-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ECixbhhSB3+eXFXdYgqIIV68YMXyaMfLPeoEUJAO9tmYk6b/f0PiP80B1FfZGMUL C9VaEhm8PlYvW8AsoGJAnw== 0000912057-96-005827.txt : 19960402 0000912057-96-005827.hdr.sgml : 19960402 ACCESSION NUMBER: 0000912057-96-005827 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S RESTAURANT PROPERTIES MASTER L P CENTRAL INDEX KEY: 0000785994 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 411541631 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09079 FILM NUMBER: 96543218 BUSINESS ADDRESS: STREET 1: 5310 HARVEST HILL ROAD STREET 2: SUITE 270 - LB 168 CITY: DALLAS STATE: TX ZIP: 75230 BUSINESS PHONE: 6123308763 MAIL ADDRESS: STREET 1: 5310 HARVEST HILL ROAD STREET 2: SUITE 270 LB 168 CITY: DALLAS STATE: TX ZIP: 75230 FORMER COMPANY: FORMER CONFORMED NAME: BURGER KING INVESTORS MASTER L P DATE OF NAME CHANGE: 19941114 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995. Commission File Number 1-9079 U.S. RESTAURANT PROPERTIES MASTER L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 41-1541631 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 5310 Harvest Hill Rd., Suite 270, LB 168, Dallas, Texas 75230 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) 214-387-1487 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Units Representing Limited Partnership New York Stock Exchange Interests and Evidenced by Depository Receipts
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- The aggregate market value of the Units (based upon the closing price of the Units on February 29, 1996, on the New York Stock Exchange) held by non-affiliates of the Registrant was $111,176,855. As of February 29, 1996, there were 4,987,003 Units outstanding. U.S. RESTAURANT PROPERTIES MASTER L.P. TABLE OF CONTENTS PART I
PAGE ---- Item 1. Business........................................................................ 1 Item 2. Properties...................................................................... 7 Item 3. Legal Proceedings............................................................... 14 Item 4. Submission of Matters to a Vote of Security-Holders............................. 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................................................... 15 Item 6. Selected Financial Data......................................................... 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 17 Item 8. Financial Statements and Supplementary Data..................................... 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................... 19 PART III Item 10. Directors and Executive Officers of the Registrant.............................. 19 Item 11. Executive Compensation.......................................................... 20 Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 21 Item 13. Certain Relationships and Related Transactions.................................. 22 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................ 23
PART I ITEM 1.BUSINESS GENERAL U.S. Restaurant Properties Master L.P. (the "Partnership") owns properties on which chain restaurants operate. The Partnership, formerly Burger King Investors Master L.P., was formed in 1986 by Burger King Corporation ("BKC") and QSV Properties Inc. ("QSV"), at that time a wholly-owned subsidiary of The Pillsbury Company ("Pillsbury"). In May 1994, QSV was sold to a management and investor group led by Robert J. Stetson and Fred H. Margolin (the "Stetson/Margolin Group"), who have no affiliation with Pillsbury. In 1995, the name of QSV was changed to U.S. Restaurant Properties, Inc. U.S. Restaurant Properties, Inc. is the Managing General Partner of the Partnership. BKC was a Special General Partner of the Partnership until its withdrawal on November 30, 1994. The Partnership operates through U.S. Restaurant Properties Operating L.P. (the "Operating Partnership"), formerly Burger King Operating Limited Partnership, which holds the interests in the Properties. Through its ownership of all of the limited partnership interest in the Operating Partnership, the Partnership owns a 99.01 percent partnership interest in the Operating Partnership. (The Partnership and the Operating Partnership are generally referred to collectively herein as the "Partnership" or the "Partnerships," and all references herein to the Partnership when used with respect to the acquisition, ownership and operation of the Properties refer to the combined operations of the Partnership and Operating Partnership.) The Partnerships are Delaware limited partnerships and will continue in existence until December 31, 2035, unless sooner dissolved or terminated. The principal executive offices of the Partnership and the Managing General Partner are located at 5310 Harvest Hill Road, Suite 270, Dallas, Texas 75230, telephone number (214) 387-1487. The Partnership's agreement of limited partnership was amended by vote of the limited partners in March 1995 to expand the purpose of the Partnership. See "- Business Strategy," below. PROPERTIES As of February 29, 1996, the Partnership owned or leased 162 properties located in 37 states (collectively, the "Properties"). Of such Properties, 143 in 37 states were leased to franchisees of BKC (and also to BKC) who operate BURGER KING (a registered trademark and service mark of BKC) restaurants ("BK Restaurants"). Such Properties are referred to herein as the "BK Properties." The remaining 19 Properties in five states were leased to non-BKC restaurant operators who operate other restaurants on the Properties. All such other Properties are referred to herein as the "Non-BK Properties." All restaurants operated on Partnership Properties are collectively referred to herein as the "Restaurants." Additional information regarding the Properties is set forth below under "Item 2. Properties." BUSINESS STRATEGY Since the Partnership's agreement of limited partnership was amended in March 1995 to expand the purpose of the Partnership, the principal business objective of the Partnership has been to expand and diversify the Partnership's restaurant property portfolio through the acquisition of additional fast-food and casual dining restaurant properties. The Partnership intends to achieve growth and diversification while -1- maintaining low portfolio investment risk through adherence to proven acquisition criteria with a conservative capital structure. Since March 1995, the Partnership has acquired 39 restaurant properties in 13 states. Of such properties, 22 are Burger King restaurants and the remainder operate under 12 other tradenames. The Partnership has an additional 108 restaurant properties located in 20 states under letters of intent or contracts for acquisition. Such properties represent seven transactions in various stages of negotiation and due diligence and there can be no assurance that such transactions will be closed. Such acquisitions represent an aggregate consideration of $57 million. Of such properties, 28 are BK restaurant properties, 37 are Dairy Queen restaurant properties, 26 are Hardee's restaurant properties, 11 are Pizza Hut restaurant properties and six restaurants are operated under other tradenames. The Partnership also intends to make loans to tenants to renovate and improve their restaurants, purchase additional restaurant properties and related equipment, construct new Properties and finance the improvement of existing Properties and the purchase of additional restaurant properties and related property through borrowings and the issuance of additional units representing limited partnership interests in the Partnership ("Units"). The Partnership believes that the Partnership can foster improved operating results at selected Properties, encourage renewal of expiring leases and reduce the likelihood of having to rebuild the existing Properties at the Partnership's expense if it assists tenants in repairing and updating their restaurants. The Partnership also believes that diversification of the Partnership's restaurant property portfolio would lessen the dependence of the Partnership's performance on one chain. INVESTMENT CRITERIA. The Partnership intends to acquire additional restaurant properties of national and regional fast food or casual dining restaurant chains, which may include Burger King, that satisfy some or all of the following criteria: The contractually fixed rent or the historical total rent on such restaurant properties has provided cash flow that, after management fees and any related interest and debt amortization, would improve the Partnership's cash flow per Unit from the Properties currently in the Partnership's portfolio. The respective restaurants' sales would be in the highest 70 percent of the restaurants in their chain. The respective restaurants would have historically generated at least the normal profit for restaurants in their chain and would continue to generate a profit even if their sales decreased by 20 percent. The restaurant properties would be located in neighborhoods where the average per capita income was stable or increasing. The percentage rent from the restaurant properties would have a reasonable possibility of increasing. The respective restaurants' franchisees would possess significant net worth and preferably operate multiple restaurants. The restaurant properties would be in good repair. -2- No assurance exists, however, that the Partnership will be able to identify any restaurant property satisfying all or a significant number of the above criteria, or that if identified, the Partnership will be able to purchase such restaurant property as contemplated by its expanded business strategy. When purchasing additional restaurant properties, the Partnership also intends to emphasize higher base rents and de-emphasize percentage rents. The Partnership's initial goal is to purchase additional properties principally by utilizing the borrowing capacity, on a secured recourse or non-recourse basis, management believes is represented by the Partnership's existing properties. Purchases might also be made through the issuance of additional Units. The Partnership believes that seller financing will generally not be available for the purchase of additional restaurant properties. The use of borrowings, together with the addition of restaurant properties not operated as BK Restaurants, represents a new direction in the Partnership's business strategy. The Partnership intends to finance the acquisition of additional properties principally by using borrowing capacity, on a secured recourse or non-recourse basis, of the Partnership's existing Properties, through the issuance of additional Units, or the Partnership's $40 million revolving credit agreement with a group of banks. The proceeds of any borrowing are expected to be used to acquire additional restaurant properties. The credit agreement expires June 27, 1998 and provides that borrowings under the agreement will bear interest at 180 basis points over the London Interbank Rate (LIBOR). The borrowings are secured by the Partnership's interest in the real estate and leases owned by the Partnership. At February 29, 1996, approximately $20 million remained available under the credit agreement. The Partnership believes that seller financing will not be available for the purchase of additional restaurant properties. During 1995, three properties were acquired in part for 54,167 Units. As a term of the acquisition, the Partnership agreed, in the event the market price for the Units issued did not equal or exceed $24 per Unit three years from the date of issuance and such Units were still held on such date by the seller of the properties, to pay the difference in cash. In connection with the acquisition of ten properties in 1996, the Partnership agreed, as a term of those acquisitions, in the event the market price for the Units issued did not equal or exceed $23 per Unit (as to 28,261 Units) three years from the date of issuance or $24 per Unit (as to 299,575 Units) two years from the date of issuance and such Units were still held on such date by the sellers of the properties, to pay the difference by the issuance of additional Units. DISTRIBUTIONS AND ALLOCATIONS CASH FLOW DISTRIBUTIONS. Net cash flow from operations of the Partnership that is distributed is allocated 98.02 percent to the Unitholders and 1.98 percent to the Managing General Partner until the Unitholders have received a simple (non-cumulative) annual return for such year equal to 12 percent of the Unrecovered Capital Per Unit (i.e., $20.00 (the original offering price in 1986) reduced by any prior distributions of net proceeds of capital transactions); then any distributed cash flow for such year is allocated 75.25 percent to the Unitholders and 24.75 percent to the Managing General Partner until the Unitholders have received a total simple (non-cumulative) annual return for such year equal to 17.5 percent of the Unrecovered Capital per Unit; and then any excess distributed cash flow for such year is allocated 60.4 percent to the Unitholders and 39.6 percent to the Managing General Partner. Thus, for example, until a further distribution of net proceeds of a capital transaction occurs (three such capital distributions have occurred to date, one in 1989 of $0.08 per unit, and two in 1993 totalling $0.24), the -3- Unitholders receive 98.02 percent of any net cash flow distributed for each year until they have received distributions of $2.39 per Unit for such year; then the Unitholders receive 75.25 percent of any cash flow distributed for such year until they have received aggregate distributions of $3.49 per Unit for such year; and then the Unitholders receive 60.4 percent of any excess cash flow distributed for such year. The Partnership may retain otherwise distributable cash flow to the extent the Managing General Partner deems appropriate. DISTRIBUTIONS OF PROCEEDS FROM CAPITAL TRANSACTIONS. Net proceeds from financing and sales or other dispositions of the Properties (interim and liquidating) are allocated 98.02 percent to the Unitholders and 1.98 percent to the Managing General Partner until the Unitholders have received an amount equal to the Unrecovered Capital Per Unit (initially $20.00 per Unit) plus a cumulative, simple return equal to 12 percent of the balance of their Unrecovered Capital Per Unit outstanding from time to time (to the extent not previously received from distributions of prior capital transactions); then such proceeds are allocated 75.25 percent to the Unitholders and 25.75 percent to the Managing General Partner until the Unitholders have received a total cumulative, simple return equal to 17.5 percent of the Unrecovered Capital Per Unit; and then such proceeds are allocated 60.4 percent to the Unitholders and 39.6 percent to the Managing General Partner. The Partnership may retain otherwise distributable net proceeds from financing and sales or other dispositions of the Properties to the extent the Managing General Partner deems appropriate. TAX ALLOCATIONS. Operating income and loss of the Partnership for each year generally is allocated between the Managing General Partner and the Unitholders in the same aggregate ratio as cash flow is distributed for that year. Gain and loss from a capital transaction generally is allocated among the Partners in the same aggregate ratio as net proceeds of the capital transaction are distributed except to the extent necessary to reflect capital account adjustments. In the case of both operating income or loss and gain or loss from capital transactions, however, the amount of such income, gain or loss allocated to the Managing General Partner and the Unitholders for the year will not necessarily equal the total cash distributed to the Managing General Partner and the Unitholders for such year. Upon the transfer of a Unit, tax items allocable thereto generally will be allocated among the transferor and the transferee based on the period during the year that each owned the Unit, with each Unitholder on the last day of the month being treated as a Unitholder for the entire month. Although the recent amendments have given the Managing General Partner greater discretion to make a Section 754 election on behalf of the Partnership, no Section 754 election has yet been made PAYMENTS TO THE MANAGING GENERAL PARTNER The Partnership pays the Managing General Partner a non-accountable annual allowance designed to cover the costs that the Managing General Partner incurs in connection with the management of the Partnership and the Properties (other than reimbursements for out-of-pocket expenses paid to other parties). The annual allowance is adjusted annually to reflect any cumulative increases in the Consumer Price Index occurring after January 1, 1986, and was $585,445 for the year ended December 31, 1995, and will be $600,081 for the year ending December 31, 1996. The allowance is paid quarterly, in arrears. To compensate the Managing General Partner for its efforts and increased internal expenses with respect to the addition of properties, the Partnership will pay the Managing General Partner, with respect to each additional property purchased: (i) a one-time acquisition fee equal to one percent of the purchase price for such property and (ii) an annual fee equal to one percent of the purchase price for such -4- property, adjusted for increases in the Consumer Price Index. For 1995, the one-time acquisition fee equaled $109,238 which was capitalized and the increase in the annual fee equaled $29,375. In addition, if the Rate of Return (as defined) on the Partnership's equity in all additional properties exceeds 12 percent per annum for any fiscal year, the Managing General Partner will be paid an additional fee equal to 25 percent of the cash flow received with respect to such additional properties in excess of the cash flow representing a 12 percent Rate of Return thereon. However, to the extent the Managing General Partner receives distributions in excess of those provided by its 1.98 percent Partnership interest, such distributions will reduce the fee payable with respect to such excess cash flow from any additional properties. See "Item 1. Business. - Distributions and Allocations - Cash Flow Distributions." and "Item 13. Certain Relationships and Related Transactions." Except as provided above, such payments are in addition to distributions made by the Partnership to the Managing General Partner in its capacity as partner in the Partnership. EMPLOYEES AND MANAGEMENT The Partnership has no employees. The Managing General Partner, which is responsible for the management of the Partnership and the Properties, employed five individuals during 1995 on either a full-time, part-time or independent contractor basis. In addition, the Managing General Partner hired other parties in connection with the operations of the Partnership and the Properties. The Partnership may pay or reimburse the Managing General Partner for payments to affiliates for goods or other services if the price and the terms for providing such goods or services are fair to the Partnership and not less favorable to the Partnership than would be the case if such goods or services were obtained from or provided by an unrelated third party. In addition, the Managing General Partner obtains certain services, including investor tax reporting services, accounting services, audit services, depository and transfer agent services, banking services, legal services, consultant services and printing services from unrelated third parties. REVOLVING LINE OF CREDIT AND LOANS TO PARTNERSHIP The Managing General Partner has agreed to make available to the Partnership an unsecured, interest-free, revolving line of credit in the principal amount of $500,000 to provide the Partnership with necessary working capital to minimize or avoid seasonal fluctuation in the amount of quarterly cash distributions. The Managing General Partner is not required, however, to make financing available under this line of credit before the Partnership obtains other financing, whether for acquisitions, reinvestment, working capital or otherwise. No loans from the Managing General Partner were outstanding at any time during the three years ended December 31, 1995. CONFLICTS OF INTEREST AND INDEPENDENT CONSULTANT The Partnership is subject to various conflicts of interest arising out of its relationship with the Managing General Partner including the ability to acquire for its own account properties of the type sought to be purchased by the Partnership as part of its expanded business plan and the fees to be paid to the Managing General Partner in respect of additional restaurant properties acquired by the Partnership. As a result of such conflicts, certain actions or decisions of the Managing General Partner may have an adverse effect on the interests of the Unitholders although the grant to the Managing General Partner of -5- options to purchase Units in connection with the recent amendments to the Partnership Agreement was intended to mitigate such conflicts of interest. The Partnership Agreement permits the Managing General Partner to consult with an Independent Consultant as to whether any action or proposed action affecting the Partnership or its business is contrary to the interest of the Partnership. The Partnership Agreement provides that any action taken by the Managing General Partner that is in accordance with the Independent Consultant's advice conclusively will be deemed to be fair to and in the best interest of the Partnership and not to constitute a breach of any duty to the Partnership or the Unitholders. The Partnership Agreement also provides that the Managing General Partner's decision either not to consult with, or not to act in accordance with the advice of, the Independent Consultant on a particular matter will not be considered evidence that the Managing General Partner failed to act in the interests of the Partnership or breached any duty to the Partnership or the Unitholders. During the year ended December 31, 1995, the Managing General Partner had no reason to consult with the Independent Consultant. FIDUCIARY RESPONSIBILITIES OF THE MANAGING GENERAL PARTNER AND INDEMNIFICATION The Partnership Agreement provides that the Managing General Partner and its affiliates, officers, directors, agents, and employees will not be liable to the Partnership or to any of the Unitholders for any actions that do not constitute actual fraud, gross negligence, or willful or wanton misconduct if the Managing General Partner or such other person acted (or failed to act) in good faith and in a manner it believes to be in, or not opposed to, the interest of the Partnership. Therefore, the Unitholders have a more limited right against the Managing General Partner than they would have absent the limitations in the Partnership Agreement. The Partnership also indemnifies the Managing General Partner and such persons and entities against all liabilities, costs, and expenses (including legal fees and expenses) incurred by the Managing General Partner or any such person or entity arising out of or incidental to the business of the Partnership, including without limitation, liabilities under the federal and state securities laws if (i) the Managing General Partner or such person or entity acted (or failed to act) in good faith and in a manner it believed to be in, or not opposed to, the interests of the Partnership and, with respect to any criminal proceedings, had no reasonable cause to believe such conduct was unlawful; and (ii) the conduct of the Managing General Partner or of such person or entity did not constitute actual fraud, gross negligence, or willful or wanton misconduct. A successful indemnification of the Managing General Partner could deplete the assets of the Partnership unless the Partnership's indemnification obligation is covered by insurance. The Partnership's indemnification obligation is currently not covered by insurance. No determination has been made whether to attempt to secure such insurance, which may not be available at a reasonable price or at all. Any Unitholder who recovers from any indemnified party an amount for which the indemnified party is entitled to indemnification will be personally liable to the Partnership and the indemnified party (in aggregate) for and to the extent of such amount. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to persons controlling the Partnership pursuant to the foregoing provisions, or otherwise, the Partnership has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a controlling person of the Partnership in the successful defense of any action, suit or proceeding) is asserted by such controlling person, the Partnership will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction -6- the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. COMPETITION The Restaurants operated on the Properties are subject to significant competition (including, for example, competition from other national and regional "fast food" restaurant chains, other BK Restaurants (including mobile restaurants), local restaurants, restaurants owned by BKC or affiliated entities, national and regional restaurant chains that do not specialize in "fast food" but appeal to many of the same customers as do "fast food" restaurants, and other competitors such as convenience store and supermarkets that sell ready-to-eat food. The success of the Partnership depends, in part, on the ability of the Restaurants operated on the Properties to compete successfully with such businesses. The Partnership does not anticipate that it will seek to engage directly in or meet such competition. Instead, the Partnership will be dependent upon the experience and ability of the lessees operating the Restaurants located on the Properties and, with respect to its BK Properties, the BKC system generally to compete with these other restaurants and similar operations. The Partnership believes that the ability of its lessees to compete is effected by their compliance with the image requirements at their restaurants. PARTNERSHIP AGREEMENT All Unitholders are bound by the terms and conditions of the Partnership Agreement (including, without limitation, provisions thereof relating to conflicts of interest, limitations on liability, and indemnification of the Managing General Partner), a copy of which is available upon request (without charge) at the offices of the Partnership or the Depositary, American Stock Transfer and Trust Company, 40 Wall Street, New York, NY 10005. ITEM 2. PROPERTIES GENERAL The Partnership acquired 128 properties from BKC on February 27, 1986 for a total purchase price of $94,592,000. From such date through March 1995, five of such properties were sold or leases on such properties were allowed to expire and were not renewed. Since the business strategy of the Partnership was changed in March 1995 as a result of the amendments to the partnership agreement, the Partnership has acquired 39 restaurant properties in 13 states. Of such properties, 22 are Burger King restaurants and the remainder encompass 12 other tradenames. The Partnership has an additional 108 restaurant properties located in 20 states under letters of intent or contracts for acquisition. Such properties represent seven transactions in various stages of negotiation and due diligence and there can be no assurance that such transactions will be closed. Such acquisitions represent an aggregate consideration of $57 million. Of such properties, 28 are BK restaurant properties, 37 are Dairy Queen restaurant properties, 26 are Hardee's restaurant properties, 11 are Pizza Hut restaurant properties and six restaurants are operated under other tradenames. The Partnership also intends to make loans to tenants to renovate and improve their restaurants, purchase additional restaurant properties and related equipment, construct new Properties and finance the improvement of existing Properties and the purchase of additional restaurant properties and related property through borrowings and the issuance of additional Units. -7- PROPERTIES The Partnership property portfolio currently consists of 99 Properties that are owned in fee simple (the "Fee Properties") and 63 Properties that are leased (the "Leasehold Properties") under leases with third-party lessors (the "Primary Leases"). The table below lists, as of February 29, 1996, the number of Properties in each state and how many of such properties are Fee Properties and Leasehold Properties.
