
Section 1.68 ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF BONDHOLDERS.
Within five days after each Record Date, the Issuer will cause to be
furnished to the Indenture Trustee a list, in such form as the Indenture Trustee
may reasonably require, of the names, addresses and taxpayer identification
numbers of the Bondholders as they appear on the Bond Register as of that Record
Date. At any other time, the Indenture Trustee may request the Issuer to
furnish, on ten days' written notice, a list of similar form and content as of a
date not more than 10 days prior to the time the list is furnished. So long as
the Indenture Trustee is the Transfer Agent and Registrar, the Issuer shall not
be required to furnish those lists and the Indenture Trustee shall furnish to
the Issuer such list upon ten days' written request.
Section 1.69 PRESERVATION OF INFORMATION; COMMUNICATIONS TO
BONDHOLDERS.
(1) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names, addresses and taxpayer identification numbers
of the Bondholders contained in the most recent list furnished to the Indenture
Trustee under SECTION 7.01 and the names, addresses and taxpayer identification
numbers of the Bondholders received by the Indenture Trustee in its capacity as
Transfer Agent and Registrar. The Indenture Trustee may destroy any list
furnished to it under SECTION 7.01 upon receipt of a new list so furnished.
55
(2) If any Bondholder applies in writing to the Indenture Trustee
stating that it desires to communicate with other Bondholders regarding their
rights under this Indenture or under the Bonds, then the Indenture Trustee
shall, within five Business Days after the receipt of the application, afford
that Bondholder access to the information preserved at the time by the Indenture
Trustee in accordance with Subsection (a) of this Section. The Indenture Trustee
shall have no liability for releasing any such information to any Bondholder.
The requesting Bondholder shall be responsible for any expense incurred by the
Indenture Trustee in connection with obtaining a securities position listing
from DTC.
(3) If any Bondholder applies in writing to the Indenture Trustee
stating that it desires a copy of the annual certificate of the Master Servicer
of the related Series or the Special Servicer of the related Series prepared
under the related Servicing Agreement or a copy of the annual servicing report
of independent public accountants with respect to the Master Servicer of the
related Series or the Special Servicer of the related Series prepared under the
related Servicing Agreement, the Indenture Trustee shall furnish that Bondholder
with a copy of such report to the extent such report is in the possession of the
Indenture Trustee.
ARTICLE VIII
ACCOUNTING AND RELEASES
Section 1.70 COLLECTION OF MONEY.
Except as otherwise expressly provided in this Indenture, the
Indenture Trustee may demand payment or delivery of, and receive and collect,
directly and without intervention or assistance of any fiscal agent or other
intermediary, all money and other property payable to or receivable by the
Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall hold
all such money and property received by it in trust for the Bondholders and
shall apply it as provided in this Indenture.
Section 1.71 RELEASE OF COLLATERAL.
(1) The Indenture Trustee may, and when required by this Indenture
shall, execute instruments to release property from the Lien of this Indenture,
or convey the Indenture Trustee's interest in the same, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Indenture Trustee as
provided in this Article shall be bound to ascertain the Indenture Trustee's
authority, inquire into the satisfaction of any conditions precedent or see to
the application of any monies.
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(2) To facilitate the servicing of the Series Issuer Assets by the
related Master Servicer and the related Special Servicer, the Indenture Trustee
by written direction of a Responsible Officer of such Master Servicer or Special
Servicer shall deliver to such Master Servicer or Special Servicer, as
applicable, such powers of attorney as the Master Servicer or the Special
Servicer may request authorizing the Master Servicer or the Special Servicer, as
applicable, to execute in the name of the Indenture Trustee instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
other comparable instruments regarding the Series Issuer Assets, subject to the
obligations of the Master Servicer and the Special Servicer under the Servicing
Agreement for that Series.
(3) Upon written direction of a Responsible Officer of the Issuer, the
Indenture Trustee shall, at such time as there are no Bonds outstanding, release
and transfer, without recourse, all of the Collateral that secured the Bonds
(other than any cash held for the payment of the Bonds pursuant to SECTION 4.02
hereof).
(4) While the Bonds or Trust Certificates of any Series remain
outstanding, the Issuer may, upon written direction of a Responsible Officer,
request the Indenture Trustee to release any Issuer Asset from the Lien of this
Indenture. Any such release shall be, if and as specified in the related
Supplemental Indenture, conditioned upon satisfaction of the following
conditions:
(1) if the Issuer Asset to be released is not in default, the
Issuer shall have deposited into the Primary Collection Account for the
related Series, an amount equal to the sum of (1) the principal balance of
such Issuer Asset, (2) any accrued and unpaid interest on such Issuer
Asset, (3) the Yield Maintenance Premiums, if any, due with respect to the
applicable Series in respect of the Principal Amount of the Bonds of such
Series paid as a result of such prepayment and (4) any related expenses,
including Bond Interest Advances and Protective Advances together with any
accrued and unpaid Advance Interest, in each case as of the date of
release;
(2) if the Issuer Asset to be released is in default, the Issuer
shall have deposited into the Primary Collection Account for the related
Series, an amount equal to the sum of (1) the principal amount of such
Issuer Asset, (2) any accrued and unpaid interest on such Issuer Asset and
(3) any related expenses, including Bond Interest Advances and Protective
Advances together with any accrued and unpaid Advance Interest, in each
case as of the date of release; and
(3) such additional conditions as may be specified in the
Supplemental Indenture pursuant to which such Issuer Asset was made
subject to the Lien of the Indenture.
(5) The Indenture Trustee shall release property from the Lien of this
Indenture pursuant to this SECTION 8.02 only upon receipt of a request from the
Issuer accompanied by an
57
Officers' Certificate and a letter from the Credit Enhancer of the applicable
Series, if any, stating that the Credit Enhancer has no objection to such
request from the Issuer.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 1.72 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF BONDHOLDERS.
(1) Without the consent of the Bondholders, the Issuer and the
Indenture Trustee may enter into one or more Supplemental Indentures, in form
satisfactory to the Indenture Trustee, or may amend any Supplemental Indenture,
for any of the following purposes:
(1) to cure any ambiguity, to correct or supplement any
provision herein that may be inconsistent with any other provision
herein;
(2) to make any other provisions regarding matters arising under
this Indenture so long as the interests of the Bondholders of any Class or
Series are not materially adversely affected thereby;
(3) to convey, transfer, assign, mortgage or pledge any property
to or with the Indenture Trustee, so long as the interests of the
Bondholders are not materially adversely affected thereby;
(4) to correct or amplify the description of any property subject
to the Lien of this Indenture, or better to assure, convey and confirm to
the Indenture Trustee any property required to be subjected to the Lien of
this Indenture, or to subject to the Lien of this Indenture additional
property;
(5) to modify the terms of this Indenture as required or made
necessary by any change in applicable law, so long as the interests of the
Bondholders are not materially adversely affected thereby;
(6) to add to the covenants of the Issuer, for the benefit
of the Bondholders, or to surrender any right or power herein
conferred upon the Issuer;
(7) to add additional Events of Default, so long as the
interests of the Bondholders are not materially adversely affected
thereby;
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(8) to evidence the succession, in compliance with SECTION 3.13,
of another person to the Issuer, and the assumption by the successor of
the covenants of the Issuer herein and in the Bonds;
(9) to evidence the acceptance of the appointment under this
Indenture of a successor trustee and to add to or change any of the
provisions of this Indenture necessary to facilitate the administration of
the trusts under this Indenture by more than one trustee, pursuant to the
requirements of Article VI;
(10) to provide for the issuance of one or more new Series of Bonds
in accordance with the provisions of SECTION 2.11, including the
designation of the Issuer Assets that will secure such Series;
(11) to cause the Supplemental Indenture to conform to the
Offering Memorandum prepared in connection with the related Series
of Bonds; or
(12) to provide for the termination of any Credit Enhancement in
accordance with the provisions of the related Supplemental Indenture.