FEE LEASEHOLD STATE PROPERTIES PROPERTIES TOTAL - ----- ---------- ---------- ----- Arizona 6 4 10 Arkansas 2 3 5 California 8 6 14 Colorado 3 0 3 Connecticut 0 2 2 Delaware 1 0 1 Florida 7 2 9 Georgia 4 1 5 Illinois 1 0 1 Indiana 1 0 1 Iowa 0 2 2 Kansas 1 0 1 Kentucky 1 1 2 Maine 3 1 4 Maryland 0 2 2 Massachusetts 1 1 2 Michigan 3 0 3 Minnesota 0 1 1 Missouri 2 0 2 Montana 0 1 1 Nebraska 1 0 1 Nevada 1 0 1 New Jersey 2 3 5 New Mexico 1 0 1 New York 2 2 4 North Carolina 2 1 3 Ohio 2 5 7 Oklahoma 5 0 5 Oregon 3 2 5 Pennsylvania 1 8 9 South Carolina 6 2 8 Tennessee 1 1 2 Texas 23 1 24 Vermont 0 1 1 Washington 2 6 8 West Virginia 0 2 2 Wisconsin 3 2 5 --- --- --- 99 63 162
-8- The Properties are leased to a total of 104 different BKC franchisees and 14 other restaurant operators. Except for BKC, none of the lessees operates a Restaurant on more than three Properties, and only 18 of the lessees operate a Restaurant on more than one BK Property. Seven Properties are leased to BKC. The restaurant on one of the Properties is closed and a new lessee is being sought. A portion of one Property is subleased, pursuant to an agreement entered into prior to the acquisition of the Property by the Partnership, to Pearle, Inc., an affiliate of BKC. All equipment, furniture, fixtures, and other similar personal property used on the Properties generally is owned or leased from third parties by the lessee of the Property. PRIMARY LEASES. As described above, 63 of the Properties are Leasehold Properties. Under the terms of 13 Primary Leases, the Partnership leases both the underlying land and the restaurant building and other improvements thereon. Under the terms of the remaining 50 Primary Leases, the Partnership leases the underlying land and owns the restaurant building and other improvements constructed thereon. In any event, upon expiration or termination of a Primary Lease, the owner of the underlying land will become the owner of all improvements thereon. In addition to variations required to reflect whether the Partnership owns or leases the improvements on a Leasehold Property, the other terms and conditions of the Primary Leases vary substantially. However, the Primary Leases generally have certain provisions in common. For example, the Primary Leases generally provide that (i) the initial term is 20 years or less, (ii) the Partnership may renew the term one or more times at its option (although the provisions governing any such renewal vary significantly in that, for example, some renewal options are at a fixed rental amount, while others are at fair rental value at the time of renewal), (iii) the rentals payable are stated amounts that may escalate over the terms of the Primary Leases (and/or during renewal terms) but normally (although not always) are not based upon a percentage of sales of the Restaurants thereon, and (iv) the Partnership is required to pay all taxes and operating, maintenance, and insurance expenses for the Leasehold Properties (that is the Primary Leases are "net" leases). Several Primary Leases also require the Partnership, upon the termination or expiration thereof, to remove all improvements situated on the Property. Although the Partnership, as lessee under each Primary Lease, generally has the right to assign or sublet all of its rights and interests thereunder without obtaining the landlord's consent, the Partnership is not permitted to assign or sublet any of its rights or interests under 22 Primary Leases without obtaining the landlord's consent or satisfying certain other conditions. In addition, approximately 20 percent of the Primary Leases require the Partnership to use such Leasehold Properties only for the purpose of operating a BK Restaurant or another type of restaurant thereon. In any event, no transfer will release the Partnership from any of its obligations under the Primary Lease, including the obligation to pay rent. The fact that all applicable conditions were satisfied in connection with the Partnership's acquisition of such Leasehold BK Properties will not permit the Partnership to transfer such Leasehold BK Properties in the future without again satisfying such conditions. As of December 31, 1995, the remaining terms of the Primary Leases for all of the Leasehold BK Properties (excluding renewal option terms) ranged from approximately 1 to 11 years and the average remaining term (excluding renewal options terms) was 5 years. With renewal options exercised, the remaining terms of the Primary Leases ranged from approximately 8 to 33 years and the average remaining term was 20 years. Only 25 Primary Leases had a remaining term (including renewal option terms) of less than 25 years. -9- LEASES. As described above, 115 of the BK Properties are leased or subleased to a BKC franchisee under a Lease/Sublease, pursuant to which the franchisee is required to operate a BK Restaurant thereon in accordance with the lessee's Franchise Agreement and to make no other use thereof. Upon its acquisition of the BK Properties, the Partnership assumed the rights and obligations of BKC under the Leases/Subleases. Five Properties are leased to Burger King on substantially the same terms and conditions as those contained in the Lease/Sublease with the prior lessees. A portion of one of the BK Properties also is leased to a tenant that does not operate a Restaurant, and this lease was also assumed by the Partnership. Two properties are leased to lessees operating "fast food" type restaurants not franchised by or affiliated with BKC. Although the provisions of BKC's standard form of lease to franchisees have changed over time, the material provisions of the Lease/Subleases generally are substantially similar to BKC's current standard form of lease (except to the extent BKC has granted rent reductions or deferrals or made other lease modifications in order to alleviate or lessen the impact of business or other economic problems that a franchisee may have encountered). The Leases/Subleases generally provide for a term of 20 years from the date of opening of the Restaurant and do not grant the lessee any renewal options. The Partnership, however, is required to renew a Leases/Sublease if BKC renews or extends the lessee's Franchisee Agreement. The Partnership believes BKC's policy generally is to renew a Franchise Agreement if BKC determines, in its sole discretion, that economic and other factors justify renewal or extension and if the franchisee has complied with all obligations under the Franchise Agreement. As of December 31, 1995, the remaining terms of all the Leases range from approximately 1 to 15 years, the average remaining term was 6 years, and 24 Leases/Subleases had a remaining term of more than 10 years. The Leases/Subleases generally require the franchisees to pay minimum rent, percentage rent (based upon sales) in excess of minimum rent, and all taxes and operating, maintenance, and insurance costs for the Properties (that is, the Leases/Subleases are "net" leases). Minimum rent is payable monthly and generally is equal to 13.4 percent or 14.5 percent (depending on when the Lease/Sublease was executed) of BKC's "investment" in the BK Property (which investment generally is determined on the basis of BKC's land acquisition cost (if any), certain construction and other costs (if any), and capitalized interest, rent and taxes (if any)) plus, in the case of a Leasehold Property, 113.4 percent or 114.5 percent (depending on when the Lease/Sublease was executed) of all periodic Primary Lease rent payments after the construction period. Percentage rent generally is payable quarterly with an annual adjustment and is equal to the amount (if any) by which a specified percentage (typically 8.5 percent) of the franchisee's sales at the Property for each lease year exceeds the minimum rent. The term "sales" includes all sums charged for goods, merchandise or services sold at or from the BK Property; the term excludes any federal, state, county or city sales tax, excise tax or other similar taxes collected by a franchisee from customers based on sales, as well as cash received as payments in credit transactions where the extension of credit itself has already been included in the figure on which any previous percentage rent has been computed. In the case of Leasehold BK Properties, the Leases/Subleases generally provide that the minimum rent thereunder (but not percentage rent) will increase to reflect any increase in rent under the corresponding Primary Lease. If the franchisee is paying percentage rent at the time of such an increase, however, an increase in rent under a Primary Lease will not be borne by the franchisee, and this will result in a decrease in the net revenue derived by the Partnership from such BK Property. USE AND OTHER RESTRICTIONS ON THE OPERATION AND TRANSFER OF BK RESTAURANT PROPERTIES. The Partnership was originally formed for the purpose of acquiring all of BKC's interests in the existing BK Properties and leasing or subleasing them to BKC franchisees under the Leases/Subleases. Accordingly, -10- the Partnership Agreement provides that, except as expressly permitted thereby, the Partnership may not use its BK Restaurant Properties for any purpose other than the operations thereon of a BK Restaurant. In furtherance thereof, the Partnership Agreement (i) requires the Partnership, in certain specified circumstances, to renew or extend a Lease/Sublease and enter into a new lease with another franchisee of BKC, to approve an assignment of a Lease/Sublease, to permit BKC to assume a Lease/Sublease at any time, and to renew a Primary Lease, and (ii) imposes certain restrictions and limitations upon the Partnership's ability to sell, lease, or otherwise transfer any interest in its BK Restaurant Properties. The Partnership Agreement also requires the Partnership to provide BKC notice of default under a Lease/Sublease and an opportunity to cure such defaults prior to taking any remedial action. These restrictions could lapse with respect to a particular Property if the Partnership were to transfer that Property to a third party following BKC's failure to exercise its right of first refusal (as described below). The Partnership Agreement, however, specifically provides that the Managing General Partner is under no obligation to seek to sell any BK Restaurant Property or to consider any offer to purchase any BK Restaurant Property so long as BKC maintains a Franchise Agreement in effect with respect to the BK Property or itself operates a BK Restaurant on the BK Property. The Partnership Agreement provides that the Partnership may not sell, lease or otherwise transfer any of its interest in any BK Restaurant Property without first offering to sell, lease or otherwise transfer to BKC such interest at the price and on the terms and conditions contained in a bona fide third-party offer. BKC generally must elect whether or not to exercise its right to acquire such interest in the BK Property pursuant to its right of first refusal within 30 days after its receipt of the offer. The foregoing restrictions do not apply to any restaurant property acquired after March 17, 1995 so long as a BK Restaurant is not located thereon. The Partnership Agreement does not restrict the restaurant properties that the Partnership may acquire after such date. RESTAURANT ALTERATIONS AND RECONSTRUCTION. It is important that existing Properties be improved, expanded, rebuilt, or replaced from time to time. In addition to normal maintenance and repair requirements, each franchisee is required under BKC's Franchise Agreement and Lease/Sublease, at its own cost and expense, to make such alterations to a BK Restaurant as may be reasonably required by BKC from time to time in order to modify the appearance of the restaurant to reflect the then current image requirements for BK Restaurants. Most of the existing BK Properties are 15 to 20 years old, and the Partnership believes that many of its existing BK Properties require substantial improvements to maximize sales. Moreover, the conditions of many of the BK Properties is below BKC's current image requirements. BKC maintains a "Successor Policy" relating to the renewal and extension of Franchise Agreements with BKC franchisees. In connection with such renewals and extensions, the "Successor Policy" includes provisions intended to encourage the reconstruction, expansion or other improvement of the older BK Restaurants leased or subleased by BKC to franchisees in order to upgrade those restaurants to BKC's current standards for physical facilities and to take advantage of opportunities that may exist to increase sales through improving an existing restaurant's facilities (for example, by increasing parking or seating capacity or by adding a "drive-thru" facility). Substantially all of the Partnership's existing Properties will be subject to the "Successor Policy" over the next seven years. Under the current "Successor Policy," (i) a restaurant leased by BKC to a franchisee where the Franchise Agreement is scheduled to expire within five years or (ii) a restaurant leased by BKC to a franchisee where the property and improvements are more than ten years old and the -11- Franchise Agreement is at least two years old and has more than five years remaining on its term, may qualify for financial assistance if BKC, in its sole discretion, determines that the restaurant should be improved under the "Successor Policy." If BKC determines that a restaurant should be reconstructed under the "Successor Policy" and BKC elects to pay the cost of such reconstruction, then the terms of the Lease/Sublease and the Franchise Agreement with respect to such restaurant are extended, the minimum rent payable under the Lease/Sublease is increased, but the applicable percentage rent rate under the Lease/Sublease generally will remain at (or increase to) 8.5 percent. If, however, BKC elects not to pay the cost of reconstructing a particular restaurant but the franchisee, with BKC's consent, agrees to pay the cost thereof, then the terms of the Lease/Sublease and the Franchise Agreement are extended, the minimum rent under the Lease/Sublease is increased, and the percentage rent payable under such Lease/Sublease is permanently reduced (generally from 8.5 percent to 5.5 percent of annual sales). In addition, the franchisee may be granted a reduction or abatement of rent for up to 60 days while the reconstruction is underway. The Partnership believes that some of the requirements of the "Successor Policy," if invoked, could have a negative effect on the Partnership's cash flow and borrowing capacity. The Partnership believes, however, that because of BKC's regulations to partially subsidize this process, there will be little incentive for BKC to invoke this policy on properties that are in good repair and condition. The Partnership Agreement requires the Managing General Partner to cause the Partnership to implement those aspects of BKC's "Successor Policy" related to reconstruction of BK Restaurants as such policy currently is in effect and as it may be revised from time to time, with respect to any BK Restaurant Property or Properties that BKC in its discretion, decides should be reconstructed under the "Successor Policy". The Partnership generally is required to extend the Lease/Sublease with respect to any Property reconstructed pursuant to the "Successor Policy," and, in the discretion of BKC, either to pay for the cost of reconstruction directly or to reduce the percentage rent rate under such Lease/Sublease if the franchisee pays the cost of reconstruction. BKC, however, must pay to the Partnership an amount equal to the portion of the cost of any reconstruction undertaken or any rent reduction granted, as the case may be, determined by reference to BKC's relative share (i.e., the franchisee royalty fee, (but excluding amounts required to be expended for advertising and other income received by BKC)) of the total rental and royalty income derived by BKC and the Partnership from the Property. BKC's obligation to make payments to the Partnership in connection with a rent reduction pursuant to the "Successor Policy" would continue for the remainder of the term of the Lease/Sublease, even if the Partnership were to transfer the Property prior to expiration of the Lease/Sublease. In addition, BKC would subsidize a portion of the 60-day reduction or abatement in rent while the construction is completed under the provisions for "rent relief" described below. BKC, in its sole and absolute discretion, may modify or discontinue at any time the current version or any subsequent version of the "Successor Policy," but such a change would not affect the basis on which the Partnership and BKC will share the cost of any reconstruction undertaken pursuant to the "Successor Policy." In addition to the reconstruction of BK Restaurants under the "Successor Policy" BKC has the right under the Partnership Agreement to require the Partnership to acquire land adjacent to a BK Restaurant Property if such land is necessary for the expansion of the BK Restaurant on the Property (for example, to provide additional parking facilities), even though the expansion is not undertaken pursuant to the "Successor Policy." However, BKC is required to pay the Partnership a portion of the cost of any -12- such adjacent land, determined under the formula described above in connection with the "Successor Policy." The Partnership believes that it can reduce the likelihood of having to rebuild the restaurant properties at the Partnership's expense, if it assists tenants in repairing and updating their restaurants. In many cases, the tenants have difficulty borrowing to finance improvements to the restaurants because they do not own them. The recent amendments to the Partnership Agreement permit the Partnership to make loans to tenants for such purposes. The Partnership would realize interest income from these loans, with the possibility of receiving increased percentage rent because of increased sales at the improved restaurants. As an alternative, the Partnership is also permitted to make and provide for such improvements through increased rents on the properties. The Partnership envisions that the typical repairs and updates that tenants would make would involve constructing playgrounds, repairing roofs and parking lots, and generally remodeling a restaurant to conform to Burger King's current image requirements. The Partnership believes that if the "Successor Policy" is invoked, the increased base rent and any incremental percentage rent on the improved restaurant property would be insufficient to compensate the Partnership adequately for its rebuilding costs. As a consequence, the cash flow of the Partnership could be adversely effected by implementation of the "Successor Policy." The Partnership believes that because the "Successor Policy" includes payments by BKC, it would not be in BKC's economic interest to invoke the "Successor Policy" with respect to restaurant properties that have already been renovated and updated. The Partnership believes that it is unlikely that a tenant would elect to pay for the improvements itself because any improvements would belong to the Partnership. RENT RELIEF. In connection with Properties leased or subleased by BKC to franchisees, BKC, from time to time, in its discretion, has granted "rent relief" to a limited number of franchisees, in the form of a permanent or temporary reduction of rent payment otherwise owed, in order to alleviate or lessen the impact of business or other economic problems that those franchisees have encountered. The Partnership Agreement provides that the Managing General Partner, in its discretion, may cause the Partnership to grant "rent relief" with respect to a BK Property at the request of BKC or the lessee. Any grant of "rent relief" by the Partnership, however, is subject to the condition that BKC agrees to pay the Partnership a portion of such "rent relief," determined by reference to BKC's relative share (i.e. the franchise royalty fee (but excluding amounts required to be expended for advertising and other amounts received by BKC)) of the total rental and royalty income derived by BKC and the Partnership from such Property. BKC's obligation to make payments to the Partnership would continue for the duration of the rent reduction, even if the Partnership were to transfer the BK Property prior to expiration of the Lease/Sublease. As defined in the Partnership Agreement, "rent relief" is limited to any reduction in rent for a period in excess of 90 days and reductions for 90 days or less that are specifically designated by the Managing General Partner as "rent relief" or that are in connection with the improvement of a BK Restaurant pursuant to BKC's "Successor Policy." No other reduction for a period of 90 days or less would be considered "rent relief." In addition, a franchisee's failure to make a payment of rent under a Lease/Sublease would not be considered "rent relief" if either such Lease/Sublease were to have terminated automatically or the Managing General Partner were to seek to terminate such Lease/Sublease and were to cause the Partnership to initiate and pursue such actions (including, if appropriate, litigation) against the defaulting franchisee as the Managing General Partner, in its sole discretion, determined -13- reasonable under the circumstances. The Partnership would not be entitled to any payment from BKC in these various circumstances that are not considered "rent relief." During the year ended December 31, 1995, the Partnership had not provided "rent relief" for any BK Properties. PERIODIC CONSIDERATION OF SALE OR FINANCING The Partnership Agreement provides that the Managing General Partner may (but is not obligated to) consider at least once every five years, beginning in the year 2000, whether or not it would be in the interest of the Partnership to effectuate a sale and/or financing of all or a portion of the Properties held as of March 17, 1995 in order to return to the Unitholders all or a substantial portion of their unrecovered capital investments in the Partnership. If at any such time the Managing General Partner, in its judgment, determines that such a sale or financing would be in the interest of the Partnership, it will use reasonable efforts to effectuate such a transaction, assuming market conditions permit. In the case of a sale of all or a portion of such Properties on which BK Restaurants are located, BKC would have the right to exercise its right of first refusal to the extent it had not lapsed. ITEM 3. LEGAL PROCEEDINGS From time to time, the Partnership is involved in litigation relating to claims arising in the ordinary course of business. Currently, the Partnership is not a party to any material litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to Unitholders in the quarter ended December 31, 1995. -14- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Partnership's Units are traded on the New York Stock Exchange under the symbol "USV". Quarterly distributions are declared for payment early in the next calendar quarter. The high and low sales prices of the Units and the distributions declared during each calendar quarter of 1994 and 1995 and during 1996 through February 29, 1996 are set forth below:
DISTRIBUTIONS 1996 HIGH LOW DECLARED ---- ---- --- -------------- First Quarter (through February 29) $22 5/8 $19 1/2 $ .44 1995 ---- First Quarter 16 1/2 14 1/4 .42 Second Quarter 17 1/8 15 3/4 .42 Third Quarter 18 7/8 16 3/4 .42 Fourth Quarter 20 1/4 18 .43 ---- 1.69 1994 ---- First Quarter 16 3/4 15 7/8 .37 Second Quarter 17 1/4 15 3/8 .39 Third Quarter 17 1/2 16 3/4 .39 Fourth Quarter 17 3/8 13 .41 ---- 1.56
As of February 29, 1996, there were 1,903 holders of record in the Partnership. In July 1995, the Partnership announced its intention to repurchase up to 300,000 Units. Through December 31, 1995, the Partnership had purchased 30,000 Units and no further repurchases have been made or are presently contemplated. -15- ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED DECEMBER 31 -------------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Total revenues $9,780,289 $8,793,056 $8,331,643 $8,488,597 $8,749,650 Net income 5,222,588 4,932,670 4,527,598 2,485,713 4,032,844 Net income allocable to unitholders 5,119,180 4,834,017 4,437,051 2,436,001 3,952,192 Net income per unit 1.10 1.04 0.96 0.53 0.85 Cash distributions declared per unit 1.69 1.56 1.72* 1.56 1.60
______________ * Includes special capital transaction distributions of $.24.
YEARS ENDED DECEMBER 31 ---------------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Total assets $71,482,739 $62,889,271 $65,322,433 $69,087,205 $74,170,008 Line of credit 10,930,647 -- -- -- -- Capitalized lease obligations 562,544 774,602 965,611 1,137,658 1,301,524 Partners' capital 59,312,150 61,669,151 64,114,638 67,716,869 72,609,312 - --general partners 1,240,604 1,308,543 1,357,447 1,429,488 1,527,332 - --limited partners 58,071,546 60,360,608 62,757,191 66,287,381 71,081,980 - --per unit 12.46 13.02 13.54 14.30 15.34
-16- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS. Total restaurant sales, the primary determinant of Partnership revenues, are a function of the number of restaurants in operation and their performance. Sales at individual restaurants are influenced by local market conditions, by the efforts of specific restaurant operators, and by marketing, new product and program support by the franchiser, and by the general state of the economy. Revenues in 1995 totaled $9,780,289 up 11.2 percent from the $8,793,056 recorded in 1994. Revenues in 1994 were up 5.5 percent from the $8,331,643 recorded in 1993. The partnership owned and leased 122 sites throughout 1994 and 1995. Revenues from these properties were up 6.4 percent in 1995 over 1994. The remaining increase in revenues in 1995 over 1994 is attributable to 16 properties acquired on various dates during 1995. No additions were made to the portfolio during 1994 and 1993. Total sales in the restaurants located on Partnership real estate in 1995 were $135,296,834 up 10.6 percent from the $122,314,903 reported in 1994 which was up 8.4 percent from the $112,880,007 reported for 1993. There were 138, 122 and 121 Partnership restaurant sites in operation on December 31, 1995, 1994 and 1993 respectively. Expenses excluding the provision for write down of properties for the year were $4,557,701, up 18.4 percent from 1994 which was up 3.2 percent from 1993. The increase in expenses was primarily due to the increase in the number of restaurant sites owned by the Partnership and related financing costs. There was no write down of assets and intangible values relating to closed properties during the year. Write downs of $11,061 and $73,739 were made in 1994 and 1993 respectively. Net income allocable to Unitholders in 1995 was $5,119,180 or $1.10 per Partnership Unit, up 5.8 percent or six cents per Unit from $4,837,017 or $1.04 per Unit achieved in 1994. The 1994 results were up 8.3 percent or eight cents per Unit from the 1993 results. Excluding provisions for write down or dispositions of properties, net income allocable to Unitholders was $1.10 in 1995, $1.05 in 1994 and 97 cents in 1993. Regular cash distributions to the Limited Partners for 1995 totaled $1.69 per Unit with 42 cents per Unit paid in the first three quarters and 43 cents in the fourth quarter. Total cash distributions to Unitholders in 1994 and 1993 were $1.56 and $1.72 per Unit, respectively. FUNDS GENERATED FROM OPERATIONS. Industry analysts generally consider funds generated from operations to be an appropriate measure of performance. Funds generated from operations is calculated as the sum of taxable income plus charges for depreciation and amortization. Funds generated from operations does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs and cash distributions. Funds generated from operations should not be considered as an alternative to net income (determined in accordance with generally accepted accounting principles) as an indication of the Partnership's performance or as an -17- alternative to cash flow (determined in accordance with generally accepted accounting principles) as a measure of liquidity. Funds generated from operations on a tax basis allocable to Unitholders in 1995 were $1.78 per Partnership Unit, up 13 cents per Unit from the $1.65 achieved in 1994 which was up 11 cents per Unit from $1.54 in 1993. LIQUIDITY AND CAPITAL RESOURCES. Cash and equivalents on December 31, 1995 totaled $7,127 down $673,519 from December 31, 1994 and down $1,252,976 from December 31, 1993. Year-end 1995 net receivables of $951,095 were up 33 percent and 130 percent from December 31, 1994 and December 31, 1993, respectively, as a result of increases in lease revenues and a change in the procedure for paying property taxes and billing them to the lessees. Since formation, the Partnership has paid all regular distributions from its operating cash flow. Funds generated from operations on a tax basis allocable to Unitholders were seven cents more than the related cash distributions for 1995 earnings, four cents more than the related cash distributions for 1994 earnings and 18 cents per Unit more than the related cash distribution for 1993 earnings. Management of the Partnership believes that cash generated from operations will be sufficient to meet operating requirements. As a result of amendments to the Partnership Agreement approved by the limited partners in March 1995, the Partnership has undertaken a program of substantial capital expenditures for the addition of new properties and to assist existing tenants in the remodeling of their restaurants. To finance these expenditures, the Partnership has incurred debt and issued additional Units. In June 1995, the Partnership obtained a revolving bank credit line in the amount of $10 million (subsequently increased to $20 million and again in February 1996 to $40 million). Borrowings have been used to acquire additional restaurant properties and additional borrowings may also be used to fund additional property acquisitions. The credit agreement expires June 27, 1998 and provides that borrowings under the agreement will bear interest at 180 basis points over the London Interbank Rate (LIBOR). The borrowings are secured by the Partnership's interest in the real estate and leases owned by the Partnership. At February 29, 1996, approximately $20 million remained available under the credit agreement. Interest expense for 1995 was $193,530. At February 29, 1996 the Partnership had an additional 108 restaurant properties located in 20 states under letters of intent or contracts for acquisition. Such properties represent seven transactions in various stages of negotiation and due diligence and there can be no assurance that such transactions will be closed. Such acquisitions will require expenditures of $57 million. Of such properties, 28 are Burger King restaurant properties, 37 are Dairy Queen restaurant properties, 26 are Hardee's restaurant properties, 11 are Pizza Hut restaurant properties and six are restaurant properties operated under other tradenames. The Partnership expects to raise such consideration (and the consideration for future property acquisitions) through the use of the remaining availability under the existing credit agreement, from additional borrowings and from the issuance of additional Units. The Partnership is currently negotiating an additional credit facility which would be used to fund these and other potential acquisitions. There can be no assurance such financing will be available and the failure of the Partnership to obtain such additional financing would adversely impact the Partnership's ability to acquire additional properties. During 1995, three properties were acquired in part for 54,167 Units. As a term of the acquisition, the Partnership agreed, in the event the market price for the Units issued did not equal or exceed $24 per Unit three years from the date of issuance and such Units were still held on such date by -18- the seller of the properties, to pay the difference in cash. In connection with the acquisition of ten properties in 1996, the Partnership agreed, as a term of those acquisitions, in the event the market price for the Units issued did not equal or exceed $23 per Unit (as to 28,261 Units) three years from the date of issuance or $24 per Unit (as to 299,575 Units) two years from the date of issuance and such Units were still held on such date by the sellers of the properties, to pay the difference by the issuance of additional Units. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial information and supplementary data begin on page F-1 of this Annual Report on Form 10-K. Such information is incorporated herein by reference into this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Registrant is a limited partnership (of which U.S. Restaurant Properties, Inc. is the Managing General Partner) and has no directors or officers. The executive officers of the Managing General Partner are Robert J. Stetson, President and Chief Executive Officer, and Fred H. Margolin, Chairman of the Board, Secretary and Treasurer. They have served in such positions and as directors since the acquisition of the Managing General Partner on May 27, 1994. Messrs. Stetson and Margolin serve as executive officers of the Managing General Partner at the pleasure of its board of directors. Mr. Stetson is 45 years old. Since 1978, Mr. Stetson has been primarily engaged in restaurant chain management, including the acquisition and management of restaurant properties. From 1987 until 1992, Mr. Stetson served as a senior executive in restaurant and retailing subsidiaries of Grand Metropolitan PLC, the ultimate parent of Burger King. During this period, Mr. Stetson served as the Chief Financial Officer and later President - - Retail Division of Burger King and Chief Financial Officer and later Chief Executive Officer of Pearle Vision. As Chief Financial Officer of Burger King, Mr. Stetson was responsible for managing more than 750 restaurants that Burger King leased to tenants. Prior to 1987, Mr. Stetson served in several positions with PepsiCo Inc. and its subsidiaries, including Chief Financial Officer of Pizza Hut. Mr. Stetson is also a director of Bayport Restaurant Group and Bugaboo Creek Steakhouse Inc., both publicly-traded restaurant companies. In 1972, Mr. Stetson received a Bachelor of Arts degree from Harvard College. In 1975, Mr. Stetson received an M.B.A. from Harvard Business School. Mr. Margolin is 46 years old. In 1979, Mr. Margolin founded and became the President of American Eagle Premium Finance Company, one of the largest independent premium finance companies in Texas. From 1982 through 1988, Mr. Margolin developed and then leased or sold shopping centers having an aggregate cost of $50,000,000. In 1977, Mr. Margolin founded Intercon General Agency, a national insurance agency specializing in the development and marketing of insurance products for -19- financial institutions. Mr. Margolin served as the Chief Executive Officer of Intercon General Agency from its inception until its sale to a public company in 1982. In 1971, Mr. Margolin received a Bachelor of Science degree from the Wharton School of the University of Pennsylvania. In 1973, Mr. Margolin received an M.B.A. from Harvard Business School. In addition to Messrs. Stetson and Margolin, the board of directors of the Managing General Partner consists of Messrs. Gerald H. Graham, David Rolph, Darrel Rolph, and Eugene G. Taper. Each director serves a one-year term. Mr. Graham, age 58, is the Dean of the Barton School of Business at Wichita State University. David Rolph, age 47, and Darrel Rolph, age 58, own and operate the Tex-Mex restaurant chain, "Carlos O'Kelleys," which has 25 units, and were formerly one of the largest Pizza Hut franchisees. Mr. Taper, age 59, a certified public accountant, is a consultant and a retired partner, since 1993, of Deloitte & Touche LLP, an international public accounting firm. SECTION 16(A) REPORTS. Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires the Managing General Partner, its directors and executive officers, and persons who beneficially own more than 10 percent of the Units to file with the SEC initial reports of Unit ownership and reports of changes in ownership therein. The Managing General Partner, directors and executive officers of the Managing General Partner, and greater than 10 percent owners of the Units are required by SEC regulation to furnish the Partnership with copies of all Section 16(a) forms they file. To the Partnership's knowledge, based solely upon a review of the copies of such reports furnished to the Partnership and written representations that no other reports were required during the year ended December 31, 1995, the Partnership believes that all Section 16(a) filing requirements applicable to the foregoing Managing General Partner, director, executive officers, and greater than 10 percent owners were complied with. The year-end report is not required to be filed if there are no previously unreported transactions or holding to report. Nevertheless, the Partnership is required to disclose the names of directors, executive officers and greater than 10 percent owners who did not file the year-end report, unless the Partnership has received a written statement that no filing was required. As of the date of this report, the Partnership has not received any such statements. ITEM 11. EXECUTIVE COMPENSATION. The Managing General Partner, U.S. Restaurant Properties, Inc., is responsible for managing the business and affairs of the Partnership. The Partnership pays the Managing General Partner a non-accountable annual allowance (adjusted annually to reflect increases in the Consumer Price Index), plus reimbursement of out-of-pocket costs incurred to other parties for services rendered to the Partnerships. The allowance for the years ended December 31, 1995, 1994 and 1993 was $585,445, $542,508 and $528,000, respectively. For 1996, the allowance will be $600,081. For 1995, the one-time property acquisition fee equaled $109,238 which was capitalized and the annual allowance includes $29,375 of increased management fees due to acquisitions. The allowance is paid quarterly, in arrears. The Partnership's accounts payable balance includes $187,204 and $135,627 for this allowance as of December 31, 1995 and 1994, respectively. The Managing General Partner paid no out-of-pocket costs to other parties on behalf of the Partnership during 1995, 1994 and 1993. See "Item 1. Business - Distributions and Allocations" and "- Payments to the Managing General Partner," above, and "Item 13. Certain Relationships and Related Transactions," below. -20- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information regarding the beneficial ownership of the Units and the capital stock of the Managing General Partner (the "U.S. Restaurant Shares"), respectively, as of February 29, 1996 by: (i) all persons who are beneficial owners of 5 percent or more of the Units or the U.S. Restaurant Shares, respectively, (ii) all directors and executive officers of the Managing General Partner, and (iii) all directors and executive officers of the Managing General Partner as a group. The Managing General Partner does not itself own any Units but does hold a partnership interest as a general partner and options to purchase 400,000 Units at $15.50 per Units. The disclosure that no person is the beneficial owner of 5 percent or more of the Units is based upon the Partnership not having received any Schedule 13D or 13G to the contrary on or before February 29, 1996. Unless stated otherwise, the persons named below possess sole voting and investment power with respect to the securities set forth opposite their names.