The Indenture Trustee is authorized to join in the execution of any
such Supplemental Indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
Notwithstanding the foregoing, the Issuer and the Indenture Trustee
shall not enter into any Supplemental Indenture or amendment to any Supplemental
Indenture for the purposes described in (x) the foregoing clauses (ii) through
(x) and (xii) unless each Rating Agency shall have delivered to the Indenture
Trustee a Rating Agency Confirmation with respect thereto or (y) the foregoing
clause (xi) unless the Issuer shall have delivered to each Rating Agency copies
of the proposed amendment not less than 10 days prior to the execution thereof.
(2) The Issuer and the Indenture Trustee (when authorized by a written
direction of a Responsible Officer of the Issuer) may also, without the consent
of any Bondholders but with prior notice to the Rating Agencies and delivery to
the Indenture Trustee by each Rating Agency of a Rating Agency Confirmation
regarding the Bonds of all Series, enter into a Supplemental Indenture for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Bondholders under this Indenture, provided such action will not,
as evidenced by an Opinion of Counsel of the Issuer, delivered and acceptable to
the Indenture Trustee, adversely affect in any material respect the interests of
any Bondholder.
(3) The issuance of an additional Series pursuant to SECTION 2.11 and
any amendments regarding the addition or removal of Issuer Assets from the
Issuer pursuant to Section 3.28
59
of the Servicing Agreement will not be considered an
amendment requiring Bondholder consent under the provisions of this Indenture.
Section 1.73 SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS.
The Issuer and the Indenture Trustee (when authorized by a written
direction of a Responsible Officer of the Issuer) also may, with the consent of
a Majority in Interest of each adversely affected Series, enter into a
Supplemental Indenture for the purpose of adding any provisions to, changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of those Bondholders under this Indenture.
However, no such Supplemental Indenture shall, without the consent of each
Bondholder adversely affected thereby:
(1) change the Payment Date of any principal, interest or other
amount due of any Bond;
(2) reduce the Principal Amount, Interest Rate or the redemption
price of any Bond;
(3) change any place of payment where, or the coin or currency in
which, any Bond or any interest thereon is payable;
(4) impair the right to institute suit for the enforcement of any
payment on the Bonds, as provided in the Indenture, on or after the respective
due dates thereof;
(5) reduce the percentage of the aggregate Principal Amount of the Bonds
of any Class, the consent of whose holders is required for such amendment, or
for any waiver of defaults under the Indenture;
(6) reduce the percentage of the aggregate Principal Amount of the Bonds
of any Class, the consent of whose holders is required to direct the Indenture
Trustee to sell or liquidate the Collateral;
(7) decrease the percentage of the aggregate Principal Amount of the
Bonds required to amend the sections of the Indenture that specify the
applicable percentage of the aggregate principal amount of the Bonds necessary
to amend the Indenture, as well as those sections of the Transaction Documents
that require such consent for a similar amendment;
(8) modify or alter the provisions of the Indenture regarding the voting
of Bonds held by the Issuer, SFI, the Company or any Affiliate thereof; or
(9) permit the creation of any lien ranking prior to or on a parity with
the lien of the Indenture on any part of the Collateral for the Bonds or, except
as otherwise permitted or
60
contemplated therein, terminate the lien of the Indenture on any Collateral at
any time subject to the Indenture or deprive any Bondholder of the security
provided by the lien of the Indenture.
The Indenture Trustee may in its discretion determine whether or not any Bonds
would be affected by any Supplemental Indenture and any such determination shall
be conclusive upon the Bondholders, whether theretofore or thereafter
authenticated and delivered hereunder. The Indenture Trustee shall not be liable
for any such determination made in good faith.
Notwithstanding the foregoing, the Issuer and the Indenture Trustee
shall not enter into any Supplemental Indenture or amendment to any Supplemental
Indenture for the purposes described in this SECTION 9.02 unless each Rating
Agency shall have delivered to the Indenture Trustee a Rating Agency
Confirmation with respect thereto.