US RESTAURANT UNITS SHARES ----- ------ NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT - ------------------------------------ ------ ------- ------ ------- Gerald H. Graham 1,400 * 0 0 Dean, Barton School of Business 100 Clinton Hall, Wichita State University Wichita, Kansas 67260 Fred H. Margolin 17,930(1) * 187.5 30 Darrel Rolph 6,000(2) * 125.0 20 David Rolph 3,000 * 125.0 20 Robert J. Stetson 10,600(3) * 187.5 30 Eugene G. Taper 950 * 0 0 6427 Redpine Rd. Dallas, Texas 75248 ------ ----- --- All directors and executive officers of the Managing General Partner as a group (6 persons) 39,880 * 625.0 100
_____________ * Less than one percent. (1) Does not include 4,375 Units held by Mr. Margolin's wife as trustee for their minor children. (2) Does not include 4,000 Units held by Mr. Rolph's wife as trustee for their minor children. (3) Does not include 1,000 Units held by Mr. Stetson as trustee for his minor child. The address for Messrs. Margolin and Stetson is 5310 Harvest Hill Rd., Suite 270, LB 168, Dallas, Texas 75230. The address for Messrs. Darrel Rolph and David Rolph Sasnack Management, is 1877 N. Rock Rd., Wichita, Kansas 67206. -21- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Managing General Partner, U.S. Restaurant Properties, Inc. (formerly QSV), is responsible for managing the business and affairs of the Partnership. The Partnership pays the Managing General Partner a non-accountable annual allowance (adjusted annually to reflect increases in the Consumer Price Index), plus reimbursement of out-of-pocket costs incurred to other parties for services rendered to the Partnerships. The allowance for the years ended December 31, 1995, 1994 and 1993 was $585,448, $542,508 and $528,000, respectively. For 1996, the allowance will be $600,081. For 1995, the one-time property acquisition fee equaled $109,238 which was capitalized and the annual allowance includes $29,375 of increased management fees due to acquisitions. The allowance is paid quarterly, in arrears. The Partnership's accounts payable balance includes $187,204 and $135,627 for this allowance as of December 31, 1995 and 1994, respectively. The Managing General Partner paid no out-of-pocket costs to other parties on behalf of the Partnership during 1995, 1994 and 1993. The Managing General Partner has agreed to make available to the Partnership an unsecured, interest-free, revolving line of credit in the principal amount of $500,000 to provide the Partnership with the necessary working capital to minimize or avoid seasonal fluctuation in the amount of quarterly cash distributions. No loans were made by the Managing General Partner or were outstanding at any time during the years ended December 31, 1995, 1994 and 1993. On March 17, 1995, the limited partners approved the grant to the Managing General Partner of options to purchase 400,000 Units. The exercise price is $15.50 per Unit which was the average closing market price on the New York Stock Exchange for the five trading days immediately following the date of grant. On March 24, 1995, the Managing General Partner assigned its rights to purchase a property in Amarillo, Texas to the Partnership for no consideration. Burger King Corporation withdrew as a Special General Partner in November 1994. On January 20, 1995, the Partnership paid Burger King Corporation $16,000 for its interest in the operating and master limited partnerships. During 1995, the Partnership loaned $255,000 to Arkansas Restaurants #10 L.P. The balance is due September 1, 1996 and bears interest at nine percent per annum. The Managing General Partner owns a 90 percent interest in Arkansas Restaurants #10 L.P. -22- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements. For a list of the consolidated financial statements of the Registrant filed as part of this Annual Report on Form 10-K, see page F-1, herein. (a)(2) Financial Statement Schedules. III. Real Estate and Accumulated Depreciation. (a)(3) For a list of the Exhibits filed as part of this Annual Report on Form 10-K, see page E-1, herein. (b) Reports on Form 8-K. None. (c) Exhibits. The Exhibits filed as part of this Annual Report on Form 10-K are submitted as a separate section. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 29, 1996 U.S. RESTAURANT PROPERTIES MASTER L.P. By: U.S. RESTAURANT PROPERTIES, INC., its Managing General Partner By: s/Robert J. Stetson ------------------- Robert J. Stetson President, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Managing General Partner of the Partnership and in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- s/Robert J. Stetson Director of U.S. Restaurant March 29, 1996 - ------------------- Properties, Inc. Robert J. Stetson s/Fred H. Margolin Director of U.S. Restaurant March 29, 1996 - ------------------ Properties, Inc. Fred H. Margolin s/Eugene G. Taper Director of U.S. Restaurant March 29, 1996 - ----------------- Properties, Inc. Eugene G. Taper s/Gerald H. Graham Director of U.S. Restaurant March 29, 1996 - ------------------ Properties, Inc. Gerald H. Graham s/Darrel Rolph Director of U.S. Restaurant March 29, 1996 - -------------- Properties, Inc. Darrel Rolph s/David Rolph Director of U.S. Restaurant March 29, 1996 - ------------- Properties, Inc. David Rolph -24- U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 WITH INDEPENDENT AUDITORS' REPORT TABLE OF CONTENTS Independent Auditors' Report...................................... F-2 Consolidated Balance Sheets....................................... F-3 Consolidated Statements of Income................................. F-4 Consolidated Statements of Cash Flows............................. F-5 Consolidated Statements of Partners' Capital...................... F-6 Notes to Consolidated Financial Statements........................ F-7
F-1 INDEPENDENT AUDITORS' REPORT The Partners U.S. Restaurant Properties Master L.P. We have audited the accompanying consolidated balance sheets of U.S. Restaurant Properties Master L.P. (the Partnership) as of December 31, 1995 and 1994, and the related consolidated statements of income, partners' capital, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of U.S. Restaurant Properties Master L.P. as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Dallas, Texas February 17, 1996 F-2 U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 1994 -------------------------- ASSETS Cash and equivalents $ 7,127 $ 680,646 Marketable securities -- 853,791 Receivables, net 951,095 715,202 Purchase deposits (Note 3) 1,791,682 -- Prepaid expenses 315,189 122,962 Notes receivable (Note 10) 268,654 -- Net investment in direct financing leases 19,371,015 21,237,432 Land 27,492,895 23,414,280 Buildings and leasehold improvements, net 6,257,188 1,548,375 Machinery and equipment, net 223,739 -- Intangibles, net 14,804,155 14,316,583 -------------------------- $71,482,739 $62,889,271 -------------------------- -------------------------- LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 677,398 $ 445,518 Line of credit 10,930,647 -- Capitalized lease obligations 562,544 774,602 Commitments (Notes 7 and 8) General Partners' capital 1,240,604 1,308,543 Limited Partners' capital 58,071,546 60,360,608 -------------------------- $71,482,739 $62,889,271 -------------------------- --------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 1994 1993 ------------------------------------ GROSS RENTAL RECEIPTS (NOTE 9) $11,646,706 $10,465,533 $9,848,394 ------------------------------------ ------------------------------------ REVENUES FROM LEASED PROPERTIES Rental income $ 7,539,634 $ 6,339,993 $5,665,976 Amortization of unearned income on direct financing leases 2,240,655 2,453,063 2,665,667 ------------------------------------ Total Revenues 9,780,289 8,793,056 8,331,643 EXPENSES Rent 1,405,380 1,347,748 1,294,669 Depreciation and amortization 1,540,900 1,361,136 1,383,489 Taxes, general and administrative 1,419,279 1,143,956 1,007,914 Interest expense (income), net 192,142 (3,515) 44,234 ------------------------------------ 4,557,701 3,849,325 3,730,306 Provision for write down or disposition of properties -- 11,061 73,739 ------------------------------------ Total Expenses 4,557,701 3,860,386 3,804,045 ------------------------------------ Net income $ 5,222,588 $ 4,932,670 $4,527,598 ------------------------------------ ------------------------------------ Net income allocable to unitholders $ 5,119,175 $ 4,834,017 $4,437,051 ------------------------------------ ------------------------------------ Average number of outstanding units 4,637,865 4,635,000 4,635,000 ------------------------------------ ------------------------------------ Net income per unit $ 1.10 $ 1.04 $ 0.96 ------------------------------------ ------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 1994 1993 -------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,222,588 $ 4,932,670 $ 4,527,598 -------------------------------------- Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 1,540,900 1,361,136 1,383,489 Provision for write down or disposition of properties - 11,061 73,739 Marketable securities 853,791 (853,791) -- Decrease (increase) in receivables, net (235,893) (301,505) 10,873 Decrease (increase) in prepaid expenses (192,227) (35,673) 1,262 Reduction in net investment in direct financing leases 1,866,417 1,672,477 1,468,790 Increase in accounts payable 231,880 203,333 9,506 -------------------------------------- 4,064,868 2,057,038 2,947,659 -------------------------------------- 9,287,456 6,989,708 7,475,257 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of properties - - 1,130,000 Purchase of property (8,083,302) - - Purchase of intangibles (1,662,729) - - Purchase of machines and equipment (231,609) - - Purchase deposits paid (1,791,682) - - Increase in notes receivable (268,654) - - -------------------------------------- (12,037,976) - 1,130,000 CASH FLOWS USED IN FINANCING ACTIVITIES: Increase in loan origination costs (76,843) - - Reduction in capitalized lease obligations (212,058) (191,008) (172,047) Increase in line of credit 10,930,647 - - Cash distributions (8,001,995) (7,378,157) (8,129,829) Purchase of partnership units (546,750) - - Purchase of special general partner interest (16,000) - - -------------------------------------- 2,077,001 (7,569,165) (8,301,876) -------------------------------------- Increase (decrease) in cash and equivalents (673,519) (579,457) 303,381 Cash and equivalents at beginning of year 680,646 1,260,103 956,722 -------------------------------------- Cash and equivalents at end of year $ 7,127 $ 680,646 $ 1,260,103 -------------------------------------- -------------------------------------- SUPPLEMENTAL DISCLOSURE: Interest paid during the year $ 256,325 $ 89,912 $ 108,874 -------------------------------------- -------------------------------------- NON-CASH INVESTING ACTIVITIES Units issued for property $ 985,156 $ - $ - -------------------------------------- --------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
GENERAL LIMITED PARTNERS PARTNERS TOTAL ------------------------------------- Balance at January 1, 1993 $1,429,488 $66,287,381 $67,716,869 Net income 90,547 4,437,051 4,527,598 Cash distributions (162,588) (7,967,241) (8,129,829) ------------------------------------- Balance at December 31, 1993 1,357,447 62,757,191 64,114,638 ------------------------------------- Net income 98,653 4,834,017 4,932,670 Cash distributions (147,557) (7,230,600) (7,378,157) ------------------------------------- Balance at December 31, 1994 1,308,543 60,360,608 61,669,151 ------------------------------------- Special general partner interest transfer (12,899) (3,101) (16,000) Net income 103,413 5,119,175 5,222,588 Purchase of partnership units - (546,750) (546,750) Units issued for property - 985,156 985,156 Cash distributions (158,453) (7,843,542) (8,001,995) ------------------------------------- Balance at December 31, 1995 $1,240,604 $58,071,546 $59,312,150 ------------------------------------- -------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION U.S. Restaurant Properties Master L.P. (Partnership), formerly Burger King Investors Master L.P., a Delaware limited partnership, was formed on December 10, 1985. The Partnership, through its 99% limited partnership interest in U.S. Restaurant Properties Operating Limited Partnership (Operating Partnership), also a Delaware Limited Partnership, acquired from Burger King Corporation (BKC) in February 1986 an interest in 128 restaurant properties (Properties) owned or leased by BKC and leased or subleased on a net lease basis to BKC franchisees for $94,592,000. (The Partnership is the sole limited partner of the Operating Partnership, and they are referred to collectively as the "Partnerships".) U.S. Restaurant Properties, Inc., formerly QSV Properties, Inc., (QSV), the managing general partner and BKC, the special general partner, were both indirect wholly-owned subsidiaries of Grand Metropolitan PLC prior to May 17, 1994, at which time QSV was sold to the current owners. On January 20, 1995, the Partnership paid Burger King Corporation $16,000 for its 0.02% interest in the Operating and Master Limited Partnership. The Partnership may issue an unlimited number of units. The units outstanding as of December 31, 1995 and 1994 totaled 4,659,167 and 4,635,000, respectively. 2. ACCOUNTING POLICIES The financial statements have been prepared in accordance with generally accepted accounting principles; however, this will not be the basis for reporting taxable income to unitholders (see Note 9 for a reconciliation of financial reporting income to taxable income). The financial statements reflect the consolidated accounts of the Partnerships after elimination of significant inter-partnership transactions. Cash and equivalents include short-term, highly liquid investments with original maturities of three months or less. Marketable securities consist of U.S. treasury securities which have been treated as trading securities as of December 31, 1994. As a result, they are stated at market value. An intangible asset was recorded for the excess of cost over the net investment in direct financing leases in 1986. This intangible asset represents the acquired value of future contingent rent receipts (based on a percentage of each restaurant's sales) and is being amortized on a straight-line basis over 40 years. Also included in intangible assets is the amount paid to acquire certain leases with favorable rents payable to third party lessors. This amount is being amortized over the remaining lease terms. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) DEPRECIATION Depreciation is computed using the straight-line method over estimated useful lives of 10 to 20 years for financial statement purposes. Accelerated and straight-line methods are used for tax purposes. USE OF ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, and revenues and expenses as of and for the reporting periods. Actual results may differ from such estimates. LONG-LIVED ASSETS In March 1995, Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" was issued. The Partnerships adopted SFAS No. 121 in 1995. Long-lived assets include real estate, direct financing leases, and intangibles which are evaluated on an individual property basis. Based on the Partnership's policy for reviewing impairment of long-lived assets, there was no adjustment necessary to the accompanying consolidated financial statements. INCOME TAXES No federal or, in most cases, state income taxes are reflected in the consolidated financial statements because the Partnerships are not taxable entities. The partners must report their allocable shares of taxable income or loss in their individual income tax returns. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS The notes receivable and the line of credit are carried at amounts that approximate their fair value. F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was issued, effective for calendar year 1996. This statement applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Partnership has not completed the process of evaluating the impact that will result from adopting such statement and therefore is unable to disclose the impact the adoption will have on its financial position and results of operations. Additionally, the effect of adopting the statement will depend on the calculated value of the units issued and the extent to which units are used in acquiring real estate properties in the future. 3. OTHER BALANCE SHEET INFORMATION
December 31, ------------------------ 1995 1994 ------------------------ RECEIVABLES, NET Receivables $ 1,067,986 $ 832,093 Less allowance for doubtful accounts 116,891 116,891 ------------------------ $ 951,095 $ 715,202 ------------------------ ------------------------ BUILDINGS AND LEASEHOLD IMPROVEMENTS, NET Buildings and leasehold improvements $ 8,882,138 $ 3,892,294 Less accumulated depreciation 2,624,950 2,343,919 ------------------------ $ 6,257,188 $ 1,548,375 ------------------------ ------------------------ INTANGIBLES, NET Intangibles $28,178,508 $26,392,197 Less accumulated amortization 13,374,353 12,075,614 ------------------------ $14,804,155 $14,316,583 ------------------------ ------------------------
Total purchase deposits of $1,791,682 included $1,075,000 of non-refundable deposits. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. PROPERTIES On December 31, 1995, the Partnerships owned the land at 79 Properties and leased the land at 60 Properties from third party lessors under operating leases. The Partnerships in turn leased or subleased the land primarily to BKC franchisees under operating leases. On December 31, 1995, the Partnerships owned the buildings on 124 Properties and leased the buildings on 14 Properties from third party lessors under leases accounted for as capital leases. The Partnerships own one property in which only the land is owned and leased. The Partnerships leased 28 owned buildings to franchisees under operating leases. These 28 buildings are stated at cost, net of accumulated depreciation, on the balance sheet. A total of 109 buildings are leased primarily to franchisees under direct financing leases. The net investment in the direct financing leases represents the present value of the future minimum lease receipts for these 109 buildings. One property is not currently leased. On December 31, 1995, there were 138 Partnership restaurant sites in operation, and there was one closed site. The Partnerships continue to seek a suitable tenant for the remaining site. The write-down of the closed site was $11,061 and $73,739 in 1994 and 1993, respectively. 5. GUARANTEED STOCK PRICE Three properties were acquired on October 10, 1995, with a combination of cash and 54,167 partnership units. The partnership units are guaranteed to have a value of $24 per unit three years from the transaction date. The unit price on the date issued was $18 3/8. Any difference between the guaranteed value and the actual value of the units at the end of the three year period is to be paid in cash. These properties were recorded at the guaranteed value of the units discounted to reflect the present value on the date the units were issued. 6. LINE OF CREDIT On December 31, 1995, $10,930,647 had been drawn on the $20 million line of credit. All properties are included as collateral on this line of credit. The interest rate floats at 1.8 percentage points above LIBOR. The LIBOR rate at December 31, 1995, was 5.375%. The line of credit also requires the Partnerships to maintain a tangible net worth in excess of $40,500,000, a debt to tangible net worth ratio of not more than 0.5 to 1, and a cash flow coverage ratio of not less than 2 to 1 based upon a Proforma Five Year Bank Debt Amortization. The $20 million line of credit matures on June 27, 1998. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INVESTMENTS AND COMMITMENTS AS LESSOR The Partnerships lease land and buildings primarily to BKC franchisees. The building portions of most of the leases are direct financing leases while the land portions are operating leases. The leases generally provide for a term of 20 years from the opening of the related restaurant, and do not contain renewal options. The Partnerships, however, have agreed to renew a franchise lease if BKC renews or extends the lessee's franchise agreement. As of December 31, 1995, the remaining lease terms ranged from 1 to 28 years. The leases provide for minimum rents and contingent rents based on a percentage of each restaurant's sales, and require the franchisee to pay executory costs.
DIRECT FINANCING OPERATING LEASES LEASES -------------------------- MINIMUM FUTURE LEASE RECEIPTS FOR YEARS ENDING DECEMBER 31: 1996 $ 4,172,825 $ 4,957,086 1997 4,115,977 4,943,011 1998 3,810,947 4,886,906 1999 3,018,938 4,599,365 2000 2,056,720 3,798,127 Later 2,602,150 19,086,897 -------------------------- $19,777,557 $42,271,392 -------------------------- --------------------------
1995 1994 -------------------------- NET INVESTMENT IN DIRECT FINANCING LEASES AT DECEMBER 31: Minimum future lease receipts $19,777,557 $ 23,950,382 Estimated unguaranteed residual values 7,561,965 7,561,965 Unearned amount representing interest (7,968,507) (10,274,915) -------------------------- $19,371,015 $ 21,237,432 -------------------------- --------------------------
Year ended December 31, ---------------------------------- 1995 1994 1993 ---------------------------------- RENTAL INCOME: Minimum rental income $3,583,609 $3,061,951 $3,029,998 Contingent rental income 3,956,025 3,278,042 2,635,978 ---------------------------------- $7,539,634 $6,339,993 $5,665,976 ---------------------------------- ----------------------------------
F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INVESTMENTS AND COMMITMENTS AS LESSOR (CONTINUED) If the restaurant properties are not adequately maintained during the term of the tenant leases, such properties may have to be rebuilt before the leases can be renewed, either by the Partnership as it considers necessary or pursuant to Burger King's successor policy. The successor policy, which is subject to change from time to time in Burger King's discretion, is intended to encourage the reconstruction, expansion, or other improvement of older Burger King restaurants and generally affects properties that are more than ten years old or are the subject of a franchise agreement that will expire within five years. Under the current partnership agreement, Burger King can require that a restaurant property be rebuilt. If the tenant does not elect to undertake the rebuilding, the Partnership would be required to make the required improvement itself. However, as a condition to requiring the Partnership to rebuild, Burger King would be required to pay the Partnership its percentage share ("Burger King's Percentage Share") of the rebuilding costs. Such percentage share would be equal to (i) the average franchise royalty fee percentage rate payable to Burger King with respect to such restaurant, divided by (ii) the aggregate of such average franchise royalty fee percentage rate and the average percentage rate payable to the Partnership with respect to such restaurant property. The managing general partner believes that Burger King's Percentage Share would typically be 29% for a restaurant property. The managing general partner believes it is unlikely that any material amount of rebuilding of Burger King restaurant properties will be required in the next several years, if ever. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS The land at 46 Properties and the land and buildings at 14 Properties are leased by the Partnerships from third party lessors. The building portions of the leases are generally capital leases while the land portions are operating leases. Commitment leases provide for an original term of 20 years and most are renewable at the Partnership's option. As of December 31, 1995, the remaining lease terms (excluding renewal option terms) ranged from 1 to 11 years. If all renewal options are taken into account, the terms ranged from 8 to 33 years. Rents payable may escalate during the original lease and renewal terms. For six properties, the leases provide for contingent rent based on each restaurant's sales.
CAPITAL OPERATING LEASES LEASES ------------------------- MINIMUM FUTURE LEASE OBLIGATIONS FOR YEARS ENDING DECEMBER 31: 1996 $247,603 $1,357,289 1997 198,819 1,387,445 1998 139,610 1,349,357 1999 60,250 1,173,489 2000 4,328 938,647 Later 1,082 3,290,229 ------------------------- Total minimum obligations (a) 651,692 $9,496,456 ------------ ------------ Amount representing interest (89,148) ---------- Present value of minimum obligations $562,544 ---------- ----------
(A) MINIMUM LEASE OBLIGATIONS HAVE NOT BEEN REDUCED BY MINIMUM SUBLEASE RENTALS.
Years ended December 31, 1995 1994 1993 ---------------------------------- RENTAL EXPENSE Minimum rental expense $1,303,666 $1,245,986 $1,213,564 Contingent rental expense 101,714 101,762 81,105 ---------------------------------- $1,405,380 $1,347,748 $1,294,669 ---------------------------------- ----------------------------------
On July 21, 1995, the managing general partner authorized the Partnership to repurchase up to 300,000 of its units in the open market. During 1995, 30,000 units were repurchased by the Partnership. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. RECONCILIATION OF FINANCIAL REPORTING INCOME TO TAXABLE INCOME Financial reporting income differs from taxable income primarily because generally accepted accounting principles reflect the building portion of leases from Partnerships to franchisees as a net investment in direct financing leases. For tax purposes, these leases are treated as operating leases. In addition, differences exist in depreciation methods and asset lives.
FINANCIAL REPORTING RECONCILING TAXABLE INCOME DIFFERENCES INCOME -------------------------------------- REVENUES FROM LEASED PROPERTIES: Rental income $7,539,634 $ 4,107,072 $11,646,706 Amortization of unearned income on direct financing leases 2,240,655 (2,240,655) - -------------------------------------- 9,780,289 1,866,417 11,646,706 -------------------------------------- -------------------------------------- EXPENSES: Rent 1,405,380 280,872 1,686,252 Depreciation and amortization 1,540,900 1,396,966 2,937,866 General and administrative 1,419,279 - 1,419,279 Interest expense (income), net 192,142 (68,814) 123,328 -------------------------------------- 4,557,701 1,609,024 6,166,725 -------------------------------------- Net income $5,222,588 $ 257,393 $ 5,479,981 -------------------------------------- --------------------------------------
F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. RELATED PARTY TRANSACTIONS The managing general partner is responsible for managing the business and affairs of the Partnerships. The Partnerships pay the managing general partner a non-accountable annual allowance (adjusted annually to reflect increases in the Consumer Price Index), plus reimbursement of out-of-pocket costs incurred to other parties for services rendered to the Partnerships. The allowance for the years ended December 31, 1995, 1994, and 1993, was $585,445, $542,508, and $528,000, respectively. The Partnerships' accounts payable balance includes $187,204 and $135,627 for this allowance as of December 31, 1995 and 1994, respectively. The managing general partner paid no out-of-pocket costs to other parties on behalf of the Partnerships during 1995, 1994, and 1993. To compensate the Managing General Partner for its efforts and increased internal expenses with respect to additional properties, the Partnership will pay the Managing General Partner, with respect to each additional property purchased: (i) a one-time acquisition fee equal to one percent of the purchase price for such property and (ii) an annual fee equal to one percent of the purchase price for such property, adjusted for increases in the Consumer Price Index. For 1995, the one-time acquisition fee equaled $109,238 which was capitalized, and the increase in the non-accountable annual fee equaled $29,375. In addition, if the Rate of Return (as defined) on the Partnership's equity in all additional properties exceeds 12 percent per annum for any fiscal year, the Managing General Partner will be paid an additional fee equal to 25 percent of the cash flow received with respect to such additional properties in excess of the cash flow representing a 12 percent Rate of Return thereon. However, to the extent such distributions are ultimately received by the Managing General Partner in excess of those provided by its 1.98 percent Partnership interest, they will reduce the fee payable with respect to such excess flow from any additional properties. In 1994, the Partnerships with the consent and financial participation of BKC, continued rent relief for three properties. In 1993, the Partnerships sold two non-operating properties at slightly less than their book values to BKC. At that time, BKC was the special general partner and had an ownership interest of 0.02% in the Partnerships. The managing general partner has agreed to make available to the Partnership an unsecured, interest-free, revolving line of credit in the principal amount of $500,000 to provide the Partnerships with the necessary working capital to minimize or avoid seasonal fluctuation in the amount of quarterly cash distributions. No loans were made or were outstanding at any time during the years ended December 31, 1995, 1994, and 1993. A note receivable of $255,000 is due from Arkansas Restaurants #10 L.P. at December 31, 1995. The note receivable is due on September 1, 1996, and has an interest rate of 9.0% per annum. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of December 31, 1995, the managing general partner owned 90% of Arkansas Restaurants #10 L.P.. On March 17, 1995 the limited partners granted the managing general partner options to acquire up to 400,000 units, subject to certain adjustments under anti-dilution provisions. The initial exercise price of each option is $15.50 which is the average closing price of the depository receipts for the units on the New York Stock Exchange for the five trading days immediately after the date of grant. The options are non-transferable except by operation of law and vest and become exercisable on the first anniversary of the date as of which the exercise price is determined, subject to earlier vesting and exercisability if the managing general partner is removed as general partner. The term of the options expires on the tenth anniversary of the date as of which the exercise price is determined. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. DISTRIBUTIONS AND ALLOCATIONS Under the amended partnership agreement, cash flow from operations of the Partnerships each year will be distributed 98.02% to the unitholders and 1.98% to the general partners until the unitholders have received a 12% simple (noncumulative) annual return for such year on the unrecovered capital per unit ($20.00, reduced by any prior distributions of net proceeds of capital transactions); then any cash flow for such year will be distributed 75.25% to the unitholders and 24.75% to the general partners until the unitholders have received a total simple (noncumulative) annual return for such year of 17.5% on the unrecovered capital per unit; and then any excess cash flow for such year will be distributed 60.40% to the unitholders and 39.60% to the general partners. The unitholders received 98.02% of all cash flow distributions for 1995 and 98% for 1994 and 1993. Under the amended partnership agreement, net proceeds from capital transactions (for example, disposition of the Properties) will be distributed 98.02% to the unitholders and 1.98% to the general partners until the unitholders have received an amount equal to the unrecovered capital per unit plus 12.0% cumulative, simple return on the unrecovered capital per unit outstanding from time to time (to the extent not previously received from distribution of cash flow or proceeds of prior capital transactions); then such proceeds will be distributed 75.25% to the unitholders and 24.75% to the general partners until the unitholders have received the total cumulative, simple return of 17.5% on the unrecovered capital per unit; and then such proceeds will be distributed 60.40% to the unitholders and 39.60% to the general partners. There were no capital transactions in 1995 or 1994. During 1993 two non-operating properties were sold at slightly less than their book values. Both dispositions were capital transactions and resulted in the special distributions to unitholders of 11 cents and 13 cents per unit on September 13, and December 13, 1993, respectively. All operating income and loss of the Partnership for each year generally will be allocated among the partners in the same aggregate ratio as cash flow is distributed for that year. Gain and loss from a capital transaction generally will be allocated among the partners in the same aggregate ratio as proceeds of the capital transactions are distributed except to the extent necessary to reflect capital account adjustments. F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. SUMMARY BY QUARTER (UNAUDITED)
PER UNIT ------------------------------------------------------ RELATED* MARKET PRICE ALLOCABLE CASH --------------------------- REVENUES NET INCOME NET INCOME DISTRIBUTIONS HIGH LOW CLOSE ------------------------------------------------------------------------------ 1993 First quarter $1,871,146 $ 925,817 $0.20 $0.37 $14 7/8 $13 3/4 $14 1/2 Second quarter 2,116,827 1,146,078 0.24 0.48** 15 14 14 3/8 Third quarter 2,248,966 1,304,560 0.28 0.50** 16 7/8 14 3/8 16 Fourth quarter 2,094,704 1,151,143 0.24 0.37 17 3/8 15 1/2 16 1/8 ------------------------------------------------------------------------------ Annual $8,331,643 $4,527,598 $0.96 $1.72** ----------------------------------------------- ----------------------------------------------- 1994 First quarter $1,983,987 $1,099,981 $0.23 $0.39 $16 3/4 $15 7/8 $15 7/8 Second quarter 2,297,313 1,340,560 0.28 0.39 17 1/4 15 3/8 17 1/8 Third quarter 2,329,969 1,392,292 0.29 0.41 17 1/2 16 3/4 16 3/4 Fourth quarter 2,181,787 1,099,837 0.24 0.42 17 3/8 13 14 7/8 ----------------------------------------------- Annual $8,793,056 $4,932,670 $1.04 $1.61 ----------------------------------------------- ----------------------------------------------- 1995 First quarter $2,122,620 $1,090,130 $0.23 $0.42 $16 1/2 $14 1/4 $16 1/8 Second quarter 2,494,818 1,406,993 0.30 0.42 17 1/8 15 3/4 17 1/8 Third quarter 2,592,283 1,495,433 0.32 0.43 18 7/8 16 3/4 18 3/8 Fourth quarter 2,570,568 1,230,032 0.25 0.44 20 1/4 18 19 3/4 ----------------------------------------------- Annual $9,780,289 $5,222,588 $1.10 $1.71 ----------------------------------------------- -----------------------------------------------
* REPRESENTS AMOUNTS DECLARED AND PAID IN THE FOLLOWING QUARTER. ** INCLUDES SPECIAL CASH DISTRIBUTIONS OF $0.11 FOR THE SECOND QUARTER AND $0.13 FOR THE THIRD QUARTER. F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. PROFORMA (UNAUDITED) The 1995 acquisitions consisted of 16 properties that were valued at $10,731,187 based upon the purchase method of accounting. These properties were acquired on various dates from March 1995 through December 1995. Three of the properties were acquired with a combination of cash and 54,167 partnership units. The 54,167 partnership units are guaranteed to have a market value of $24 three years from the transaction date and have certain registration rights. The following proforma information was prepared by adjusting the actual consolidated results of the Partnership for the years ended December 31, 1995 and 1994 for the effects of the 1995 acquisitions as if all such acquisitions and related financing transactions including the issuance of 54,167 units had occurred on January 1, 1994. Interest expense for proforma purposes was calculated assuming a 7.7% interest rate for both years presented, which approximates the rate the Partnership paid during 1995. These proforma operating results are not necessarily indicative of what the actual results of operations of the Partnership would have been assuming all of the properties were acquired as of January 1, 1994, and they do not purport to represent the results of operations for future periods.
YEARS ENDED DECEMBER 31, -------------------------- 1995 1994 -------------------------- REVENUES FROM LEASED PROPERTIES: Rental income $ 8,819,204 $ 8,049,916 Amortization of unearned income on direct financing leases 2,240,655 2,453,063 -------------------------- Total revenues 11,059,859 10,502,979 EXPENSES Rent 1,527,758 1,501,887 Depreciation and amortization 1,831,641 1,771,740 Taxes, general and administrative 1,533,251 1,292,359 Interest expense (income), net 879,172 877,104 Provision for write down or disposition of properties - 11,061 -------------------------- Total expenses $ 5,771,822 $ 5,454,151 -------------------------- -------------------------- Net income $ 5,288,037 $ 5,048,828 -------------------------- -------------------------- Net income allocable to unitholders $ 5,183,334 $ 4,947,851 -------------------------- -------------------------- Average number of outstanding units 4,679,715 4,689,167 -------------------------- -------------------------- Net income per unit $ 1.11 $ 1.06 -------------------------- --------------------------
F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. SUBSEQUENT EVENTS In January 1996, 23 properties were purchased in six separate transactions. The total purchase price was $14 million which consisted of cash and 327,836 Partnership units. Among the properties acquired were 13 Burger Kings, 3 Dairy Queens, and 2 KFCs. Of the 327,836 units issued, 299,575 units have a guaranteed market price of $24 per unit within two years of the date issued, any difference being payable through issuance of additional partnership units. The units must be registered by the Partnership by January 1997, which will result in related registration costs. The remaining units have a guaranteed market price of $23 per unit within three years of the date issued, any difference being payable through issuance of additional partnership units. There is no registration requirement in respect to the latter units. On February 15, 1996, the $20 million line of credit was increased to $40 million. F-20 U.S. RESTAURANT PROPERTIES MASTER L.P. FORM 10-K SUPPLEMENTAL SCHEDULE: REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1995 Real Estate: Balance At Beginning of Period $27,306,574 Additions During Period: Acquisitions Through Foreclosure -- Other Acquisitions 9,068,458 Improvements -- Other -- Deductions During Period: Cost of Real Estate Sold: -- Other -- ----------- Balance At Close of Period $36,375,032 ----------- ----------- Accumulated Depreciation: Balance At Beginning of Period 2,343,919 Additions During Period: Depreciation Expense 281,031 Deductions During Period: Accum. Depr. of Real Estate Sold -- ----------- Balance At Close of Period $ 2,624,950 ----------- -----------
EXHIBIT INDEX 2.1 Amended and Restated Purchase and Sale Agreement dated as of February 3, 1986. (Incorporated by reference to Exhibit 10(a) to Amendment No. 2 to the Registration Statement). 3.1 The original Certificate of Limited Partnership of U.S. Restaurant Properties Master L.P. (Incorporated by reference to Exhibit 4.3 to the Registration Statement). Amendments filed on July 1, 1994, November 7, 1994 and November 30, 1994. (Incorporated by reference to Exhibit 3.1 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.) 3.2 Second Amended and Restated Agreement of Limited Partnership of U.S. Restaurant Properties Master L.P. dated as of March 17, 1995. (Incorporated by reference to Exhibit 3.2 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.) 3.3 Certificate of Limited Partnership of U.S. Restaurant Properties Operating L.P. (Incorporated by reference to Exhibit 4.4 to the Registrant Statement.) Amendments filed on July 26, 1994 and November 30, 1994. (Incorporated by reference to Exhibit 3.3 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.) 3.4 Second Amended and Restated Agreement of Limited Partnership of U.S. Restaurant Properties Operating L.P. dated as of March 17, 1995. (Incorporated by reference to Exhibit 3.4 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.) 4.1 Deposit Agreement and Form of Depositary Receipt and Application for Transfer of Depositary Units. (Incorporated by reference to Exhibit 4.5 to Amendment No. 3 to the Registration Statement.) First Amendment to Deposit Agreement. (Incorporated by reference to Exhibit (4)A to Registrant's 8-K Current Report dated September 30, 1987.) 10.1 Amendment No. 91 - Burger King Corporation Withdrawal as Special General Partner and Name Change (Incorporated by reference to Exhibit 10.1 to the Registrant's 10-Q Report for the period ended September 30, 1994.) 10.2 Consulting Agreement dated April 30, 1987. (Incorporated by reference to Exhibit 10.2 to the Registrant's 10-K Annual Report for the year ended December 31, 1987.) #10.3 Option Agreement, dated as of March 24, 1995, between U.S. Restaurant Properties Master L.P. and QSV Properties Inc. (Incorporated by reference to Exhibit 10.3 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.) E-1 #10.4 Agreement between BKC and Robert J. Stetson regarding sale of QSV Properties Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's 10-Q Report for the period ended June 30, 1994.) 10.5 Letter re change of Registrar and Stock Transfer Agent. (Incorporated by reference to Exhibit 10.2 to the Registrant's 10-Q Report for the period ended September 30, 1994.) *10.6 Amended and Restated Secured Loan Agreement dated as of February 15, 1996 between Registrant and various banks. 12.1 Subsidiaries of the Registrant. (Incorporated by reference to Exhibit 22.1 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.) 27.1 Financial Data Schedule __________________ * Filed herewith. # Management compensatory document. E-2
EX-10.6 2 EXHIBIT 10.6 AMENDED AND RESTATED SECURED LOAN AGREEMENT THIS AMENDED AND RESTATED SECURED LOAN AGREEMENT is dated as of February 15, 1996, by and between U.S. RESTAURANT PROPERTIES OPERATING L.P., a Delaware limited partnership ("BORROWER") and COMERICA BANK-TEXAS, a state banking association organized under the laws of the State of Texas (in its individual capacity, "COMERICA"), COMPASS BANK-DALLAS, a state banking association organized under the laws of the State of Texas ("COMPASS"), and the additional commercial, banking or financial institutions which hereafter become parties hereto (Comerica, Compass and such other additional commercial, banking or financial institutions which hereafter become parties hereto pursuant to SECTION 11.11 of this Agreement are sometimes referred to hereinafter collectively as the "BANKS" and individually as a "BANK") and COMERICA BANK-TEXAS, as agent for the Banks hereunder (the "AGENT"), to be effective on the initial Disbursement Date. WITNESSETH WHEREAS, Comerica and Borrower entered into that certain Secured Loan Agreement dated as of June 27, 1995, as amended by that certain First Amendment to Secured Loan Agreement, dated as of October 6, 1995, and as further amended by that certain Second Amendment to Loan Agreement, dated as of December 6, 1995 (as amended, the "ORIGINAL AGREEMENT"); WHEREAS, U.S. Restaurant Properties Master L.P., a Delaware limited partnership, ("GUARANTOR") executed that certain Guaranty dated as of June 27, 1995, in favor of Comerica, as reaffirmed from time to time thereafter; and WHEREAS, Borrower executed certain Lease Assignments (as defined below) as collateral security for all of the indebtedness, liabilities and other obligations of Borrower and Guarantor arising under the Original Agreement, as amended, modified, renewed and/or restated from time to time, as well as those arising under the other "Loan Documents" as such term is defined in such Lease Assignments. WHEREAS, Borrower desires to increase the maximum commitment amount under the Original Agreement to finance the update and repair of Borrower's existing properties, and to purchase additional restaurant properties, and the Banks are willing to provide such financing subject to the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, Borrower, the Banks and the Agent agree as follows, this Agreement being an amendment, modification, renewal and restatement of the Original Agreement: 1 SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following respective meanings: "ACQUISITION ADVANCE" shall mean a loan the proceeds of which are used by Borrower for the purposes described in clause (a) of Section 2.16 of this Agreement. "ADVANCE" shall mean a loan advance made by a Bank to Borrower under Section 2 of this Agreement. "ADVANCE COMPLIANCE CERTIFICATE" shall mean (a) in regards to each Acquisition Advance, a certificate in substantially the form of EXHIBIT A-1 attached hereto, (b) in regards to each Working Capital Advance, a certificate in substantially the form of EXHIBIT A-2 attached hereto, and (c) in regards to each Letter of Credit Advance, a certificate in substantially the form of EXHIBIT A-3 attached hereto. "ADVANCE TYPE" refers to the distinction between Advances which are Acquisition Advances, Advances which are Letter of Credit Advances, and Advances which are Working Capital Advances. "AFFILIATE" shall mean, when used with respect to any person, any other person which, directly or indirectly, controls or is controlled by or is under common control with such person. For purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. "AGENT" shall have the meaning given to it in the preamble of this Agreement, and shall include all successors and assigns thereof. "AGENT'S ACCOUNT" shall mean the commercial loan accounting account of Agent with Comerica Bank-Texas, ABA #111000753, at its office at 1601 Elm Street, Dallas, Texas 75201, 90010, Favor: Comerica Bank-Texas Commercial Loan Accounting, Reference: U. S. Restaurant Properties, or such other account of Agent as Agent notifies the Banks from time to time as the "Agent's Account" for purposes of this Agreement. "AGREEMENT" shall mean this Amended and Restated Secured Loan Agreement, as the same may be renewed, extended, amended and restated from time to time. "ANNUALIZED CASH FLOW" shall mean, as of any applicable date of determination, the product of (a) the Cash Flow of Borrower for the calendar month immediately preceding the month in which such determination date is, multiplied by (b) twelve (12). "APPLICABLE RATE" is defined in SECTION 2.2(c) of this Agreement. 2 "ASSIGNMENT AGREEMENT" shall mean a certain agreement between Comerica, as assignor, and Comerica and Compass, as assignees, pursuant to which Comerica has assigned the Original Note to the assignees thereunder. "BANK" shall have the meaning given to it in the preamble of this Agreement. "BANK INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement dated as of February 14, 1996, by and among the Agent and the Banks, pursuant to which the Banks and the Agent have supplemented the terms of SECTION 10 of this Agreement to govern certain rights and obligations of the Banks and the Agent with respect to the Indebtedness and the Collateral. "BANK SUPPLEMENT" is defined in SECTION 11.11 of this Agreement "BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as amended, or any successor act or code. "BKC" shall have the meaning as is given to such term in the Borrower's Partnership Agreement. "BORROWER" is defined in the preamble of this Agreement. "BORROWER'S PARTNERSHIP AGREEMENT" shall mean that certain "Second Amended and Restated Agreement of Limited Partnership of U.S. Restaurant Properties Operating L.P. (formerly Burger King Operating Limited Partnership)" dated as of March 17, 1995, without giving effect to any amendment thereto. "BORROWING" shall mean a borrowing consisting of simultaneous Advances by the Banks. "BORROWING NOTICE" is defined in SECTION 2.1.3(a) of this Agreement. "BURGER KING RESTAURANT LOCATION" shall have the meaning as is given to the term "Restricted Restaurant Property" in the Borrower's Partnership Agreement. "BUSINESS DAY" shall mean any day OTHER THAN a Saturday, a Sunday, or a day on which the Agent is authorized to be closed under the laws of the State of Texas, and, with respect to each Advance which bears, or is to bear, interest at the LIBOR Rate, each LIBOR Business Day. "CASH FLOW" of any person shall mean, for any applicable period of determination, the Net Income (after deduction for income taxes and other taxes of such person determined by reference to income or profits of such person) for such period, PLUS, to the extent deducted in computation of such Net Income, the amount of depreciation and amortization expense, the amount of reduction in net investment in direct finance leases, and the amount of deferred tax liability during such period, all as determined in accordance with GAAP. 3 "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Sections 9601 ET SEQ.), as amended from time to time, including, without limitation, the Superfund Amendments and Reauthorization Act ("SARA"). "COLLATERAL" shall mean (i) all property of Borrower now or hereafter in the possession of the Agent or any Bank or any Affiliate of the Agent or any Bank (or as to which the Agent or any Bank or any Affiliate of the Agent or any Bank now or hereafter controls possession by documents or otherwise), (ii) all amounts in all deposit or other accounts (including without limitation an account evidenced by a certificate of deposit) of Borrower now or hereafter with the Agent or any Bank or any Affiliate of the Agent or any Bank, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto, and all proceeds and products of any of the foregoing, and (iii) all Real Property and other additional property (real or personal) of Borrower which is now or hereafter subject to a security interest, mortgage, lien, claim or other encumbrance granted by Borrower to, or in favor of, the Agent or any Bank to secure all or any part of the Indebtedness, including without limitation all of the leases, real property and other rights, titles and interests covered by the Lease Assignments. "COMERICA" is defined in the preamble of this Agreement, and shall include all successors and assigns thereof. "COMBINED" OR "COMBINED" shall mean when used with reference to any financial term in this Agreement, the aggregate for two or more persons of the amounts signified by such term for all such persons determined on a combined or consolidated basis in accordance with GAAP. Unless otherwise specified herein, references to "combined" financial statements or data of Borrower includes combination and consolidation with its Subsidiaries and with Guarantor in accordance with GAAP. "COMMITMENT AMOUNT" of a Bank shall mean (x) in the case of Comerica prior to the execution and delivery of a Bank Supplement, the dollar amount set forth opposite Comerica's name on the signature page of this Agreement, (y) in the case of Compass prior to the execution and delivery of a Bank Supplement, the dollar amount set forth opposite Compass's name on the signature page of this Agreement, and (z) in the case of any Bank upon and after the execution by such Bank of a Bank Supplement, the dollar amount set forth opposite such Bank's name on the signature page of then most recent Bank Supplement to which such Bank is a party, as amended from time to time; PROVIDED, HOWEVER, in no event shall the execution and delivery of a Bank Supplement reduce the aggregate amount of all the Banks' Commitment Amounts below the Overall Commitment Amounts. "CURRENT ASSETS" shall mean, as of any applicable date of determination, all cash, non-affiliated customer receivables, United States government securities, claims against the United States government, and inventories. "CURRENT LIABILITIES" shall mean, as of any applicable date of determination, (a) all liabilities of a person that should be classified as current in accordance with GAAP, including without limitation any portion of the principal of the Advances classified as current, PLUS (b) to 4 the extent not otherwise included, all liabilities of Borrower to any of its Affiliates whether or not classified as current in accordance with GAAP. "DEBT" shall mean, as of any applicable date of determination, all items of indebtedness, obligation or liability of a person (other than, with respect to Borrower, Subordinated Debt), whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, that should be classified as liabilities in accordance with GAAP. "DEFAULT" shall mean a condition or event which, with the giving of notice or the passage of time, or both, would become an Event of Default. "DEFAULT RATE" shall mean the lesser of (i) the Maximum Rate or (ii) the rate per annum which shall from day to day be equal to three percent (3%) in excess of the Applicable Rate. "DISBURSEMENT DATE" shall mean each date upon which the Agent makes a disbursement or a Bank makes a loan or otherwise extends credit to or on behalf of Borrower under SECTION 2.1 and/or SECTION 2.17 of this Agreement or Comerica issues a Letter of Credit for the benefit of Borrower under SECTION 2.14 of this Agreement. "ENVIRONMENTAL LAW" shall mean any federal, state or local law, statute, ordinance, judgment, rule or regulation (a) pertaining to health, industrial hygiene, or the environmental conditions on, under or about the Real Property, including, but not limited to, CERCLA, SARA and RCRA; or (b) governing the use, storage, treatment, handling, manufacture, transportation or disposal of Hazardous Substances. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code. "EVENT OF DEFAULT" shall mean any of those conditions or events listed in SECTION 9.1 of this Agreement. "FINANCIAL STATEMENTS" shall mean all those balance sheets, earnings statements and other financial data (whether of Borrower or any of its Subsidiaries or Guarantor or otherwise) which have been furnished to the Agent and/or any Bank for the purposes of, or in connection with, this Agreement and the transactions contemplated hereby. "FINANCING STATEMENTS" shall mean financing statements describing the Bank as secured party and Borrower as debtor covering the Collateral and otherwise in such form, for filing in such jurisdictions and with such filing offices, as the Agent and/or any Bank shall reasonably deem necessary or advisable. "FIVE YEAR TREASURY RATE" shall mean, at any date of determination, the yield which shall be imputed, by linear interpolation, from the current weekly yield of those United States Treasury Notes having maturities of five years from such date, as published in then-most recent Federal Reserve Statement Release H.15(519) or any successor publication thereto. 