It shall not be necessary for any Act of Bondholders under this
Section to approve the particular form of any proposed Supplemental Indenture,
but it shall be sufficient if that Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee
of any Supplemental Indenture pursuant to this Section, the Indenture Trustee
shall mail to the Bondholders to which such Supplemental Indenture relates
written notice setting forth in general terms the substance of such Supplemental
Indenture. The failure of the Indenture Trustee to mail any such notice, or any
defect therein, shall not in any way impair or affect the validity of such
Supplemental Indenture.
Section 1.74 EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
Supplemental Indenture permitted by this Article or the modification thereby of
the trusts created by this Indenture, the Indenture Trustee shall be entitled to
receive, and (subject to SECTIONS 6.01 and 6.02) shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of such
Supplemental Indenture is authorized or permitted by this Indenture. The
Indenture Trustee may, but shall not be obligated to, enter into any
Supplemental Indenture that affects the Indenture Trustee's own rights, duties,
liabilities or immunities under this Indenture or otherwise.
Section 1.75 EFFECT OF SUPPLEMENTAL INDENTURE.
Upon the execution of any Supplemental Indenture under this Article,
this Indenture shall be modified in accordance therewith, and such Supplemental
Indenture shall form a part of this Indenture for all purposes, and every Holder
of Bonds theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
Section 1.76 REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES.
61
Bonds authenticated and delivered after the execution of any
Supplemental Indenture pursuant to this Article may, and if required by the
Indenture Trustee shall, bear a notation in form approved by the Indenture
Trustee (which approval shall not be unreasonably withheld) as to any matter
provided for in such Supplemental Indenture. If the Issuer so determines, new
Bonds so modified as to conform, in the reasonable opinion of the Indenture
Trustee and the Issuer, to such Supplemental Indenture may be prepared and
executed by the Issuer and authenticated and delivered by the Indenture Trustee
in exchange for outstanding Bonds.
Section 1.77 AMENDMENTS IN GENERAL.
No Supplemental Indenture, amendment, or other change in this
Indenture may be made without the written consent of SFI.
ARTICLE X
MISCELLANEOUS
Section 1.78 FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to those matters in one or several documents.
Any certificate or opinion of a Responsible Officer of the Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of a
Responsible Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the applicable Master Servicer, the applicable Special
Servicer, SFI, the Issuer, or the Administrator, stating that the information
with respect to those factual matters is in the possession of such Master
Servicer, such Special Servicer, SFI, the Issuer, unless such Responsible
Officer or counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to those matters
are erroneous.
62
Where any Person is required to make, give, or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of that certificate or report (as the case may be), of the
facts and opinions stated in that document shall in such case be conditions
precedent to the right of the Issuer to have that application granted or to the
sufficiency of that certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article Six.
Section 1.79 ACTS OF BONDHOLDERS.
(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Bondholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by those Bondholders in person or by agent
duly appointed in writing and satisfying any requisite percentages as to minimum
number or dollar value of outstanding principal amount represented by those
Bondholders. Except as herein otherwise expressly provided, any such action
shall become effective when such instrument or instruments are delivered to the
Indenture Trustee, and, where it is hereby expressly required, to the Issuer.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "ACT" of the Bondholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Indenture Trustee and
the Issuer, if made in the manner provided in this Section.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Indenture Trustee
deems sufficient.
(3) The ownership of Bonds shall be proved by the Bond Register.
(4) Any request, demand, authorization, direction, notice, consent,
waiver or other action by any Bondholder shall bind the Holder (and any
transferee thereof) of every Bond issued upon the registration thereof in
exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Indenture Trustee or the Issuer in reliance thereon,
whether or not notation of such action is made upon such Bond.
63
Section 1.80 NOTICES, ETC. TO INDENTURE TRUSTEE, ISSUER, AND RATING
AGENCIES.
(1) Any request, demand, authorization, direction, notice, consent,
waiver or Act of Bondholders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(1) the Indenture Trustee by any Bondholder or by the Issuer shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to a Responsible Officer of the Indenture Trustee, by
facsimile transmission or by other means acceptable to the Indenture
Trustee to or with the Indenture Trustee at its principal corporate trust
office; or
(2) the Issuer by the Indenture Trustee or by any Bondholder shall
be sufficient for every purpose hereunder if in writing and mailed,
first-class postage prepaid, to the Issuer addressed to iStar Asset
Receivables Trust, c/o Wilmington Trust Company, as Owner Trustee, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890, ATTN:
Corporate Trust Administration, or at any other address previously
furnished in writing to the Indenture Trustee by the Issuer. A copy of
each notice to the Issuer shall be sent in writing and mailed, first-class
postage prepaid, to iStar Financial Inc., 1114 Avenue of the Americas,
27th Floor, New York, New York 10036, ATTN: Mr. Spencer B. Haber, Chief
Financial Officer.
(2) Notices required to be given to the Rating Agencies by the Issuer or
the Indenture Trustee shall be in writing, personally delivered or mailed by
certified mail, return receipt requested or by overnight courier or facsimile
transmission, to: (i) in the case of Moody's, at the following address: Moody's
Investors Service, Inc., CLO/CBO Monitoring Department, 99 Church Street, New
York, New York 10007; (ii) in the case of S&P, at the following address:
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., 55 Water
Street, New York, New York 10041, Attention: Asset Backed Surveillance
Department; and (iii) in the case of Fitch IBCA, Inc., at the following address:
One State Street Plaza, New York, New York 10004, Attention: CMBS Surveillance;
or as to each of the foregoing or as to any other Rating Agency, at such other
address as shall be designated by written notice to the other parties.
Section 1.81 NOTICES TO BONDHOLDERS; WAIVER.
All notices required to be given by the Issuer to the Bondholders
shall, in addition to being given by mail as provided below, be given by
publication at least once (i) in one authorized newspaper in the English
language in London and (ii) if any Bonds are listed on the Luxembourg Stock
Exchange and the rules of that stock exchange shall so require, in one
authorized newspaper in Luxembourg. An authorized newspaper is a newspaper of
general circulation customarily published on each Business Day, whether or not
it is published in Saturday, Sunday or holiday editions. The FINANCIAL TIMES in
London and the LUXEMBURGER
64
WORT in Luxembourg are the initial authorized newspapers. If it becomes
impracticable to give notice to the Bondholders in this manner, then
notification in lieu thereof by publication approximating the terms and
conditions of the required publication insofar as may be practicable shall
constitute sufficient notice. Neither the failure to give notice nor any defect
in any notice to any particular Bondholder shall affect the sufficiency of any
notice to other Bondholders. Notice by publication will be deemed to have been
given on the date of publication, or if published on different dates, on the
date of the first publication.
Where this Indenture provides for notice to Bondholders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed by registered or certified mail or
first class postage prepaid or national overnight courier service to each
Bondholder affected by such event, at the address of that Bondholder as it
appears on the Bond Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Bondholders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Bondholder
shall affect the sufficiency of such notice with respect to other Bondholders,
and any notice that is mailed in the manner herein provided shall conclusively
be presumed to have been duly given.
Where this Indenture provides for notice in any manner, that notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and any such waiver shall be the equivalent of that
notice. Waivers of notice by Bondholders shall be filed with the Indenture
Trustee but no such filing shall be a condition precedent to the validity of any
action taken in reliance upon any such waiver.
If because of the suspension of regular mail service, it is
impractical to mail notice of any event to Bondholders when that notice is
required to be given, then any manner of giving that notice that is satisfactory
to the Indenture Trustee shall be deemed to be a sufficient giving of that
notice.
The Issuer shall give prompt written notice to the Rating Agencies
of any of the following occurrences: (a) the appointment of a successor
Indenture Trustee, (b) the execution of a Supplemental Indenture pursuant to
Article IX, (c) the adoption of any amendment to the Servicing Agreement and (d)
the payment of the entire principal of the Bonds. Any such notice shall be
sufficient if furnished in writing to the Rating Agencies.