5 "GAAP" shall mean, as of any applicable date of determination, generally accepted accounting principles consistently applied. "GENERAL COMPLIANCE CERTIFICATE" shall mean a certificate in substantially the form of EXHIBIT G attached hereto. "GENERAL PARTNER" shall mean U.S. Restaurant Properties, Inc., a Delaware corporation. "GUARANTOR" is defined in the preamble of this Agreement, and shall include successors and assigns thereof. "GUARANTOR'S PARTNERSHIP AGREEMENT" shall mean that certain "Second Amended and Restated Agreement of Limited Partnership of U.S. Restaurant Properties Master L.P. (formerly Burger King Investors Master L.P.)" dated as of March 17, 1995, without giving effect to any amendment thereto. "GUARANTY" shall mean a guaranty (or separate guaranties) in the form and content of EXHIBIT "F" to this Agreement pursuant to which the Guarantor (jointly and severally if more than one) unconditionally guarantees repayment to the Bank of all the Indebtedness. "HAZARDOUS SUBSTANCE" shall mean one or more of the following substances: (a) those substances included within the definitions of (i) "hazardous substances", "hazardous materials" or "toxic substances", in CERCLA, SARA, RCRA, Toxic Substances Control Act, Federal Insecticide, Fungicide and Rodenticide Act and the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 ET SEQ.), or (ii) "solid waste", as defined under the Texas Solid Waste Disposal Act; (b) such other substances, materials and wastes which are or become regulated as hazardous or toxic under applicable local, state or federal law, or the United States government, or which are or become classified as hazardous or toxic under federal, state, or local laws or regulations; and (c) any material, waste or substance which is: (i) asbestos; (ii) polychlorinated biphenyls; (iii) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Sections 1251 ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317); (iv) explosives; (v) radioactive materials; or (vi) petroleum, petroleum products or any fraction thereof. "INDEBTEDNESS" shall mean all loans, advances, indebtedness, obligations and liabilities of Borrower under the Original Agreement, this Agreement and/or the other Loan Documents to the Agent and/or any of the Banks (including without limitation the Advances and the Letter of Credit Exposure), together with all other indebtedness, obligations and liabilities whatsoever of Borrower to the Agent and/or any of the Banks, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become 6 due, now existing or hereafter arising, which in any way relate to or arise from the Original Agreement, this Agreement and/or the other Loan Documents. "INTEREST PERIOD" is defined in SECTION 2.2 of this Agreement. "LEASE ASSIGNMENT" shall mean an Assignment of Lease, Rents and Real Estate in the form and content of EXHIBIT "D" to this Agreement, or such other form and content as is prescribed by the Banks from time to time and is consistent with the provisions of SECTION 3 of this Agreement, pursuant to which Borrower and each Loan Party assigns to the Bank the leases described on SCHEDULE 1.1 attached to this Agreement and all other Real Property of such Loan Party now or hereafter owned by such Loan Party. "LEGAL RATE" shall mean the maximum rate of nonusurious interest permitted to be paid by Borrower or received by the Agent or any Bank with respect to the Indebtedness owed to such Lender from time to time under applicable state or federal law as now or as may be hereafter in effect, including, as to article 5069-1.04 Vernon's Texas Civil Statutes (and as the same may be incorporated by reference in other Texas statutes), but otherwise without limitation, that rate based upon the "INDICATED RATE CEILING". "LENDER" shall mean the Agent and/or any or all of the Banks, as the case may be, in its respective capacity as a lender of funds or a provider of credit accommodations to, or for the account of Borrower under this Agreement and/or any of the other Loan Documents. "LETTER OF CREDIT" shall mean each letter of credit, as defined in the Uniform Commercial Code, issued to, for the account of, or for the benefit of Borrower by the Agent. "LETTER OF CREDIT ADVANCE" shall mean a loan, the proceeds of which are used by Borrower for the purposes described in clause (b) of SECTION 2.16 of this Agreement. "LETTER OF CREDIT COMMISSION" shall have the meaning given to such term in SECTION 2.14(b) of this Agreement. "LETTER OF CREDIT EXPOSURE" shall mean, at any time, the undrawn portion of all unexpired Letters of Credit plus all amounts drawn, but unreimbursed, under Letters of Credit. "LIBOR BUSINESS DAY" shall mean a day on which commercial banks are open for domestic or foreign exchange business in London, England. "LIBOR RATE" shall mean, with respect to any LIBOR Rate Interest Period for any LIBOR Rate Advance, the interest rate conclusively determined by the Agent two (2) Business Days prior to the first day of such Interest Period (as adjusted for any applicable reserve requirement applicable to "eurocurrency liabilities" pursuant to Regulation D or any other applicable regulation of the Board of Governors of the Federal Reserve System (or any successor) which prescribes reserve requirements applicable to "eurocurrency liabilities" as presently defined in Regulation D, or any eurocurrency funding) at which deposits in immediately available funds in U.S. dollars are offered to the Agent by prime banks in the interbank eurodollar market selected by the Agent for delivery on the first day of such LIBOR 7 Rate Interest Period (at such time as the Agent elects) in an amount equal to the principal amount of the corresponding Advance outstanding on the first day of such LIBOR Rate Interest Period, for a period equal to such LIBOR Rate Interest Period. "LIBOR RATE ADVANCE" is defined in SECTION 2.2 of this Agreement. "LIBOR RATE INTEREST PERIOD" shall mean an Interest Period pertaining to an Advance as to which the Applicable Rate during such Interest Period is based upon the LIBOR Rate. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Revolving Credit Notes, the Guaranty, the Letters of Credit, the Lease Assignments and all other agreements, documents and instruments executed by any Loan Party and, or in favor of, the Agent and/or any Bank in connection with or relating to this Agreement or the Original Agreement or any of the transactions contemplated hereunder or thereunder. "LOAN PARTY" shall mean, individually and collectively, each of Borrower, Guarantor and each Person which is a guarantor of any of the Indebtedness or has granted or shall grant a lien on any Real Property as collateral security for any of the Indebtedness. "LONG TERM DEBT" shall mean, as of any applicable date of determination, all Debt of Borrower and/or Guarantor which should be classified as "funded indebtedness" or "long-term indebtedness" on a combined balance sheet of Borrower and Guarantor prepared as of such date in accordance with GAAP, together (without duplication) with the unpaid principal balance of the Advances outstanding on such date. "MAJORITY BANKS" shall mean, as of any applicable date of determination, a Bank or Banks holding not less than sixty-six and two thirds percent (66%) of the Overall Commitment Amount. "MAXIMUM RATE" shall mean the maximum nonusurious interest rate, if any, that at any time, or from time to time, may be contracted for, taken, received, charged or received under applicable state or federal law. "NET BOOK VALUE" shall mean, for any item of property or asset of Borrower, the gross book value of such item of property or asset, minus the accumulated depreciation attributable to such item of property or asset, as determined in accordance with GAAP. "NET INCOME" shall mean the net income (or loss) of a person for any period determined in accordance with GAAP but excluding in any event: (a) any gains or losses on the sale or other disposition, not in the ordinary course of business, of investments, leases or fixed or capital assets, and any taxes on the excluded gains and any tax deductions or credits on account on any excluded losses; and (b) net earnings of any Person in which Borrower and/or Guarantor has an ownership interest, unless such net earnings shall have actually been received by Borrower and/or Guarantor in the form of cash distributions. 8 "ORIGINAL NOTE" shall mean that certain Revolving Credit Note dated June 27, 1995, in the stated principal amount of $10,000,000, executed by Borrower and payable to the order of Comerica, as amended, modified and restated by that certain Amended and Restated Revolving Credit Note dated December 6, 1995, in the stated principal amount of $20,000,000, executed by Borrower and payable to the order of Comerica, which note has been assigned by Comerica to the Agent and the Banks pursuant to the Assignment Agreement. "OVERALL COMMITMENT AMOUNT" shall mean $40,000,000; PROVIDED, HOWEVER, that if Borrower reduces the Overall Commitment Amount from time to time under SECTION 2.1.5 of this Agreement, the Overall Commitment Amount shall be deemed to be such lesser amount. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any person succeeding to the present powers and functions of the Pension Benefit Guaranty Corporation. "PERMITTED LIENS" shall mean: (a) liens and encumbrances in favor of the Agent and/or the Banks which secure the Indebtedness; (b) liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which are being contested in good faith by appropriate proceedings and, if requested by the Agent or any of the Banks, bonded in an amount and manner satisfactory to the Bank; (c) liens, not delinquent, created by statute in connection with worker's compensation, unemployment insurance, social security and similar statutory obligations; (d) liens of mechanics, materialmen, carriers, warehousemen or other like statutory or common law liens securing obligations (i) incurred in good faith in the ordinary course of business that are not yet due and payable or (ii) which Borrower has provided notice thereof to the Agent and each of the Banks in accordance with SECTION 6.1.11 of this Agreement and are being contested in good faith and by appropriate and lawful proceedings diligently conducted and, if requested by the Agent or any of the Banks, bonded in a manner satisfactory to the Bank; (e) encumbrances consisting of existing or future zoning restrictions, existing recorded rights-of-way, existing recorded easements, existing recorded private restrictions or existing or future public restrictions on the use of real property, none of which materially impairs the use of such property in the operation of the business for which it is used and none of which is violated in any material respect by any existing or proposed structure or land use; (f) liens affecting the fixtures and equipment located on any Real Property of any Loan Party; 9 (g) liens securing purchase money Debt of Borrower incurred by Borrower on or after the date hereof in an aggregate amount not to exceed $250,000; provided, however, such liens shall be permitted only against the specific assets of Borrower purchased with the proceeds of such purchase money Debt; (h) liens upon Real Property which secure Qualifying Non-Recourse Debt in an aggregate amount not to exceed $20,000,000; (i) existing leases covering all or part of the ground upon which the Real Property is situated and commercial leases entered into after the date hereof in the ordinary course of Borrower's business for the operation of commercial restaurants which leases are assigned to the Agent and/or the Banks as part of the Collateral; and (j) existing liens described on SCHEDULE 5.5 attached to this Agreement. "PERSON" OR "PERSON" shall mean any individual, corporation, partnership, joint venture, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity. "PRIME RATE" shall mean that annual rate of interest designated by Comerica as its prime rate, which rate may not be the lowest rate of interest charged by Comerica to any of its customers, and which rate is changed by Comerica from time to time, it being understood that Comerica may make commercial loans and other loans at rates of interest at, above or below its prime rate. "PRIME RATE ADVANCE" is defined in SECTION 2.2(c) of this Agreement. "PRO FORMA FIVE YEAR BANK DEBT AMORTIZATION" shall mean, as of any applicable date of determination, for purposes of SECTION 6.7 of this Agreement, a pro forma calculation of the monthly combined principal and interest payment amounts that would be required to fully amortize the amount of the aggregate unpaid principal amount of the Advances and the Letter of Credit Exposure outstanding on the date of such determination, together with a pro forma amount of interest thereon at the fixed rate per annum equal to the Five Year Treasury Rate in effect on such date plus two hundred (200) basis points, in equal combined monthly payments over the five-year period commencing on such date. "PRO FORMA TWENTY YEAR BANK DEBT AMORTIZATION" shall mean, as of any applicable date of determination, for purposes of SECTION 6.7 of this Agreement, a pro forma calculation of the monthly combined principal and interest payment amounts that would be required to fully amortize the amount of the aggregate unpaid principal amount of the Advances and the Letter of Credit Exposure outstanding on the date of such determination, together with a pro forma amount of interest thereon at the fixed rate per annum equal to the Twenty Year Treasury Rate in effect on such date plus two hundred (200) basis points, in equal combined monthly payments over the twenty-year period commencing on such date. "PRO RATA SHARE" means, as to any Bank, (A) in the case of Comerica prior to the execution and delivery of a Bank Supplement, 50% (i.e., the percentage obtained by dividing 10 the Commitment Amount of Comerica in effect on the date hereof by the Overall Commitment Amount), (B) in the case of Compass prior to the execution and delivery of a Bank Supplement, 50% (i.e., the percentage obtained by dividing the Commitment Amount of Compass in effect on the date hereof by the Overall Commitment Amount), and (C) in the case of any Bank upon and after the execution by such Bank of a Bank Supplement, the percentage obtained by dividing such Bank's Commitment Amount by the Overall Commitment Amount. "QUALIFYING NON-RECOURSE DEBT" shall mean any Debt of a Loan Party incurred after the date hereof, in an aggregate amount not to exceed $20,000,000, for the purpose of refinancing a portion of the Indebtedness, the terms of which expressly provide that the holder of the agreements, instruments and documents evidencing such Debt shall look solely to Real Property which is then collateral for such debt, except that such Debt shall be permitted to contain such recourse carve out provisions with respect to reimbursement of costs and expenses to the lender thereunder arising from Loan Party's failure to perform covenants thereunder (other than the covenants to pay principal, interest and loan fees on such indebtedness) as are customary on loans of that type. "RCRA" shall mean the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Sections 6901, ET SEQ.), as amended from time to time. "REAL PROPERTY" of a Person shall mean all of the real property and improvements of such Person, wherever located, now or hereafter owned or occupied by any such Person or in which any such Person now or hereafter has any rights, title or interest (including, but not limited to, an interest as fee owner, ground lessee or other lessee). "REVOLVING CREDIT NOTE" shall mean the promissory note conforming to SECTION 2.1.2 of this Agreement and in the form and content of EXHIBIT "C" to this Agreement. "SUBORDINATED DEBT" shall mean indebtedness of Borrower which has been subordinated to the Indebtedness pursuant to a subordination agreement in form and content satisfactory to the Agent and the Majority Banks. "SUBSIDIARY" means and includes any Person (a) which, directly or indirectly, is under the control of Borrower, Guarantor and/or General Partner, or (b) of which or in which Borrower, Guarantor and/or General Partner (or any Subsidiary or Subsidiaries of any of them) owns directly or indirectly 50% or more of (i) the combined voting power of all classes having general voting power under ordinary circumstances to elect a majority of the board of directors or equivalent body of such Persons, if it is a corporation, (ii) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity, or (iii) the beneficial interest of such Person if it is a trust, business trust, association or other unincorporated organization. For purposes of this definition, "control" with respect to any Person shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "TANGIBLE NET WORTH" shall mean, as of any applicable date of determination, the excess of (a) the net book value of all assets of a person (other than patents, patent rights, 11 trademarks, trade names, franchises, copyrights, licenses, goodwill, and similar intangible assets) after all appropriate deductions in accordance with GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization), over (b) all Debt of such person. "TERMINATION DATE" shall mean the earlier of (a) June 27, 1998; or (b) the date on which the Banks' commitments to make Advances are terminated by Borrower pursuant to SECTION 2.1.5; or (c) the date on which any Bank's commitment to make Advances is terminated pursuant to SECTION 9.2(a). "TWENTY YEAR TREASURY RATE" shall mean, at any date of determination, the yield which shall be imputed, by linear interpolation, from the current weekly yield of those United States Treasury Notes having maturities of twenty years from such date, as published in then-most recent Federal Reserve Statement Release H.15(519) or any successor publication thereto. "UCC" shall mean the Uniform Commercial Code as adopted and in force in the State of Texas as from time to time amended or, if the creation, perfection or enforcement of security interest against a fixture or other personal property subject to the liens and security interests of the Agent and/or any Bank is governed by the laws of a state other than Texas, the Uniform Commercial Code in effect in such state, as the same may be amended from time to time. "WORKING CAPITAL" shall mean, as of any applicable date of determination, Current Assets less Current Liabilities. "WORKING CAPITAL ADVANCE" shall mean a loan the proceeds of which are used by Borrower for the purposes described in clause (c) or clause (d) of SECTION 2.16 of this Agreement. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP. 1.3 SINGULAR AND PLURAL. Where the context herein requires, the singular number shall be deemed to include the plural, the masculine gender shall include the feminine and neuter genders, and vice versa. SECTION 2. CREDIT FACILITIES, INTEREST AND FEES 2.1 ADVANCES. 2.1.1 REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions of this Agreement, each Bank severally, and not jointly, agrees to make loans (the "ADVANCES") to Borrower on a revolving basis in such amounts as Borrower shall request pursuant to this SECTION 2.1 from time to time during the period commencing on the date hereof, and continuing to and including the Termination Date, on a pro rata basis in accordance with such Bank's Pro Rata Share; PROVIDED that at no time shall (i) the sum of the aggregate principal amount of Advances made by any Bank at such time outstanding PLUS such Bank's Pro Rata Share at such 12 time of the Letter of Credit Exposure exceed such Bank's Pro Rata Share of the Overall Commitment Amount, as the Overall Commitment Amount may be reduced pursuant to SECTION 2.1.5; and PROVIDED FURTHER, that (i) each Disbursement Date under this Agreement must be a Business Day, (ii) the principal amount of each Advance other than a LIBOR Rate Advance must be in the minimum amount of $1,000 or, if greater, in integral multiples of $1,000, and (iii) the principal amount of each LIBOR Rate Advance must be in the minimum principal amount of $400,000 or, if greater, in integral multiples of $50,000. 2.1.2 REVOLVING CREDIT NOTE. The Advances shall be evidenced by the Revolving Credit Note, executed by Borrower, dated the date of this Agreement, payable to Agent as agent for itself, Compass and each of the other Banks on the Termination Date (unless sooner accelerated pursuant to the terms of this Agreement or as therein provided), and in the stated principal amount of the original Overall Commitment Amount. 2.1.3 MAKING THE ADVANCES. (a) Each Advance shall be made, to the extent that a Bank is so obligated under SECTION 2.1.1 of this Agreement, on written notice from Borrower to the Agent and each Bank delivered before 10:00 A.M. (Dallas, Texas time) on a Business Day which is at least three (3) Business Days prior to the first day of the Interest Period for such Advance specifying (i) the amount of such Advance (which amounts of Advances shall be pro rata among the Banks in accordance with each Bank's Pro Rata Share), (ii) the Advance Type thereof, (iii) the Interest Period therefor (which Interest Period shall be the same for each Bank), (iv) the selected interest rate applicable thereto (which interest rate shall be the same for each Bank) pursuant to and in accordance with SECTION 2.2, (v) the deposit account (together with wire transfer instructions of the Borrower) into which Borrower requests that the proceeds of such Advance be sent in the case of an Advance in the form of a loan, and the name and address of the beneficiary and other pertinent information in the case of an Advance by Comerica issuing or guaranteeing a Letter of Credit (such written notice to be substantially in the form of (A) EXHIBIT B-1 attached hereto in the case of an Acquisition Advance, (B) EXHIBIT B-2 attached hereto in the case of a Letter of Credit Advance, and (C) EXHIBIT B-3 attached hereto in the case of a Working Capital Advance, and in all cases in all respects in form and substance satisfactory to Agent, and being hereinafter referred to as the "BORROWING NOTICE"), and shall be accompanied by an Advance Compliance Certificate which corresponds to the Advance Type of such Advance. In the case of a proposed Borrowing comprised of LIBOR Rate Advances, the Agent shall on the second Business Day before any LIBOR Rate Advance notify each Bank of the interest rate applicable to such LIBOR Rate Advance under SECTION 2.2 of this Agreement. Not later than 11:30 A.M. (Dallas, Texas time) on the day of any Borrowing, each Bank will make available for its account to the Agent at the Agent's Account, in same day funds, such Bank's Pro Rata Share of such proposed Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in SECTION 4 of this Agreement, the Agent will make such funds available to Borrower by delivering such funds to Borrower's deposit account specified in such Borrowing Notice. 13 (b) Each Borrowing Notice shall be irrevocable and binding on Borrower and Borrower shall indemnify the Agent and each Bank against any loss or expense incurred by it as a result of any failure to fulfill on or before the date specified for such Advance the applicable conditions set forth in Section 4 of this Agreement, including, without limitation, any loss (including loss of anticipated profits) or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Agent or such Bank to fund such Advance when such Advance, as a result of such failure, is not made on such date. 2.1.4 BANK OBLIGATIONS. The failure of any Bank to make any Advance required to be made by it shall not relieve any other Bank of its obligation, if any, under this Agreement to make any Advance required to be made by it, but no Bank shall be responsible for the failure of any other Bank to make any Advance required to be made by such other Bank. Furthermore, no Bank shall be obligated to make any Advance to Borrower if: (a) any of the conditions precedent set forth in SECTION 4 of this Agreement shall not have been either satisfied by Borrower or waived by such Bank in accordance with SECTION 11.4 of this Agreement, or (b) such proposed Advance would cause the aggregate sum of the unpaid principal amount of the Advance outstanding plus the Letter of Credit Exposure under this Agreement (or such Bank's Pro Rata Share thereof) to exceed the Overall Commitment Amount (or such Bank's Pro Rata Share thereof) on such Disbursement Date. The failure of any Bank to make any Advance required to be made by it shall not relieve any other Bank of its obligation, if any, under this Agreement to make any Advance required to be made by it, but no Bank shall be responsible or liable to Borrower or any Bank for the failure of any other Bank to make any Advance required to be made by such other Bank. 2.1.5 TERMINATION OR REDUCTION IN OVERALL COMMITMENT AMOUNT BY BORROWER. Borrower, at any time and from time to time (except as may hereinafter be provided), upon at least five Business Days' prior written notice received by the Agent and the Banks, may permanently terminate all but not less than all of the Banks' commitments to make Advances under this Agreement or permanently reduce the Overall Commitment Amount by an integral multiple of $1,000,000. On the effective date of such termination or reduction, Borrower shall pay to each Bank such Bank's Pro Rata Share, in the case of a termination, of the aggregate unpaid principal amount of all Advances, or, in the case of a reduction, the amount, if any, by which the aggregate unpaid principal amount of all Advances exceeds then reduced Overall Commitment Amount, together in each case with all interest accrued and unpaid on the principal amounts so prepaid and, if such termination or reduction occurs on or before July 31, 1996, the payment in full of the premium described in SECTION 2.15 of this Agreement. The notice shall specify the Termination Date of the reduced Overall Commitment Amount and the effective date of the reduction, as the case may be. Borrower may not revoke any such notice of termination or reduction without the prior written consent of the Agent and the Majority Banks. 