Section 1.82 ADMINISTRATOR TO ACT FOR ISSUER. Any duty or obligation of
the Issuer required to be performed under this Indenture or under any
Supplemental Indenture may, in the sole discretion of the Issuer, be performed
by the Administrator.
Section 1.83 ALTERNATE PAYMENT AND NOTICE PROVISIONS.
65
Notwithstanding any provision of this Indenture or any of the Bonds
to the contrary, the Issuer, with the consent of the Indenture Trustee, may
enter into any agreement with any Bondholder providing for a method of payment,
or notice by the Indenture Trustee or any Paying Agent to that Bondholder, that
is different from the methods provided for in this Indenture for payments or
notices. The Issuer will furnish to the Indenture Trustee a copy of each such
agreement, and the Indenture Trustee will cause payments to be made and notices
to be given in accordance with those agreements.
Section 1.84 EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 1.85 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Issuer shall
bind its successors and assigns, whether so expressed or not.
Section 1.86 SEPARABILITY.
If any provision in this Indenture or in the Bonds is invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 1.87 BENEFITS OF INDENTURE.
Except as set forth in SECTION 10.13 and subject to SECTIONS 9.01
and 9.02, nothing in this Indenture or in the Bonds, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, and the Bondholders, any benefit.
Section 1.88 LEGAL HOLIDAYS.
In any case where the date on which any payment is due shall not be
a Business Day, then (notwithstanding any other provision of the Bonds or this
Indenture) payment need not be made on that date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date on
which nominally due, and no interest shall accrue for the period from and after
any such nominal date.
Section 1.89 GOVERNING LAW.
66
THIS INDENTURE AND EACH BOND SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (OTHER THAN THE
CONFLICTS-OF-LAW PRINCIPLES THEREOF) APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED THEREIN.
Section 1.90 COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 1.91 ISSUER OBLIGATION.
No recourse may be taken, directly or indirectly, with respect to
the obligations of the Issuer or the Indenture Trustee on the Bonds or under
this Indenture or any certificate or other writing delivered in connection
herewith or therewith, against (i) either the Indenture Trustee or the Fiscal
Agent in their respective individual capacities, (ii) any owner of a beneficial
interest in the Issuer, or (iii) any partner, owner, beneficiary, agent,
officer, director, employee or agent of the Indenture Trustee or the Fiscal
Agent in its individual capacity, any holder of a beneficial interest in the
Issuer or the Indenture Trustee or of any successor or assign of the Indenture
Trustee or the Fiscal Agent in its individual capacity, except as any such
Person may have expressly agreed (it being understood that neither the Indenture
Trustee nor the Fiscal Agent have any such obligations in their individual
capacity).
Section 1.92 NO PETITION.
Each of the Indenture Trustee, LaSalle Bank National Association (in
its individual capacity), the Fiscal Agent and ABN AMRO Bank N.V. (in its
individual capacity) by entering into this Indenture, and each Bondholder, by
accepting a Bond, hereby covenant that they will not, until one year and one day
after all Bonds of all Series have been paid in full, institute against the
Issuer, or join in any institution against the Issuer, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Bonds, this Indenture or any
of the Transaction Documents.
Section 1.93 LIMITATION OF OWNER TRUSTEE LIABILITY.
It is expressly understood and agreed by the parties that (a) this
Indenture is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee, in the exercise of the
powers and authority conferred and vested in it pursuant to the Trust Agreement,
(b) the representations, undertakings and agreements herein made on the part of
the Issuer are made and intended not as personal representations, undertakings
and agreements by Wilmington Trust Company but are made and intended solely for
the purpose of binding the Issuer, (c) nothing contained herein shall be
construed as creating any liability with
67
respect to Wilmington Trust Company, individually or personally, to perform any
covenant, expressed or implied, contained herein, all such liability, if any,
being expressly waived by the parties hereto and by any person claiming by,
through or under the parties hereto and (d) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Indenture or any other related documents.