14 2.2 REPAYMENT AND INTEREST. (a) Borrower shall repay the aggregate unpaid principal amount of all Advances of each Bank in accordance with the terms of a promissory note of Borrower, in substantially the form of EXHIBIT C hereto (the "REVOLVING CREDIT NOTE"), evidencing the indebtedness resulting from such Advances and delivered to the Agent for the benefit of the Banks pursuant to SECTION 4.1.1 or SECTION 11.11. (b) The period between the date of each Advance and the date of payment in full of such Advance shall be divided into successive periods, each such period being an "INTEREST PERIOD" for such Advance. Notwithstanding the duration of the applicable Interest Period, interest on the unpaid amount of each Advance shall be due and payable in accordance with SECTION 2.2(c) below and the other applicable provisions of this Agreement. The initial Interest Period for each Advance shall begin on the date of such Advance and end on the last day of such period as selected by Borrower, and thereafter, each subsequent Interest Period for such Advance shall begin on the last day of the immediately preceding Interest Period for such Advance and end on the last day of such period as selected by Borrower in accordance with the terms hereof. The duration of each such Interest Period for each Prime Rate Advance shall be one day, and the duration of each such LIBOR Interest Period for a LIBOR Rate Advance shall be one (1), two (2), three (3), six (6) or twelve (12) months, or such other period as Borrower may select and the Agent and the Banks may agree to, in each case as Borrower shall select; PROVIDED, HOWEVER, that: (i) the duration of any Interest Period for any Advance that commences before the repayment date for such Advance and otherwise ends after such repayment date shall end on such repayment date; (ii) if Borrower fails to select any Advance to be a LIBOR Rate Advance or a Prime Rate Advance, it shall be deemed to be a Prime Rate Advance; (iii) if Borrower fails to select the duration of any LIBOR Rate Interest Period for a LIBOR Rate Advance, the duration of such LIBOR Rate Interest Period shall be one month; (iv) any LIBOR Interest Period which would otherwise end on a day which is not a LIBOR Business Day shall be extended to the next succeeding LIBOR Business Day (unless such LIBOR Business Day falls in another calendar month, in which case such LIBOR Interest Period shall end on the next preceding LIBOR Business Day); (v) any LIBOR Interest Period which begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall, subject to clause (v) above, end on the last LIBOR Business Day of a calendar month; and 15 (vi) no Borrowing Notice shall specify a LIBOR Rate Interest Period which shall end after the Termination Date. (c) Borrower shall pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal amount is due, payable on the first day of each month, commencing on March 1, 1996 and on the Termination Date, at an interest rate per annum equal at all times during such Interest Period for such Advance to the Applicable Rate (as defined below) or the Default Rate (as hereinafter defined), as the case may be; PROVIDED, HOWEVER, that for any Advance having an Interest Period less than one month, interest thereon shall be due and payable on the last day of such Interest Period. The term "APPLICABLE RATE", as used herein, shall mean an interest rate per annum equal at all times during the Interest Period then applicable to such Advance to whichever of the following rates is selected by Borrower: (i) the Prime Rate in effect on the first day of such Interest Period (such an Advance being referred to as a "PRIME RATE ADVANCE"); or (ii) one and eight-tenths percent (1.80%) PLUS the LIBOR Rate in effect on the first day of such Interest Period (such an Advance being referred to in this Agreement as a "LIBOR RATE ADVANCE"); PROVIDED, HOWEVER, that if either a Bank is unable to acquire the funds upon which the interest rate described in CLAUSE (ii) immediately above is based for such Interest Period or the Borrower fails to select an interest rate in accordance with the terms hereof, then the Applicable Rate for such Interest Period will the Prime Rate in effect on the first day of such Interest Period; and PROVIDED, FURTHER, HOWEVER, that in no event shall the Applicable Rate exceed the Maximum Rate. All past due principal and, to the extent permitted by applicable law, interest upon the Advances shall bear interest, from the date such amount becomes due to the date such amount is paid in full, at the Default Rate and shall be due and payable upon demand. Each change in the interest rate applicable to an Advance shall become effective without prior notice to the undersigned automatically as of the opening of business on the date of such change in the Prime Rate or the LIBOR Rate, as the case may be; provided, that, the LIBOR Rate shall not change with respect to a LIBOR Rate Advance during the corresponding LIBOR Interest Period applicable thereto. (d) Borrower shall not be permitted to repay any LIBOR Rate Advance prior to the expiration of the corresponding LIBOR Interest Period applicable thereto, unless (i) such repayment is specifically required by the terms of this Agreement, (ii) the Majority Banks demand that such repayment be made in accordance with this Agreement, or (iii) the Majority Banks, in their sole discretion, consent to such repayment. If for any reason any LIBOR Rate Advance is repaid prior to the expiration of the corresponding LIBOR Interest Period applicable thereto, Borrower shall pay to the Agent for the ratable benefit of the Banks on demand any amounts required to compensate the Agent and/or the Bank for any losses, costs, or expenses which it may incur as a result of such repayment. A certificate of the Agent and/or the Banks claiming compensation 16 under this paragraph and setting forth the additional amount or amounts to be paid to the Agent and/or the Bank hereunder shall be conclusive in the absence of manifest error. (e) In regards to any LIBOR Rate Advance, if the Agent determines that deposits in U.S. dollars (in the applicable amounts) are not being offered to the Agent in the interbank eurodollar market selected by the Agent for the LIBOR Interest Period applicable to such LIBOR Rate Advance, or that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Agent and/or any Bank of making or maintaining a LIBOR Rate Advance for the applicable LIBOR Interest Period, the Agent shall forthwith give notice thereof to the undersigned, whereupon until the Agent notifies the undersigned that such circumstances no longer exist, (i) the right of Borrower to select an interest rate based upon the LIBOR Rate shall be suspended, and (ii) each LIBOR Rate Advance in effect shall thereupon automatically be converted into a Prime Rate Advance in accordance with the provisions hereof. If notice has been given by the Agent to Borrower requiring a LIBOR Rate Advance to be repaid or converted, then unless and until the Agent notifies Borrower that the circumstances giving rise to such repayment or conversion no longer apply, the only interest rate available to Borrower shall be a rate based upon the Prime Rate. If the Agent notifies Borrower that the circumstances giving rise to such repayment or conversion on longer apply, Borrower may thereafter select an interest rate based upon the LIBOR Rate in accordance with the terms of this Agreement. (f) If at any time the rate of interest applicable to any Advance, as computed on the basis of the "contract rate" defined and specified in the Revolving Credit Note evidencing any Advance, would exceed the Legal Rate, the interest payable under the Revolving Credit Note shall be computed upon the basis of the Legal Rate, but any subsequent reduction in such contract rate shall not reduce the applicable interest rate thereafter applicable under the Revolving Credit Note below the Legal Rate until the aggregate amount of interest accrued and payable under the Revolving Credit Note as to the Advances equals the total amount of interest which would have accrued if interest on the Advances had been at all times computed solely on the basis of such contract rate. (g) No agreements, conditions, provisions or stipulations contained in this Agreement or any other instrument, document or agreement between Borrower and the Agent and/or any Bank or default of Borrower, or the exercise by the Agent and/or any Bank of its respective right to accelerate the payment of the maturity of principal and interest or to exercise any option whatsoever contained in this Agreement or any other agreement between Borrower and the Agent and/or any Bank, or the arising of any contingency whatsoever, shall entitle the Agent and/or any Bank to collect, in any event, interest exceeding the Legal Rate and in no event shall Borrower be obligated to pay interest exceeding such Legal Rate and all agreements, conditions or stipulations, if any, which may in any event or contingency whatsoever operate to bind, obligate or compel Borrower to pay a rate of interest exceeding the Legal Rate, shall be without binding force or effect, at law or in equity, to the extent only of the excess of interest over such Legal Rate. In the event any interest is charged in excess of the Legal Rate ("EXCESS"), Borrower acknowledges and stipulates that any such charge shall be the result of an accident and bona fide error, and such Excess shall be, first, applied to reduce the principal then unpaid hereunder; second, applied to reduce the 17 principal then unpaid hereunder; second, applied to reduce Indebtedness; and third, returned to Borrower, it being the intention of the parties hereto not to enter at any time into a usurious or otherwise illegal relationship. Borrower recognizes that, with fluctuations in the rates of interest provided for in the Revolving Credit Notes and the Legal Rate, such an unintentional result could inadvertently occur. By the execution of this Agreement, Borrower covenants that (a) the credit or return of any Excess shall constitute the acceptance by Borrower of such Excess, and (b) Borrower shall not seek or pursue any other remedy, legal or equitable, against the Agent and/or any Bank, based in whole or in part upon the charging or receiving of any interest in excess of the maximum authorized by applicable law. For the purpose of determining whether or not any Excess has been contracted for, charged or received by the Agent and/or any Bank, all interest at any time contracted for, charged or received by the Agent and/or such Bank in connection with this Agreement shall be amortized, prorated, allocated and spread in equal parts during the entire term of this Agreement. The provisions of this SECTION 2.2(g) shall be deemed to be incorporated into every document or communication relating to the Indebtedness which sets forth or prescribes any account, right or claim or alleged account, right or claim of the Agent and/or any Bank with respect to Borrower (or any other obligor in respect of Indebtedness). All such documents and communications and all figures set forth therein shall, for the sole purpose of computing the extent of the Indebtedness and obligations of Borrower (or other obligor) asserted by the Agent and/or any Bank thereunder, be automatically recomputed by any Borrower or obligor, and by any court considering the same, to give effect to the adjustments or credits required by this SECTION 2.2(g). 2.3 MANDATORY PAYMENTS ON ADVANCES. Borrower shall pay to the Agent for the ratable benefit of each Bank any amount by which the sum of the aggregate unpaid principal amount of all Advances plus the Letter of Credit Exposure from time to time exceeds the Overall Commitment Amount, together with all interest accrued and unpaid on the amount of such excess. Such payment shall be immediately due and owing WITHOUT NOTICE OR DEMAND upon the occurrence of any such excess. Any mandatory prepayment under this SECTION 2.3 shall not reduce the Overall Commitment Amount. 2.4 OPTIONAL PREPAYMENTS ON ADVANCES. Borrower, at any time and from time to time, may prepay the unpaid principal amount of the Advances in whole or in part pro rata among the Banks based on each Bank's Pro Rata Share without premium except as otherwise set forth in SECTION 2.2(d) of this Agreement; PROVIDED, HOWEVER, that any optional prepayment of the Advances made under this SECTION 2.4 shall not reduce the Overall Commitment Amount. 2.5 PREPARATION FEES. Upon demand of the Agent and/or any of the Banks from time to time, Borrower shall pay to such Person the amount of the reasonable expenses (including, without limitation, reasonable attorneys' fees, whether of inside or outside counsel, and disbursements) incurred by such Person from time to time in connection with the preparation of this Agreement and related instruments and/or the making (or preparation for the making) of advances hereunder. 2.6 UNUSED LINE FEE. Borrower shall pay to each Bank such Bank's Pro Rata Share of the unused line fee for the period commencing on the date of this Agreement to and including 18 the Termination Date equal to one-quarter of one percent (0.25%) per annum on the average daily excess of the Overall Commitment Amount over the aggregate unpaid principal balance of the Advances plus the Letter of Credit Exposure. Such unused line fee shall be payable on the first Business Day of each January, April, July and October, beginning April 1, 1996 and on the Termination Date, for the periods ending on such date. 2.7 ORIGINATION FEE. Borrower shall pay to Comerica (for its own account and not for the ratable benefit of the Banks) simultaneously with the execution of this Agreement an origination fee equal to $10,000 and shall pay to Compass (for its own account and not for the ratable benefit of the Banks) simultaneously with the execution of this Agreement an origination fee equal to $20,000, which origination fees Borrower agrees shall be deemed fully earned and nonrefundable upon the execution of this Agreement. 2.8 INCREASED COSTS. (a) If either (i) the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation or (ii) the compliance by any Bank with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), shall result in any increase in the cost to any Bank of making, funding or maintaining any LIBOR Rate Advance, then Borrower shall from time to time, upon demand by such Bank, pay to such Bank additional amounts sufficient to indemnify such Bank against such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower by such Bank, shall, in the absence of manifest error, be conclusive and binding for all purposes. (b) If either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance by any Bank with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by any Bank and any Bank determines that the amount of such capital, is increased by or based upon the existence of such Bank's commitment to make LIBOR Advances hereunder and other commitments of this type, then, upon demand by such Bank, Borrower shall immediately pay to such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank in the light of such circumstances, to the extent that any Bank reasonably determines such increase in capital to be allocable to the existence of such Bank's commitment to lend hereunder. A certificate as to such amounts, submitted to Borrower by such Bank, shall, in the absence of manifest error, be conclusive and binding for all purposes. 2.9 LOCK BOX. Borrower shall cause all tenants of the Real Property of any Loan Party to make payments to Borrower in care of a lock box account to be established with the Agent prior to the initial Disbursement Date. The Agent shall have sole access to such account. Borrower shall endorse to the Agent and forthwith deliver to the Agent all payments which it receives from its leased properties or arising from any other rights or interests of Borrower therein, in the form received by Borrower, without commingling with any funds belonging to Borrower. All payments so received by the Agent shall be deposited in the account of 19 Borrower, Account No. 7611017455, maintained at the Agent on the first Business Day following the day of receipt by the Agent of such payment; provided, however, at all times from and after the occurrence of an Event of Default, all payments so received by the Agent shall be applied in payment of the Indebtedness, first to the Agent on account of the Agent's costs and expenses, then to the Lenders in accordance with their respective Pro Rata Share of interest on the Indebtedness, then to the Lenders in accordance with their respective Pro Rata Share of principal on the Advances and Letters of Credit Exposure in such order as they may elect, and then to other Indebtedness. 2.10 PAYMENTS AND COMPUTATIONS. All sums payable by Borrower to the Agent and/or any Bank under this Agreement, the Revolving Credit Notes or the other documents contemplated hereby shall be paid directly to such the Agent for the benefit of itself, the Bank and Comerica, as the case may be, at the Agent's address set forth SECTION 11.13 hereof in immediately available United States funds, without set off, deduction or counterclaim. In its sole discretion, the Agent and/or any of the Banks may charge any and all deposit or other accounts (including, without limitation, an account evidenced by a certificate of deposit) of Borrower with the Agent and/or any of the Banks for all or a part of any Indebtedness then due; PROVIDED, HOWEVER, that this authorization shall not affect Borrower's obligation to pay, when due, any Indebtedness whether or not account balances are sufficient to pay amounts due. All computations of interest accrued at the Applicable Rate (but not the Maximum Rate) hereunder and under the Note and commitment fee hereunder shall be made by each Bank on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed, and all computations of interest accrued at the Maximum Rate shall be based upon a year with 365 or 366 days, as appropriate). Whenever any payment to be made hereunder or under the Note shall be stated to be due, or whenever the last day of any Interest Period would otherwise occur, on a Business Day, such payment may be made, and the last day of such Interest Period shall occur, on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest, commitment fee or other fee, as the case may be 2.11 RECEIPT OF PAYMENTS. Any payment of the Indebtedness made by mail will be deemed tendered and received only upon actual receipt by the Agent or a Bank as the case may be, at the address designated for such payment, whether or not the Agent or such Bank has authorized payment by mail or any other manner, and shall not be deemed to have been made in a timely manner unless received on the date due for such payment, time being of the essence. Borrower expressly assumes all risks of loss or liability resulting from non-delivery or delay of delivery of any item of payment transmitted by mail or in any other manner. Acceptance by the Agent or any Bank of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default, and at any time thereafter and until the entire amount then due has been paid, such Person shall be entitled to exercise any and all rights conferred upon it herein upon the occurrence of an Event of Default. Borrower waives the right to direct the application of any and all payments at any time or times hereafter received by the Agent or any Bank from or on behalf of Borrower. Prior to the occurrence of a Default, payments made by Borrower shall be applied by the Agent and each Bank, as the case may be, as specified by Borrower. After the occurrence and during the continuance of a Default, Borrower agrees that the Agent and each of the Banks shall have the continuing exclusive right to apply and to reapply 20 any and all payments received at any time or times hereafter against the Indebtedness in such manner as each of them may deem advisable, notwithstanding any entry by any of them upon any of its books and records. Borrower expressly agrees that to the extent that the Agent or any of the Banks receives any payment or benefit and such payment or benefit, or any part thereof, is subsequently invalidated, declared to be fraudulent or preferential, set aside or is required to be repaid to a trustee, receiver, or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or benefit, the Indebtedness or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or benefit had not been made and, further, any such repayment by the Agent or any of the Banks, to the extent that it did not directly receive a corresponding cash payment, shall be added to and be additional Indebtedness payable upon demand by it. 2.12 RECORDATION OF AMOUNTS DUE. The date and amount of each Advance is made by the Agent or each of the Banks, as the case may be, and of each repayment of principal and interest thereon received by each of them, may be recorded by each of them in its respective records. The aggregate unpaid amount so recorded by the Agent or any such Bank shall constitute prima facie evidence of the amount owing and unpaid on the Indebtedness; PROVIDED, HOWEVER, that the failure by the Agent or any Bank so to record any such amount or any error in so recording any such amount shall neither increase nor limit Borrower's obligations under this Agreement or the Revolving Credit Note to repay the principal amount of all the Advances and Letter of Credit Exposure together with all interest accrued or accruing thereon. 2.13 ALL INDEBTEDNESS AT OPTION OF THE BANK BECOMES DUE AND PAYABLE ON TERMINATION DATE. Notwithstanding anything in this Agreement or in Revolving Credit Note to the contrary, the Agent and each of the Banks shall have the sole option, upon the Termination Date, to require payment in full of all Indebtedness owing to it, including, without limitation, payment in full of all Advances and, if such the Termination Date occurs on or before June 30, 1996, such Bank's Pro Rata Share of the fee described in SECTION 2.15. 2.14 LETTERS OF CREDIT. (a) If requested to do so by Borrower, Comerica, in its individual capacity as a Bank (and not in its capacity as Agent), may, IN COMERICA'S SOLE DISCRETION, issue or confirm Letters of Credit; PROVIDED HOWEVER that (i) in no event shall the aggregate amount of Letter of Credit Exposure at any time outstanding exceed $1,500,000.00 and (ii) Borrower shall be required to satisfy the conditions specified in SECTION 4.2.2(b) of this Agreement in connection therewith. Each Letter of Credit shall have an expiration date that occurs on or before the earliest of (A) the Termination Date, or (B) the date which is three hundred sixty four (364) days immediately following the date of issuance or confirmation of such Letter of Credit. Each Letter of Credit shall be payable in dollars. Borrower will immediately and unconditionally pay to Agent for the benefit of the Banks the amount of each payment made under each Letter of Credit. All amounts paid under a Letter of Credit shall, immediately upon the making of such payment and without the necessity of further act or evidence, constitute Advances and the Banks shall be entitled to all of the benefits of this Agreement and the other Loan Documents with respect thereto. 21 (b) In addition, Borrower also shall, in consideration of the issuance or confirmation of each Letter of Credit and in addition to other charges payable by Borrower under this Agreement, (i) pay to Comerica, for Comerica's own account and not for the ratable benefit of the Banks, at the time of the issuance or confirmation of such Letter of Credit, the amount of all fees and expenses incurred by Comerica in connection with the issuance of, or paid by Comerica in connection with the issuance of, such Letter of Credit, plus (ii) pay to the Agent, for the ratable benefit of the Banks in connection with each issuance or confirmation of each Letter of Credit or amendment thereto issued or confirmed, a fee equal to one percent (1.0%) per annum of the face amount of each Letter of Credit or Letter of Credit amendment issued or confirmed (the "LETTER OF CREDIT COMMISSION"). The Letter of Credit Commission shall be paid to the Agent at the end of each calendar quarter during which such Letter of Credit is outstanding, and, to the extent that such amounts remain owing and unpaid, on the Termination Date. In addition, upon the happening and during the continuance of any Default or Event of Default, the Letter of Credit Commission shall be one percent (1.0%) per annum in excess of the Letter of Credit Commission which would otherwise be payable. (c) At any time an Event of Default has occurred and is continuing and at anytime from and after the Termination Date, Borrower shall deliver to the Agent for the benefit of the Banks with respect to the Letter of Credit Exposure, within one Business Day following the Agent's or any of the Bank's request therefor, cash collateral or United States treasury bills in an amount equal to the aggregate Letter of Credit Exposure pertaining to all Letters of Credit (plus the projected amount of all fees associated therewith). (d) Borrower assumes all risks of the acts or omissions of the beneficiary with respect to its use of any Letter of Credit. Neither Comerica, the Agent nor any Bank shall be responsible: for the validity, or genuineness of certificates or other documents delivered under or in connection with such Letter of Credit, even if such certificates or other documents should in fact prove to be invalid, fraudulent or forged; for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, wireless, facsimile or otherwise, whether or not they be in code; for errors in translation or for errors in interpretation of technical terms; for any failure or inability by Comerica or anyone else to perform in accordance with foreign laws, customs or regulations or by reason of any control or restriction rightfully or wrongfully exercised by any government or group asserting or exercising governmental or paramount powers; or for any other consequences arising from causes beyond Comerica's control; and none of the above shall affect, impair or prevent the vesting of any of the rights or powers of Comerica hereunder. In furtherance and not in limitation of the above provisions of this SUBSECTION (D), Borrower agrees that Comerica may accept certificates or other documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and furthermore, Borrower agrees that any action, inaction or omission taken or suffered by Comerica in good faith in connection with any Letter of Credit, or related drafts, certificates or other documents, shall be binding on Borrower and shall not result in any liability of Comerica to Borrower. 22 (e) Notwithstanding anything in this Agreement to the contrary, the parties hereto agree that automatically upon the issuance or confirmation by Comerica of a Letter of Credit, each other Bank shall be deemed to have purchased a participation equal to such Bank's Pro Rata Share in such Letter of Credit, and, upon written demand by Comerica following a draw on such Letter of Credit, with a copy of such demand to Agent, each other Bank shall purchase from Comerica, directly and not as a participation, and Comerica shall sell and assign to each such other Bank, such Bank's Pro Rata Share of the Advance resulting from such draw, as of the date of such purchase, by such Bank depositing in Agent's account in Dallas, Texas, or such other place as shall be designated by Agent, for the benefit of Comerica, in same day funds in United States dollars, an amount equal to the portion of such Advance purchased by such Bank. Such payment shall be made by such Bank on the Business Day on which demand therefor is made by Comerica, provided notice of such demand is given not later than 2:00 p.m. (Dallas, Texas time) on such Business Day, or the first Business Day next succeeding such demand if notice of such demand is given after such time. Borrower hereby agrees to each participation, sale and assignment pursuant to this SUBSECTION (E). Upon the purchase by a Bank from Comerica of a participation and/or Advance described in this SUBSECTION (E), such Bank shall be entitled on a pro rata basis to the extent of such purchase to the same rights and benefits under this Agreement relating to such Letters of Credit and Advances resulting from draws on such Letters of Credit as to which Comerica is entitled including, without limitation, the rights to any collateral or security for such Letters of Credit as provided in this Agreement. At the request of Comerica, each other Bank agrees to execute such additional agreements, documents and instruments as Comerica or its counsel may from time to time reasonably require to further evidence the agreements of such other Banks to the provisions of this SUBSECTION (E). 2.15 FEE PAYABLE IN THE EVENT OF TERMINATION ON OR BEFORE JUNE 30, 1996. In the event that the Termination Date occurs on or before June 30, 1996 for any reason or the Overall Commitment Amount shall have been reduced or terminated by Borrower or any Bank for any reason (except, in the case of a Bank, in violation of the Agreement) on or before June 30, 1996, or any Bank shall have terminated its commitment under this Agreement to make Advances (including, but not limited to, a termination by any Bank under SECTION 9.2 of this Agreement upon the occurrence of an Event of Default), in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of each Bank's lost profit and damages as a result thereof, Borrower agrees to pay to each of the Bank's, upon the earlier of the Termination Date or the effective date of any such termination or reduction of the Overall Commitment Amount, an early termination fee in the amount of such Bank's Pro Rata Share of (a) $100,000 if such reduction or termination is on or before April 1, 1996, or (b) $50,000 if such reduction or termination is after April 1, 1996 and before June 30, 1996; PROVIDED, HOWEVER, that such fee shall not be payable if the occurrence of the Termination Date or the termination or reduction of the Commitment Amount shall have been the direct result of replacement or substitute financing in the amount of $40,000,000 or more in the aggregate by Comerica (either alone or in conjunction with one or more of the other Banks under the same financing facility), or if Comerica (either alone or in conjunction with one or more of the other Banks under the same financing facility) fails to offer replacement or substitute financing in the amount of $40,000,000 or more in the aggregate to Borrower on or before June 30, 1996, it being understood and agreed by the parties 23 that neither Comerica, the Agent nor any of the Banks is under any obligation to provide such a replacement or substitute financing (either alone or in conjunction with one or more of the other the Banks), and that any such replacement or substitute financing shall be at the sole option of each of them. 2.16 USE OF PROCEEDS. The Advances and the Letters of Credit and the proceeds of the foregoing shall be used by Borrower solely for the purposes of (a) acquiring commercial restaurant properties (and any properties adjacent to the restaurant properties that are essential to the acquisition or operation of such restaurant properties and, for properties acquired after the date hereof, have a cost of less than $50,000 for any single restaurant property or $200,000 for all restaurant properties), (b) the issuance and funding of standby Letters of Credit and (c) to the extent of $3,000,000 in the aggregate outstanding at any time (i) advances to Borrower's tenants for the purposes permitted under SECTION 7.5 of this Agreement and (ii) other working capital purposes of Borrower. From time to time and upon the Bank's request, Borrower shall furnish to the Agent evidence satisfactory to the Agent that such proceeds are being used according to the terms of this SECTION 2.16. 2.17 PRO RATA ADVANCES AND LETTER OF CREDIT EXPOSURE. The Borrower and the Banks acknowledge and agree that all Advances made and Letter of Credit Exposure incurred on or after the date hereof, and all increases and decreases thereof, are to be made and incurred pro rata by the Banks in accordance with such Bank's Pro Rata Share (or in such other manner as the Banks among themselves may agree from time to time); and each Bank's actual outstanding Advance and Letter of Credit Exposure shall be adjusted from time to time by each Bank purchasing or selling at par from or to the other Banks, as the case may be, simultaneously with each such increase or decrease, such that each Bank's position in each shall at all times be pro rata in accordance with such Bank's Pro Rata Share. Notwithstanding the foregoing provisions of this SECTION 2.17, in the event that from time to time a Bank does not make an Advance of all or a portion of an amount under SECTION 2 of this Agreement, for any reason other than as a result of the existence of an Event of Default or otherwise (an "UNFUNDED AMOUNT"), each Bank shall have the right (but not the obligation) for its individual own account, at its option, in the exercise of its sole discretion, to advance or incur all or a portion of such Unfunded Amount; and if any Event of Default occurs or exists during any period when an Unfunded Amount advanced or incurred by a Bank is outstanding, then payments by the Borrower during such period shall be applied first, to repayment of such outstanding Unfunded Amount advanced or incurred by such Bank, and next to the other Advances of each Bank outstanding based upon each Bank's Pro Rata Share. 2.18 ADMINISTRATIVE FEE. Borrower agrees to pay to the Agent, for the Agent's own and sole account and not for the account of the Banks, an administrative fee in an amount determined from time to time by the Agreement of Borrower and the Agent and set forth in a separate letter agreement between Borrower and the Agent. Each administrative fee shall be deemed fully earned and non-refundable on the due date thereof. 24 SECTION 3. SECURITY 3.1 GENERAL. To secure full and timely performance of Borrower's covenants set out in this Agreement and to secure the repayment of the Revolving Credit Note, all of the Advances and all other Indebtedness, Borrower, hereby grants and assigns to the Agent and the Banks, and hereby agrees to grant and assign and cause each Loan Party and each general partner or Subsidiary of any of them to grant and assign to the Agent and the Banks a lien upon, and security interest in, the Collateral and all other commercial restaurant locations and other Real Property of Borrower or Guarantor, or any general partner or Subsidiary of any of them, now or hereafter owned or leased by such Person pursuant to the Lease Assignments, the Financing Statements and such other agreements, documents and instruments as the Agent shall from time to time require. Borrower hereby ratifies and affirms any and all Lease Assignments, Financing Statements and other agreements, documents and instruments executed by Borrower or any other Loan Party on or before the date of this Agreement, agrees that the same shall continue in full force and effect, and agrees that the same are the legal, valid and binding obligations of Borrower or such other Loan Party, as the case may be, enforceable against Borrower or such other Loan Party, as the case may be, in accordance with their respective terms, and that all such existing Lease Assignments, Financing Statements and other agreements, documents and instruments shall secure the Indebtedness as defined herein, and not just as defined in the Original Agreement, and that upon request each Loan Party, and any general partner or Subsidiary of any of them, will execute all documentation reasonably requested by the Agent and/or the Majority Banks to evidence the same. The Collateral shall also include such personalty and fixtures of Borrower and Guarantor, and each general partner or Subsidiary of any of them, as are at any time now or hereafter located on any Real Property described above. Borrower shall, and shall cause each Loan Party, and each general partner or Subsidiary thereof, to execute and deliver such documents as the Agent and/or the Banks shall require to confirm the existing liens, mortgages and Lease Assignments and the addition of Compass and the other Banks as beneficiaries under any recorded Lease Assignment. 3.2 SPECIAL TREATMENT OF QUALIFYING NON-RECOURSE DEBT FINANCINGS. As long as there has not occurred or then exist a Default or Event of Default, and no Default or Event of Default would occur or exist as a result thereof, Borrower and the other Loan Parties shall be permitted to grant mortgages on Real Property as collateral for Qualifying Non-Recourse Debt in an amount which does not exceed $20,000,000 in the aggregate at any time outstanding (but only to the extent of such Qualifying Non-Recourse Debt) for the purpose of refinancing a portion of the Indebtedness provided that (i) the aggregate fair market value of all Real Property encumbered by the liens and security interests which secure such Qualifying Non-Recourse Debt does not exceed two hundred percent (200%) of the aggregate amount of such Qualifying Non-Recourse Debt and (ii) all of the proceeds of such Qualifying Non-Recourse Debt are paid to the Agent for the ratable benefit of the Banks in payment of Advances and Letter of Credit Exposure then outstanding, and the Agent and the Banks agree that they will subordinate the lien of the Lease Assignment covering the same to the lien of such mortgagee on such terms as are reasonable and customary in non-recourse financings of real property. 25 SECTION 4. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE AGENT AND THE BANKS 4.1 CONDITIONS TO FIRST DISBURSEMENT. The obligations of the Agent and each of the Banks under this Agreement are subject to the occurrence, prior to or upon the date hereof, of each of the following conditions: 4.1.1 DOCUMENTS EXECUTED AND FILED. Borrower shall have executed (or caused to be executed) and delivered to the Agent and, as appropriate, there shall have been filed or recorded with such filing or recording offices as the Agent or any of the Banks shall deem appropriate, the following: (a) the Revolving Credit Notes; (b) the Financing Statements; (c) the Lease Assignments; (d) the Guaranty; (e) landlord and mortgagee waivers and/or estoppel certificates with respect to all Real Property where any of the lease agreements, instruments and other documents evidencing the Collateral (or copies of such lease agreements, instruments and documents) or any of Borrower's books and records are located, all in form and substance reasonably satisfactory to the Majority Bank; (f) true and correct copies of all leases evidencing any Loan Party's Real Property consisting of a lessee's leasehold interest (e.g., ground leases); (g) true and correct copies of all leases evidencing any Loan Party's Real Property consisting of a lessor's leasehold interests (e.g., commercial restaurant franchisee tenant leases); and (h) such other documents and instruments as the Agent or any of the Banks shall reasonably require. 4.1.2 CERTIFIED RESOLUTIONS. Borrower shall have furnished to the Agent a certified copy of resolutions of the partners of Borrower authorizing the execution, delivery and performance of this Agreement, the borrowing hereunder, the Revolving Credit Notes and any other documents contemplated by this Agreement, which shall have been certified by the General Partner as of the Disbursement Date first occurring as being complete, accurate and in effect. General Partner shall have furnished to the Agent a copy of resolutions of the Board of Directors of General Partner authorizing the execution, delivery and performance of this Agreement, the borrowing hereunder, the Revolving Credit Notes and any other documents contemplated by this Agreement, which shall have been certified by the Secretary or Assistant Secretary of General Partner as of the Disbursement Date first occurring as being complete, accurate and in effect. Guarantor shall have furnished to the Agent a copy of resolutions of the partners of Guarantor 26 authorizing the execution, delivery and performance of the Guaranty and any other documents contemplated by this Agreement to be executed, delivered or performed by Guarantor, which shall have been certified by the general partner of Guarantor as of the Disbursement Date first occurring as being complete, accurate and in effect. The general partner of Guarantor shall have furnished to the Agent a copy of resolutions of the Board of Directors of General Partner authorizing the execution, delivery and performance of the Guaranty and any other documents contemplated by this Agreement to be executed, delivered or performed by Guarantor, which shall have been certified by the Secretary of Assistant Secretary of the general partner of Guarantor as of the Disbursement Date first occurring as being complete, accurate and in effect. 4.1.3 CERTIFIED ARTICLES/LIMITED PARTNERSHIP CERTIFICATE. Borrower shall have furnished to the Agent a copy of the Certificate of Limited Partnership and all other documents required to be filed by Borrower to create a limited partnership, including all amendments thereto and restatements thereof, all of which shall have been certified by the Delaware Secretary of State or other appropriate filing office as of a date within 30 days of the Disbursement Date first occurring. General Partner shall have furnished to the Agent a copy of the Articles of Incorporation including all amendments thereto and restatements thereof, and all other charter documents of General Partner, all of which shall have been certified by the Delaware Secretary of State as of a date within 30 days of the Disbursement Date first occurring. Guarantor shall have furnished to the Agent a copy of the Certificate of Limited Partnership and all other documents required to be filed by Guarantor to create a limited partnership, including all amendments thereto and restatements thereof, all of which shall have been certified by the Delaware Secretary of State or other appropriate filing office as of a date within 30 days of the Disbursement Date first occurring. The general partner of Guarantor shall have furnished to the Agent a copy of the Articles of Incorporation including all amendments thereto and restatements thereof, and all other charter documents of the general partner of Guarantor, all of which shall have been certified by the Delaware Secretary of State as of a date within 30 days of the Disbursement Date first occurring. 4.1.4 CERTIFIED BYLAWS/LIMITED PARTNERSHIP AGREEMENT. Borrower shall have furnished to the Agent a copy of the limited partnership agreement of Borrower, including all amendments thereto and restatements thereof, which shall have been certified to by the General Partner as of the Disbursement Date first occurring as being complete, accurate and in effect. General Partner shall have furnished to the Agent a copy of the Bylaws of General Partner, including all amendments thereto and restatements thereof, which shall have been certified by the Secretary or Assistant Secretary of General Partner as of the Disbursement Date first occurring as being complete, accurate and in effect. Guarantor shall have furnished to the Agent a copy of the limited partnership agreement of Guarantor, including all amendments thereto and restatements thereof, which shall have been certified to by the General Partner as of the Disbursement Date first occurring as being complete, accurate and in effect. The general partner of Guarantor shall have furnished to the Agent a copy of the Bylaws of the general partner of Guarantor, including all amendments thereto, which shall have been certified by the Secretary or Assistant Secretary of the general partner of Guarantor as of the Disbursement Date first occurring as being complete, accurate and in effect. 4.1.5 CERTIFICATE OF GOOD STANDING. Borrower, Guarantor, General Partner and the general partner of Guarantor each shall have furnished to the Agent a certificate of good 27 standing with respect to it, which shall have been certified by the Delaware Secretary of State, together with evidence of such Person's authority to do business in the State of Texas, as of a date within 30 days of the initial Disbursement Date. 4.1.6 CERTIFICATE OF INCUMBENCY. General Partner and the general partner of Guarantor each shall have furnished to the Agent a certificate of the Secretary or Assistant Secretary of it, certified as of the Disbursement Date first occurring, as to the incumbency and signatures of the officers of it signing this Agreement, the Revolving Credit Notes, the Lease Assignments, the Guaranty and any documents contemplated or delivered under this Agreement on behalf of itself, Borrower and/or Guarantor. 4.1.7 OPINION OF COUNSEL. Borrower shall have furnished to the Agent and each of the Banks the favorable written opinion of legal counsel to Borrower, General Partner, Guarantor and the general partner of Guarantor, dated as of the initial Disbursement Date, in form and content as set forth in EXHIBIT "E" to this Agreement and containing such other or additional opinions as may be requested by the Agent or any of the Banks. 4.1.8 UCC LIEN SEARCHES. The Agent shall have received UCC filing and record searches of the names of each Loan Party from all applicable recording and filing offices, and such searches shall disclose no notice of any liens or encumbrances filed against any of the Collateral other than the Financing Statements or Permitted Liens. If such searches disclose any liens or encumbrances other than the Financing Statements or Permitted Liens, Borrower shall have furnished the Agent with such releases, modifications, or assignments thereof as shall be required by the Agent or any of the Banks, in form and content satisfactory to the Bank. 4.1.9 INSURANCE. Borrower shall have furnished to the Agent, in form, content and amounts and with companies satisfactory to the Agent and each of the Banks in accordance with Section 6.2 hereof, copies of the insurance policies described in Section 6.2 hereof. 4.1.10 FINANCIAL AND OTHER INFORMATION. Borrower shall have furnished to the Agent and each Bank its current financial statements, agings, reports and certificates set forth in SECTION 6.1.1 through SECTION 6.1.9. 4.1.11 LEASES. Borrower shall have furnished to the Agent copies of all leases of Real Property and a legal description of the Real Property covered thereby, together with all other information reasonably requested by the Agent or any of the Banks relating to such leases which may be necessary or desirable by the Agent or any of the Banks for the preparation or recordation of the Lease Assignments. 4.2 CONDITIONS TO ALL DISBURSEMENTS. The obligations of any of the Banks to make any Advance on any Disbursement Date, including, but not limited to, the initial Disbursement Date, are subject to the occurrence, prior to or on the Disbursement Date related to such Advance, of each of the following conditions: 4.2.1 GENERAL COMPLIANCE CERTIFICATE. The Agent and each Bank shall have received on or before the third day preceding such Disbursement Date a General Compliance Certificate, executed by the chief executive or chief financial officer of General Partner on 28 behalf of Borrower, certified as of such Disbursement Date and confirming that as of such Disbursement Date: (a) no Default or Event of Default has occurred and is continuing, or would result from the making of the proposed Advance; and (b) the warranties and representations set forth in SECTION 5 of this Agreement are true and correct on and as of such Disbursement Date. 4.2.2 BORROWING NOTICES AND ADVANCE COMPLIANCE CERTIFICATES. The Agent and each Bank shall have received each of the following, duly completed and executed by the chief executive officer or chief financial officer of General Partner on behalf of Borrower and certified as of such Disbursement Date: (a) in the case of an Acquisition Advance, a Borrowing Notice in the form of EXHIBIT B-1 attached hereto and an Advance Compliance Certificate in the form of EXHIBIT A-1 attached hereto, together with (i) Lease Assignments, (ii) a current property summary report of all Real Property of all Loan Parties and each general partner or Subsidiary thereof, (iii) mortgagee/lender title commitments which satisfy the requirements of SECTION 6.13 and SECTION 6.14 of this Agreement, and with respect to which all costs of policy issuance have been paid by Borrower (or other Loan Party), (iv) copies of all leases pertaining to such Real Property, (v) copies of owner title commitments, (vi) pro forma closing statements, (vii) the "flood hazard area" certificates or evidence of flood insurance, as the case may be, with respect to such property or interest described in SECTION 6.13 of this Agreement, (viii) evidence of casualty, liability and other insurance required under SECTION 6.2 of this Agreement with respect to such Real Property or required under any lease on such Real Property, (ix) the cover sheet of the environmental site assessment pertaining to such Real Property which identifies such Real Property and sets forth the conclusion and/or executive summary of such report, and (x) all other agreements, documents and instruments required by the Agent or any Bank to create, evidence or perfect the lien and security interest of the Agent for the benefit of the Banks on the Real Property which is to be acquired with the proceeds of such Acquisition Advance as Collateral for the Indebtedness; (b) in the case of a Letter of Credit Advance, a Borrowing Notice in the form of EXHIBIT B-2 attached hereto and an Advance Compliance Certificate in the form of EXHIBIT A-2 attached hereto; and (c) in the case of a Working Capital Advance, a Borrowing Notice in the form of EXHIBIT B-3 attached hereto and an Advance Compliance Certificate in the form of EXHIBIT A-3 attached hereto. 4.2.3 BANK SATISFACTION. Each Bank shall not know or have any reason to believe that, as of such Disbursement Date: (a) any Default or Event of Default has occurred and is continuing; 29 (b) any warranty or representation set forth in SECTION 5 of this Agreement shall not be true and correct; or (c) any provision of law, any order of any court or other agency of government on any regulation, rule or interpretation thereof shall have had any material adverse effect on the validity or enforceability of this Agreement, the Revolving Credit Note, the Security Agreements, the Lease Assignment, the Financing Statements, the Pledge Agreement or the other documents contemplated hereby. 4.2.4 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments and documents required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall have been satisfactory to the Agent and each of the Banks and, if desired by the Bank at its sole option, satisfactory to and approved by legal counsel for the Agent and each of the Banks (and said counsel shall have been furnished with such certified copies of actions and proceedings and such other instruments and documents as they shall have reasonably requested). SECTION 5. WARRANTIES AND REPRESENTATIONS From the date of this Agreement until the later of (a) the Termination Date or (b) when the Indebtedness is paid in full, Borrower has performed all its obligations hereunder and all commitments and other obligations of the Agent and of the Banks under the Loan Documents have terminated, Borrower represents and warrants to the Agent and each of the Banks that: 5.1 CORPORATE EXISTENCE AND POWER. (a) Borrower is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to transact business as a foreign limited partnership in and is in good standing under the laws of each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on the business or operations (financial or otherwise) of Borrower; (b) General Partner is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to transact business as a foreign business as a foreign corporation in and is in good standing under the laws of each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on the business or operations (financial or otherwise) of General Partner; (c) Guarantor is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to transact business as a foreign limited partnership in and is in good standing under the laws of each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on the business or operations (financial or otherwise) of Guarantor; (d) Borrower, General Partner and Guarantor each has the power and authority to own its properties and assets and to carry out its business as now being conducted and is qualified to do business and in good standing in every jurisdiction wherein such qualification is necessary; (e) Borrower, and General Partner on behalf of Borrower, have the power and authority to execute, deliver and perform this Agreement, to borrow money in accordance with its terms, to execute, deliver and perform the Revolving Credit Notes and all other documents contemplated hereby, to grant to the Agent and the Bank liens and security interests in the Collateral as herein contemplated and to do any and all other things required of it herein; and (f) Guarantor, and its general partner on behalf of Guarantor, have the power and 30 authority to execute, deliver and perform the Guaranty and each of the other documents to which it is a party in accordance with their respective terms, and to do any and all other things required of it thereunder. 5.2 AUTHORIZATION AND APPROVALS. The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution, delivery and performance of the Revolving Credit Notes, the Lease Assignments, the Financing Statements and other documents contemplated hereby (a) have been duly authorized by all requisite partnership action of Borrower and corporate action of General Partner; (b) except for the filing and recording of the Financing Statements and the Lease Assignments in the appropriate UCC records and real property records specified on SCHEDULE 5.2 attached hereto, do not require registration with or consent or approval of, or other action by, any federal, state or other governmental authority or regulatory body, or, if such registration, consent or approval is required, the same has been obtained and disclosed in writing to the Agent and the Banks; (c) will not violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation or Bylaws of General Partner, the partnership certificate or limited partnership agreement of Borrower, or any provision of any indenture, note, agreement or other instrument to which Borrower and/or General Partner is a party, or by which it or any of its properties or assets are bound; (d) will not be in conflict with, result in a breach of or constitute (with or without notice or passage of time) a default under any such indenture, note, agreement or other instrument; and (e) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Borrower other than in favor of the Agent for the benefit of itself and the Banks and as contemplated hereby. The execution, delivery and performance of the Guaranty and the other documents to which Guarantor is a party (a) have been duly authorized by all requisite partnership action of Guarantor and corporate action of the general partner of Guarantor; (b) do not require registration with or consent or approval of, or other action by, any federal, state or other governmental authority or regulatory body, or, if such registration, consent or approval is required, the same has been obtained and disclosed in writing to the Agent and the Banks; (c) will not violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation or Bylaws of the general partner of Guarantor, the partnership certificate or limited partnership agreement of Guarantor, or any provision of any indenture, note, agreement or other instrument to which Guarantor and/or the general partner of Guarantor is a party, or by which it or any of its properties or assets are bound; (d) will not be in conflict with, result in a breach of or constitute (with or without notice or passage of time) a default under any such indenture, note, agreement or other instrument; and (e) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Guarantor other than in favor of the Agent and as contemplated thereby. 5.3 VALID AND BINDING AGREEMENT. This Agreement is, and the Revolving Credit Notes, the Lease Assignment, the Financing Statements and all other documents contemplated hereby will be, when delivered, valid and binding obligations of Borrower and enforceable in accordance with their respective terms. The Guaranty will be, when delivered, the valid and binding obligations of Guarantor and enforceable in accordance with its terms. 5.4 ACTIONS, SUITS OR PROCEEDINGS. There are no actions, suits or proceedings, at law or in equity, and no proceedings before any arbitrator or by or before any governmental 31 commission, board, bureau, or other administrative agency, pending, or, to the best knowledge of Borrower, threatened against or affecting Borrower, General Partner or Guarantor, or any of their respective properties or rights which, if adversely determined, could materially impair the right of Borrower, General Partner or Guarantor to carry on its respective business substantially as now conducted or could have a material adverse effect upon the financial condition of Borrower, General Partner or Guarantor. Upon request of the Agent or any of the Banks, Borrower shall provide, and cause each Loan Party and each general partner or Subsidiary thereof to provide, a current list of all pending litigation involving it or its respective properties. 5.5 NO LIENS, PLEDGES, MORTGAGES OR SECURITY INTERESTS. Except for Permitted Liens and liens in favor of the Agent for the benefit of itself and the Banks securing the Indebtedness, none of Borrower's, General Partner's or Guarantor's respective assets and properties, including, without limitation, the Collateral, are subject to any mortgage, pledge, lien, security interest or other encumbrance of any kind or character. 5.6 ACCOUNTING PRINCIPLES. All combined and combining balance sheets, earnings statements and other financial data furnished to the Agent or any of the Banks for the purposes of, or in connection with, this Agreement and the transactions contemplated by this Agreement, have been prepared in accordance with GAAP, and do or will fairly present the financial condition of Borrower and Guarantor as of the dates, and the results of its operations for the periods, for which the same are furnished. Without limiting the generality of the foregoing, the Financial Statements have been prepared in accordance with GAAP (except as disclosed therein) and fairly present the financial condition of Borrower and Guarantor as of the dates, and the results of its operations for the fiscal periods, for which the same are furnished. Neither Borrower, General Partner nor Guarantor has any material contingent obligations, liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, the Financial Statements. 5.7 FINANCIAL CONDITION. Borrower, General Partner and Guarantor are each solvent, able to pay its debts as they mature, has capital sufficient to carry on its business and has assets the fair market value of which exceed its liabilities, and neither Borrower, nor General Partner nor Guarantor will be rendered insolvent, undercapitalized or unable to pay maturing debts by the execution or performance of this Agreement or the other documents contemplated hereby. There has been no material adverse change in the business, properties or condition (financial or otherwise) of Borrower, General Partner or Guarantor since the date of the latest of the Financial Statements. 5.8 CONDITIONS PRECEDENT. As of each Disbursement Date, all appropriate conditions precedent referred to in Section 4 hereof shall have been satisfied or waived in writing by the Bank. 5.9 TAXES. Borrower, General Partner and Guarantors have each filed by the due date therefor all federal, state and local tax returns and other reports it is required by law to file, has paid or caused to be paid all taxes, assessments and other governmental charges that are shown to be due and payable under such returns, and have made adequate provision for the payment of such taxes, assessments or other governmental charges which have accrued but are not yet payable. Neither Borrower, nor General Partner nor Guarantor has any knowledge of any 32 deficiency or assessment in connection with any taxes, assessments or other governmental charges not adequately disclosed in the Financial Statements. 5.10 COMPLIANCE WITH LAWS. Borrower, General Partner and Guarantor have each complied with all applicable laws, to the extent that failure to comply would materially interfere with the conduct of the business of Borrower, General Partner or Guarantor. 5.11 INDEBTEDNESS. Except as disclosed on SCHEDULE 5.11 attached hereto which may be updated by Borrower from time to time to disclose Qualifying Non-Recourse Debt expressly permitted under this Agreement, neither Borrower nor Guarantor has any indebtedness for money borrowed or any direct or indirect obligations under any leases (whether or not required to be capitalized under GAAP) or any agreements of guarantee or surety, except for (i) the endorsement of negotiable instruments by them in the ordinary course of business for deposit or collection, (ii) unsecured obligations for down payments and earnest money which are disclosed in advance in writing to the Agent and the Banks for the purchase of commercial restaurant properties which do not exceed ten percent (10%) of the proposed purchase price of such properties, and (iii) unsecured contingent payments for the purchase of restaurant properties which do not exceed five percent (5%) of the aggregate purchase price of such properties (as determined on a property-by-property basis for each property purchased). 5.12 MATERIAL AGREEMENTS. Except as disclosed on SCHEDULE 5.12 attached hereto, which may be updated by Borrower from time to time, neither Borrower, nor General Partner nor Guarantor has any material leases (under which it is a lessee), contracts or commitments of any kind (including, without limitation, employment agreements, collective bargaining agreements, powers of attorney, distribution contracts, patent or trademark licenses, contracts for future purchase or delivery of goods or rendering of services, bonus, pension and retirement plans, or accrued vacation pay, insurance and welfare agreements). To the best knowledge of Borrower, all parties to the agreements disclosed on SCHEDULE 5.12 have complied with the provisions of such leases, contracts or commitments; and to the best knowledge of Borrower, no party to such agreements is in default thereunder, nor has there occurred any event which with notice or the passage of time, or both, would constitute such a default. 5.13 MARGIN STOCK. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, and no part of the proceeds of any Advance hereunder will be used, directly or indirectly, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or for any other purpose which might violate the provisions of Regulation G, S, T, U or X of the said Board of Governors. Borrower does not own any margin stock. 5.14 PENSION FUNDING. Neither Borrower, General Partner nor Guarantor has incurred any accumulated funding deficiency within the meaning of ERISA or incurred any liability to the PBGC in connection with any employee benefit plan established or maintained by Borrower, General Partner or Guarantor and no reportable event or prohibited transaction, as defined in ERISA, has occurred with respect to such plans. 33 5.15 MISREPRESENTATION. No warranty or representation by Borrower contained herein or in any certificate or other document furnished by Borrower pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such warranty or representation not misleading in light of the circumstances under which it was made. There is no fact which Borrower has not disclosed to the Agent in writing which materially and adversely affects nor, so far as Borrower can now foresee, is likely to prove to affect materially and adversely the business, operations, properties, prospects, profits or condition (financial or otherwise) of Borrower or ability of Borrower to perform this Agreement. 5.16 PARTNERSHIP INTERESTS, PARTNERS AND SUBSIDIARIES. The entire issued and outstanding equity interests and the beneficial and record owners thereof for each of Borrower and General Partner is set forth in SCHEDULE 5.16 attached hereto. There are no outstanding options, warrants or rights to purchase, nor any agreement for the subscription, purchase or acquisition of, any equity interest of Borrower or General Partner. Except as set forth in SCHEDULE 5.16, which may be updated from time to time by Borrower, neither Borrower, General Partner nor Guarantor has any Subsidiaries. 