68
IN WITNESS WHEREOF, the Issuer, the Indenture Trustee and the Fiscal
Agent have caused this Indenture to be duly executed by their respective
officers thereunto duly authorized and attested, all as of the day and year
first above written.
iSTAR ASSET RECEIVABLES TRUST,
Issuer
By: WILMINGTON TRUST COMPANY, not in its
individual capacity, but solely as
Owner Trustee on behalf of the Issuer
By:
---------------------------------------------
Name:
Title:
LASALLE BANK NATIONAL ASSOCIATION,
not in its individual capacity,
but solely as Indenture Trustee
By:
---------------------------------------------
Name:
Title:
ABN AMRO BANK N.V.,
not in its individual capacity,
but solely as Fiscal Agent
By:
---------------------------------------------
Name:
Title:
By:
---------------------------------------------
Name:
Title:
EXHIBIT 12.1
Ratio of EBITDA to interest expense
Years Ended December 31, 2000
----------------------------------------
2000 1999 1998
-------- -------- --------
EBITDA:
Total Earnings $215,538 $ 38,927 $ 59,957
Add back:
Interest expense 173,891 91,184 44,697
Depreciation and amortization 34,514 10,340 4,287
-------- -------- --------
Total EBITDA $423,943 $140,451 $108,941
INTEREST EXPENSE: $173,891 $ 91,184 $ 44,697
EBITDA/INTEREST EXPENSE 2.44 x 1.54 x 2.44 x
EXHIBIT 12.2
Ratio of EBITDA to combined fixed charges
Years Ended December 31, 2000
----------------------------------------
2000 1999 1998
-------- -------- --------
EBITDA:
Total Earnings $215,538 $ 38,927 $ 59,957
Add back:
Interest expense 173,891 91,184 44,697
Depreciation and amortization 34,514 10,340 4,287
-------- -------- --------
Total EBITDA $423,943 $140,451 $108,941
COMBINED FIXED CHARGES:
Interest expense $173,891 $ 91,184 $ 44,697
Capitalized interest 513 377 --
Preferred dividends 36,908 23,843 944
-------- -------- --------
Total combined fixed charges $211,312 $115,404 $ 45,641
EBITDA/COMBINED FIXED CHARGES 2.01 x 1.22 x 2.39 x
Exhibit 21.2
SUBSIDIARY STATE OF OTHER NAMES USED
ORGANIZATION/INCORPORATION
767 Star, LLC Delaware None
Acre Partners, L.L.C. Delaware None
Acre Richfield, LLC Delaware None
Acre Simon, L.L.C. Delaware None
BM Center, LLC Delaware None
Corporate Technology Centre Associates, LLC California None
Corporate Technology Centre Associates II, LLC California None
CTC Associates I, L.P. Delaware None
CTC Associates I Genpar, LLC Delaware None
FMAC Star Fund, L.L.P Connecticut None
FMAC Starfund Preferred, Inc. Delaware None
F/S Subsidiary, L.L.C. Delaware None
iStar Asset Receivable Trust Delaware None
iStar Asset Services, Inc. Delaware None
iStar Cayman Bonds, Inc. Delaware None
iStar Cayman Bonds, GP, Inc. Delaware None
iStar D.B. Seller, Inc. Delaware None
iStar D.C., Inc. Delaware None
iStar/Denver Place, LLC Delaware None
iStar Direct Holdings, LLC Delaware None
iStar Financial Preferred, Inc. Delaware None
iStar Merger Co. I Delaware None
iStar Merger Co. II Delaware None
iStar Poydras, LLC Delaware None
iStar Real Estate Services, Inc. Maryland None
iStar San Jose, LLC Delaware None
iStar Sunnyvale Partners L.P. Delaware None
iStar Ventures, LLC Delaware None
iStar Walden, LLC Delaware None
Newpar, LLC Delaware None
Red Lion G.P., Inc. Delaware None
RLH Partnership, L.P. Delaware None
SFI I, LLC Delaware None
SFT I, Inc. Delaware Starwood Financial I (CA)
SFT II, Inc. Delaware Starwood Financial II (CA)
SFT Bonds A, Inc. Delaware None
SFT-Ford City, Inc. Delaware None
SFT-Port Charlotte, Inc. Delaware None
SFT-Sun Valley, Inc. Delaware None
SFT/RLH, Inc. Delaware None
SFT Venturer, LLC. Delaware None
SFT Whole Loans A, Inc. Delaware None
Stars I Corp. Delaware None
Starwood Operating, Inc. Delaware None
TN-CP Venture One Texas None
Trinet Concord Farms I Limited Partnership Massachusetts None
Trinet Concord Farms II Limited Partnership Massachusetts None
Trinet Concord Farms III Limited Partnership Massachusetts None
Trinet Corporate Partners I, L.P. Delaware None
Trinet Corporate Partnership II, LP. Delaware None
Trinet Corporate Partnership III L.P. Delaware None
Trinet Corporate Realty Trust, Inc. Maryland None
Trinet Essentials Facilities I, Inc. Maryland None
Trinet Essentials Facilities II, Inc. Maryland None
Trinet Essentials Facilities III, Inc. Maryland None
SUBSIDIARY STATE OF OTHER NAMES USED
ORGANIZATION/INCORPORATION
Trinet Essentials Facilities IV, Inc. Maryland None
Trinet Essentials Facilities V, Inc. Maryland None
Trinet Essentials Facilities VI, Inc. Maryland None
Trinet Essentials Facilities VV, Inc. Maryland None
Trinet Essentials Facilities VIIIr, Inc. Maryland None
Trinet Essentials Facilities X, Inc. Maryland None
Trinet Essentials Facilities XI, Inc. Maryland None
Trinet Essentials Facilities XII, Inc. Maryland None
Trinet Essentials Facilities XIII, Inc Maryland None
Trinet Essentials Facilities XIV, Inc. Maryland None
Trinet Essentials Facilities XV, Inc. Maryland None
Trinet Essentials Facilities XVI, Inc. Maryland None
Trinet Essentials Facilities XVIII, Inc. Maryland None
Trinet Essentials Facilities XIX, Inc. Maryland None
Trinet Essentials Facilities XX, Inc. Maryland None
Trinet Essential Facilities XXI, Inc. Maryland None
Trinet Essential Facilities XXII, Inc. Maryland None
Trinet Essential Facilities XXIII, Inc. Maryland None
Trinet Essential Facilities XXIV, Inc. Maryland None
Trinet Essential Facilities XXV, Inc. Maryland None
Trinet Essential Facilities XXVI, Inc. Maryland None
Trinet Essential Facilities XXVII, Inc. Maryland None
Trinet Essential Facilities XXIII, Inc. Maryland None
Trinet Essential Facilities XXIX, Inc. Maryland None
Trinet Essential Facilities XXX, Inc. Maryland None
Trinet Management Operating Company, Inc. Maryland None
Trinet Milpitas Associates, LLC Maryland None
Trinet Property Partners, LP Maryland None
Trinet Realty Capital, Inc. Maryland None
Trinet realty investors I, Inc. Maryland None
Trinet Realty Investors II, Inc. Maryland None
Trinet Realty Investors III, Inc. Maryland None
Trinet Realty Investors IV, Inc. Maryland None
Trinet Realty Investors V, Inc. Maryland None
Trinet Realty Ventures, Inc. Maryland None
Trinet Sunnyvale Partners, L.P. Maryland None
Trinet XVII Realty Trust Maryland None
W9/Trinet Poydras, LLC Maryland None
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-55396) of iStar Financial Inc. of our report
dated March 2, 2001 relating to the financial statements and financial statement
schedules, which appears in the Form 10-K.
PricewaterhouseCoopers LLP
New York, NY
March 28, 2001
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-38486) of iStar Financial Inc. of our report
dated March 2, 2001 relating to the financial statements and financial statement
schedules, which appears in the Form 10-K.
PricewaterhouseCoopers LLP
New York, NY
March 28, 2001
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-34300) of iStar Financial Inc. of our report
dated March 2, 2001 relating to the financial statements and financial statement
schedules, which appears in the Form 10-K.
PricewaterhouseCoopers LLP
New York, NY
March 28, 2001