5.17 NO CONFLICTING AGREEMENTS. Neither Borrower, nor General Partner nor Guarantor is in default under any agreement to which it is a party or by which it or any of its property is bound, the effect of which might have a material adverse effect on the business or operations (financial or otherwise) on any of them. No provision of the Certificate of Limited Partnership, limited partnership agreement, Articles of Incorporation, bylaws or other organizational documents of Borrower, General Partner or Guarantor, and no provision of any existing mortgage, indenture, note, contract, agreement, statute (including, without limitation, any applicable usury or similar law), rule, regulation, judgment, decree or order binding on Borrower, General Partner or Guarantor or affecting the property of Borrower, General Partner or Guarantor conflicts with, or requires any consent under, or would in any way prevent the execution, delivery or carrying out of the terms of, this Agreement, the Lease Assignment, the Guaranty or any other documents contemplated hereby, and the taking of any such action will not constitute a default under, or result in the creation or imposition of, or obligation to create any lien upon the property of Borrower, General Partner or Guarantor pursuant to the terms of any such mortgage, indenture, note, contract or agreement; except that in regards to sales of and foreclosures on Real Property of Borrower and Guarantor the provisions of Article VIII of the Agreements of Limited Partnership of Borrower and Guarantor provide for a right of first refusal on sales of and foreclosures on Real Property of Borrower and Guarantor in favor of BKC. 5.18 REAL PROPERTY. SCHEDULE 1.1 sets forth a complete list of all of the Real Property and interests thereof owned or leased, as the case may be as indicated thereon, by Borrower as of the date hereof. SCHEDULE 1.1 shall be updated by Borrower from time to time (but not less frequently than quarterly) to reflect matters which occur after the date hereof. 5.19 OUTSTANDING PRINCIPAL BALANCE OF INDEBTEDNESS UNDER ORIGINAL AGREEMENT. As of the date hereof immediately prior to the execution of this Agreement and the Revolving Credit Note, the unpaid principal balance of the Indebtedness (including without limitation all Advances and all Letter of Credit Exposure) under the Original Agreement is $18,323,843.69, as set forth on SCHEDULE 5.19 attached hereto and made a part hereof, plus accrued but unpaid interest thereon. Borrower further covenants, warrants and represents that (i) there exists no Event of Default nor any fact or condition which with the giving of notice or passage of time or both would create an Event of 34 Default, (ii) that there are no defenses, counterclaims or offsets to any of the Loan Documents, that if any defense, counterclaim or offset exists, known or unknown, the same is hereby waived and released in full, and (iii) that all of the warranties and representations contained in the Original Agreement are true and correct as of the date hereof. SECTION 6. AFFIRMATIVE COVENANTS On a continuing basis from the date of this Agreement until the later of (a) the Termination Date or (b) when the Indebtedness is paid in full, Borrower has performed all of its other obligations hereunder and all commitments and other obligations of the Agent and the Banks under the Loan Documents have terminated, Borrower covenants and agrees that it will, at its sole expense: 6.1 FINANCIAL AND OTHER INFORMATION. 6.1.1 ANNUAL FINANCIAL REPORTS. Furnish to the Agent and each Bank, in form and reporting basis satisfactory to the Agent and each Bank, not later than 90 days after the close of each fiscal year of Borrower, beginning with the fiscal year ending December 31, 1995, the 10-K Annual Report of Borrower and the financial statements of Borrower and Guarantor (on a combined and combining basis) containing the balance sheet as of the close of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports. Such reports shall be prepared in accordance with GAAP by a Big Six accounting firm or such other independent certified public accountants of recognized standing selected by Borrower and acceptable to the Agent and each Bank and shall contain unqualified opinions as to the fairness of the statements therein contained. The Agent and each Bank acknowledges that it has received such financial statements for Borrower's fiscal year ended December 31, 1994. 6.1.2 10-Q QUARTERLY REPORTS. Furnish to the Agent and each Bank, in form and substance satisfactory to the Agent and each Bank, not later than 45 days after the close of each fiscal quarter of Borrower other than the fiscal year end of Borrower, beginning with the fiscal quarter ending December 31, 1995, containing the combined balance sheet of Borrower and Guarantor as of the end of such period, combined statements of income and retained earnings of Borrower and Guarantor and a combined statement of cash flows of Borrower and Guarantor for the portion of the fiscal year up to the end of such period, management's discussion and analysis of the financial condition and results of operations of Borrower and Guarantor, and such other comments and financial details as are usually included in such reports. These statements shall be prepared on the same accounting basis as the statements required in SECTION 6.1 of this Agreement and shall be reviewed by a Big Six accounting firm or such other independent certified public accountants of recognized standing selected by Borrower and acceptable to the Agent and each Bank. 6.1.3 MONTHLY FINANCIAL STATEMENTS. Furnish to the Agent and each Bank not later than 30 days after the close of each calendar month, beginning with the month ending December 31, 1996, financial statements of Borrower and Guarantor (on a combined and combining basis) containing a balance sheet of them as of the end of such period, statements of 35 nicome and retained earnings and a statement of cash flows of them for the portion of the fiscal year up to the end of such period, and such other comments and financial details as are usually included in similar reports. These statements shall be prepared on the same accounting basis as the statements required in SECTION 6.1.1 of this Agreement and shall be in such detail as the Agent and each Bank may reasonably require, and the accuracy of the statements shall be certified by the chief executive or financial officer of Borrower and Guarantor. 6.1.4 QUARTERLY OPERATING REPORTS. Furnish to the Agent and each Bank quarterly by the thirtieth (30th) day after the close of each fiscal quarter of Borrower, beginning with the fiscal quarter ending December 31, 1995: (a) operating reports on the properties of each Loan Party as of the end of the preceding fiscal quarter of Borrower in a form satisfactory to the Agent and each Bank; (b) property acquisition pipeline reports as of the end of the preceding fiscal quarter of Borrower in a form satisfactory to the Agent and each Bank; (c) franchisee loan status reports as of the end of the preceding fiscal quarter of Borrower in form and substance satisfactory to the Agent and each Bank; and (d) property summary reports on the properties of each Loan party as of the end of the preceding fiscal quarter of Borrower in form and substance satisfactory to the Agents and each Bank. 6.1.5 ANNUAL TRANSACTION AND ACTIVITIES REPORTS. Furnish to the Agent and each Bank annually by the thirtieth (30th) day after the close of each fiscal year of Borrower, beginning with the fiscal year ending December 31, 1995, partnership transaction and activities reports of Borrower and Guarantor as of the end of the preceding fiscal year of Borrower in a form satisfactory to the Agent and each Bank. 6.1.6 COMPLIANCE CERTIFICATE. Together with each delivery of the financial statements required by SECTIONS 6.1.1 of this Agreement and the 10-Q Quarterly Report required by Section 6.1.2 of this Agreement, furnish to the Agent and each Bank a General Compliance Certificate executed by the chief executive or chief financial officer of the General Partner and the general partner of Guarantor, certified as of such date, and confirming that, as of such date: (a) no Default or Event of Default has occurred, or if any such matter exists, stating the nature thereof, the period of existence thereof, and what action Borrower proposes to take with respect thereto; (b) the warranties and representations set forth in SECTION 5 of this Agreement are true and correct on and as of such date, except as otherwise specified in such certificate; and (c) Borrower is in compliance with all the terms and conditions contained in this Agreement; and attached to which certificate shall be a report in form satisfactory to the Agent and each Bank, prepared by such chief executive or chief financial officer of the general partner of Borrower and Guarantor, as the case may be, setting forth information and calculations that demonstrate compliance (or noncompliance) with each of the covenants set forth in SECTIONS 6.5, 6.6, and 6.7 of this Agreement. 36 6.1.7 ADVERSE EVENTS. Promptly inform the Agent and each Bank of the occurrence of any Default or Event of Default, or of any other occurrence which has or could reasonably be expected to have a materially adverse effect upon Borrower's, General Partner's or Guarantor's business, properties, or financial condition or upon Borrower's, General Partner's or Guarantor's ability to comply with its obligations hereunder, including without limitation, any failure to observe or perform any term, covenant or condition in any agreement or instrument evidencing, securing or relating to any of its indebtedness, which is being contested by Borrower. 6.1.8 REPORTS. Promptly furnish to the Agent and each Bank upon becoming available a copy of all financial statements, reports, notices, proxy statements and other communications sent by Borrower, or Guarantor to its respective partnership interest or unit holders, and all regular and periodic reports filed by Borrower, General Partner or Guarantor with any securities exchange, the Securities and Exchange Commission, or other governmental authority. 6.1.9 MANAGEMENT LETTERS. Furnish to the Agent and each Bank, promptly upon receipt thereof, copies of all management letters and other reports of substance submitted to Borrower, General Partner or Guarantor by independent certified public accountants in connection with any annual or interim audit of the books of Borrower, General Partner or Guarantor. 6.1.10 OTHER INFORMATION AS REQUESTED. Borrower shall promptly furnish to the Agent and each Bank such other information regarding the operations, business affairs and financial condition of Borrower, General Partner or Guarantor as the Agent or any Bank may reasonably request from time to time, and permit the Agent and each Bank, and its respective employees, attorneys and agents, to inspect all of the books, records and properties of any Loan Party and general partner or Subsidiary of any of them and its Subsidiaries at any reasonable time. References in this SECTION 6 to the "chief executive or financial officer" shall mean the general partners when Borrower is a partnership. 6.1.11 LEASES. Borrower shall promptly furnish to the Agent and each Bank copies of all leases of Real Property and any and all amendments and modifications of any lease of Real Property entered into on or after the date hereof between any Loan Party or general partner or Subsidiary thereof and any Person, under which any Loan Party or general partner or Subsidiary thereof is a lessor or lessee. 6.2 INSURANCE. Either directly, or indirectly through assignments of insurance policies provided by lessees of its properties, keep its insurable properties (including but not limited to the Collateral) adequately insured and maintain (a) insurance against fire and other risks customarily insured against under an "all-risk" policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of Borrower or its Subsidiaries, as the case may be, (b) necessary worker's compensation insurance, (c) public liability insurance, and (d) such other insurance as may be required by law or as may be reasonably required in writing by the Agent of any of the Banks, all of which insurance shall be in such amounts, containing such terms, in such form, for such purposes, prepaid for such time period, and written by such companies as may be satisfactory to the Agent; PROVIDED, 37 HOWEVER, that unless otherwise agreed by the Agent in writing, the Collateral shall be insured for its replacement cost and all insurance policies shall be written by a company (or companies) having an A.M. Best rating of "A-" or better. Borrower will promptly deliver to the Agent evidence satisfactory to the Agent that such insurance has been so procured and shall deliver evidence of each renewal thereof upon the request of the Agent or any Bank. If Borrower fails to maintain satisfactory insurance as herein provided, the Agent shall have the option to do so, and Borrower agrees to repay the Agent upon demand, with interest at the Legal Rate, all amounts so expended by the Agent. Borrower hereby appoints the Agent or any employee or agent of the Agent as Borrower's attorney-in-fact, which appointment is coupled with an interest and irrevocable, and authorizes the Agent or any employee or agent of the Agent, on behalf of Borrower, (a) to adjust and compromise any loss under said insurance, (b) at any time after the occurrence during the existence of an Event of Default, to notify the companies that have issued said insurance to change the address of delivery of Borrower's mail to an address designated by the Agent, (c) at any time after the occurrence during the existence of an Event of Default, to open, to receive, open and dispose of all mail addressed to Borrower, to demand payment and (d) to endorse any check or draft payable to Borrower in connection with returned or unearned premiums on said insurance or the proceeds of said insurance, and any amount so collected may be applied toward satisfaction of the Indebtedness; provided, however, that the Agent shall not be required hereunder so to act. 6.3 TAXES. Pay promptly and within the time that they can be paid without late charge, penalty or interest all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon Borrower or its Subsidiaries, and their property, except to the extent being contested in good faith. If any contested amount exceeds $10,000, upon the Agent's request Borrower shall escrow funds, post bond, or provide other security, in an amount and manner satisfactory to the Agent. If Borrower shall fail to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest the Agent shall have the option to do so, and Borrower agrees to repay the Agent upon demand, with interest at the Legal Rate, all amounts so expended by the Agent. At the request of the Agent or any Bank, Borrower shall, at Borrower's expense, subscribe to a tax monitoring service acceptable to the Agent in order to monitor the payment of any such taxes and assessments and the filing of any liens against the property of Borrower or any of its Subsidiaries, Borrower agreeing to supply the Agent with copies of each report delivered to Borrower by such tax monitoring service. As an alternative to the preceding sentence, Borrower agrees that the Agent itself, at Borrower's expense, may subscribe to such a tax monitoring service as to taxes, assessments and liens applicable to Borrower's or any of its Subsidiaries' property. 6.4 MAINTAIN LIMITED PARTNERSHIP AND BUSINESS. Do or cause to be done all things necessary to preserve and keep in full force and effect Borrower's limited partnership existence, rights and franchises and comply with all applicable laws; continue to conduct and operate its and each of its Subsidiaries' business substantially as conducted and operated during the present and preceding calendar year; at all times maintain, preserve and protect all franchises and trade names and preserve all the remainder of its and its Subsidiaries' property and keep the same in good repair, working order and condition; and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto 38 so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 6.5 MAINTAIN TANGIBLE NET WORTH. Maintain at all times a Tangible Net Worth of Borrower and Guarantor on a combined basis of not less than $40,500,000. 6.6 MAINTAIN DEBT RATIO. Maintain at all times the ratio of Debt to Tangible Net Worth of Borrower and Guarantor on a combined basis at not more than 1.00 to 1.0. 6.7 MAINTAIN CASH FLOW COVERAGE RATIO. Maintain at all times the ratio of (a) Annualized Cash Flow to Pro Forma Five Year Bank Debt Amortization of Borrower and Guarantor on a combined basis at not less than 1.20 to 1.0 and (b) Annualized Cash Flow to Pro Forma Twenty Year Bank Debt Amortization of Borrower and Guarantor on a combined basis at not less than 2.75 to 1.0. 6.8 ERISA. (a) At all times meet the minimum funding requirements of ERISA with respect to Borrower's employee benefit plans subject to ERISA; (b) promptly after Borrower knows or has reason to know (i) of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or (ii) that the PBGC or Borrower has instituted or will institute proceedings to terminate an employee pension plan, deliver to the Agent a certificate of the chief financial officer of Borrower setting forth details as to such event or proceedings and the action which Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC; and (c) furnish to the Agent (or cause the plan administrator to furnish the Agent) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by Borrower not later than ten days after such report has been so filed. 6.9 USE OF LOAN PROCEEDS. Use the proceeds of the Advances and Letters of Credit hereunder only for the purposes set forth in SECTION 2.13 of this Agreement. 6.10 COLLATERAL AUDITS. Permit the Agent or any Bank to conduct audits of the Collateral and of Borrower's books and records as often as the Agent, in its credit judgment, deems such audits to be necessary. Upon the Agent's request, Borrower shall reimburse the Agent for the reasonable costs and expenses expended by the Agent in connection with such audits. 6.11 LIENS. Promptly notify the Agent and each Bank of any liens in excess of $10,000 individually or $250,000 in the aggregate of mechanics, materialmen, carriers, warehousemen or other like statutory or common law liens. 6.12 COPIES OF LEASES. Deliver to the Agent: (a) within 30 days following the date hereof, copies of all leases of Real Property, together with any and all amendments and modifications to such leases, entered into on or before the date hereof between any Loan Party and any Person, under which such Loan Party is a lessor; and (b) within 30 days following the entering into thereof, copies of all leases of Real Property entered 39 into after the date hereof, together with any and all amendments and modifications to any leases of Real Property entered into after the date hereof, between any Loan Party and any Person, under which such Loan Party is a lessor. 6.13 EXECUTION, DELIVERY AND RECORDATION OF LEASE ASSIGNMENTS ON REAL PROPERTY ACQUIRED IN THE FUTURE. Assign, and cause each Loan Party and general partner or Subsidiary thereof to assign, to the Agent for the benefit of the Agent and the Banks, as additional collateral for the Indebtedness, all of such Person's right, title and interest in all Real Property and interests therein acquired by any Person after the date hereof, and execute and deliver to the Agent for the benefit of the Agent and the Banks, in form and content acceptable to the Agent and the Banks and sufficient for filing and recording with such filing or recording offices as the Agent and the Banks shall deem appropriate, Lease Assignments covering all of such Real Property, and deliver to the Agent with respect to all such Real Property (i) a mortgagee/lender title policy(ies) which satisfies the requirements thereof in SECTION 6.14 of this Agreement showing that such Person's right, title and interest therein is not subject to any mortgage, pledge, lien, security interest or other encumbrance of any kind or character except for Permitted Liens, liens in favor of the Bank and other liens which may be consented to in writing by the Agent and the Banks from time to time, and (ii) a certificate that such Real Property is not located in an identified "flood hazard area" in which flood insurance has been made available pursuant to the National Flood Insurance Reform Act of 1994 and the regulations thereunder (or, if such Real Property is located in such an identified area, evidence of such Loan Party having obtained flood insurance with respect thereto). 6.14 CLOSINGS OF REAL PROPERTY ACQUISITIONS. Conduct all closings of all purchases or acquisitions of Real Property by any Loan Party through a title company satisfactory to the Majority Banks (in the Majority Bank's reasonable discretion), obtain an owner's title policy or leasehold policy duly issued to any Loan Party by a title insurer satisfactory to the Majority Banks (in the Majority Banks' reasonable discretion), and promptly following such closing deliver to the Agent a true and correct copy of each such owner's title policy or leasehold policy issued to such Loan Party in connection therewith. For purposes hereof, Commonwealth Land Title Company, Chicago Title Company, Ticor, Fidelity National Title Insurance Company shall all be deemed acceptable. Such Loan Party shall also deliver to the Agent as a part of each such closing (i) Lease Assignments covering each such Real Property purchased or acquired, (ii) a mortgagee/lender title insurance commitment in form and substance satisfactory to the Agent and the Banks covering each such Real Property purchased or acquired and with respect to which all costs of policy issuance have been paid by Borrower (or other Loan Party), promptly followed by a policy naming the Agent and each of the Banks as an insured thereunder, (iii) copies of all leases pertaining to such Real Property, (iv) a closing statement pertaining to such Real Property purchase or acquisition, (v) evidence of casualty, liability and other insurance acquired under SECTION 6.2 of this Agreement with respect to such Real Property or required under any lease on such Real Property, (vi) the cover sheet of the environmental site assessment pertaining to such Real Property which identifies such Real Property and sets forth the conclusion and/or executive summary of such report, (vii) the flood insurance certificates or evidence of flood insurance, as the case may be, with respect to such Real Property described in SECTION 6.13 of this Agreement and (viii) all other agreements, documents and instruments required by the Agent or any Bank to create, evidence or perfect the lien and security interest of the Agent for the benefit of the Banks on such Real Property. 40 6.15 EVIDENCE OF AUTHORITY TO CONDUCT BUSINESS. Promptly obtain and deliver, and cause each Loan Party and General Partner or subsidiary thereof to obtain and deliver, to Agent and each of the Banks evidence of Borrower's and such other Person's qualification and good standing to do business in each state where it now or hereafter does business, except in states where the failure to be qualified or in good standing could not reasonably be expected to have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of such Person. SECTION 7. NEGATIVE COVENANTS On a continuing basis from the date of this Agreement until the later of (a) the Termination Date or (b) when the Indebtedness is paid in full, Borrower has performed all of its other obligations hereunder and all commitments and other obligations of the Agent and the Banks under the Loan Documents have terminated, Borrower covenants and agrees that it will not, that it will not permit any Subsidiary to, and that Guarantor will not: 7.1 DISTRIBUTIONS. Declare or pay during any calendar year any distribution (whether by reduction of capital or otherwise) with respect to any of its equity interests in excess of the sum of (A) Net Income, plus (B) depreciation and amortization, plus (C) reduction in net investment in direct financing leases, plus (D) provision for writedowns and disposal of Real Property; PROVIDED, HOWEVER, that in the event that a Default or Event of Default then exists or would result therefrom, Borrower shall not declare or pay any distribution (whether by reduction of capital or otherwise) with respect to any of its equity interests. 7.2 ACQUISITION OF EQUITY INTERESTS. Purchase, redeem, retire or otherwise acquire any of its general partnership interests or limited partnership interests (or any units representing the same) of any of its general partners or limited partners, or make any commitment to do so; PROVIDED, HOWEVER, that Guarantor shall be permitted to do so as long as no Default or Event of Default then exists or would result therefrom. 7.3 LIENS AND ENCUMBRANCES. Except as specifically permitted under SECTION 3.2 of this Agreement, create, incur, assume or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property or assets (including, without limitation, any charge upon property purchased or acquired under a conditional sales or other title retaining agreement or lease required to be capitalized under GAAP) whether now owned or hereafter acquired other than Permitted Liens. 7.4 INDEBTEDNESS. Incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness or liability for borrowed money, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, or any other indebtedness whatsoever, except for (a) the Indebtedness, (b) Subordinated Debt, (c) existing indebtedness to the extent set forth on SCHEDULE 5.11 of this Agreement, (d) trade indebtedness incurred and paid in the ordinary course of business, (e) contingent indebtedness to the extent permitted by SECTION 7.6 of this Agreement, (f) indebtedness secured by Permitted Liens, (g) indebtedness of the type and amounts described on SCHEDULE 7.4, (h) obligations of Borrower or Guarantor to issue limited partnership interests 41 of Guarantor as consideration for Borrower's purchase of real property which do not involve any obligation to pay money and (i) reimbursement obligations of Borrower under a Letter of Credit. 7.5 EXTENSION OF CREDIT. Make loans, advances or extensions of credit to any Person; PROVIDED, HOWEVER, that as long as no Default or Event of Default then exists or would result therefrom, Borrower shall be permitted to make (i) advances in a cumulative aggregate amount not to exceed $3,000,000 for the purpose of repair and refurbishment of the restaurant improvements situated on its Real Properties and (ii) down payments and earnest money deposits which are disclosed in advance in writing to the Agent and the Banks for the purchase of commercial restaurant properties and which do not exceed ten percent (10%) of the proposed purchase price of such properties; provided, however, that any promissory note or other evidence of such indebtedness and any collateral or security for the same shall be pledged and assigned to the Agent for the Benefit of the Banks in such manner as the Agent may require. 7.6 GUARANTEE OBLIGATIONS. Guarantee or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except for (a) the endorsement of negotiable instruments by Borrower in the ordinary course of business for deposit or collection and (b) the guaranty of royalty and advertising cooperative obligations, in an aggregate amount not to exceed $500,000 at any time, of an Affiliate under a franchise agreement to which such Affiliate is a party, provided that the franchise agreement covers the restaurant situated on Real Property leased by Borrower to such Affiliate. 7.7 SUBORDINATE INDEBTEDNESS. Subordinate any indebtedness due to it from a Person to indebtedness of other creditors of such Person. 7.8 PROPERTY TRANSFER, MERGER OR LEASE-BACK. (a) Sell, lease, transfer or otherwise dispose of in any calendar year properties and assets having an aggregate value of more than $5,000,000 (whether in one transaction or in a series of transactions) without the prior written consent of the Majority Banks; provided, however, that all of the proceeds of all sales, leases, transfers or other dispositions shall in any event be paid to the Agent for the ratable benefit of the Banks in repayment of the Advances and Letter of Credit Exposure then outstanding; (b) change its name, consolidate with or merge into any other corporation, permit another corporation to merge into it, acquire all or substantially all the properties or assets of any other Person, enter into any reorganization or recapitalization or reclassify its capital stock or form or acquire any Subsidiary except a Subsidiary engaged in substantially the same business as Borrower, provided that such Subsidiary has guaranteed the Indebtedness and has agreed to abide by such covenants, which contain substantially the same terms as the warranties and covenants set forth in SECTIONS 5, 6 and 7 of this Agreement and which are otherwise in form and substance satisfactory to the Bank; or (c) enter into any sale-leaseback transaction as a lessee. 7.9 ACQUIRE SECURITIES. Purchase or hold beneficially any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for (a) certificates of deposit with maturities of one year or less of United States commercial banks with 42 capital, surplus and undivided profits in excess of $100,000,000, (b) the purchase partnership interests and other securities of Persons substantially all of the business of which is the rental of restaurant real property, provided that (i) the aggregate amount of such securities owned by Borrower, Guarantor and the Subsidiaries may not exceed, at any one time $2,000,000, and (ii) Borrower shall sell or otherwise dispose of each such security (including a disposition by the purchase or liquidation into Borrower of all or substantially all of the assets of such Person), within twelve (12) months after the date of acquisition, (c) instruments issued by the Agent or any of the Banks, (d) money market instruments, (e) obligations from United States commercial banks with capital, surplus and undivided profits in excess of $100,000,000, as a counterparty to a written repurchase agreement obligating such counterparty to repurchase such obligations not later than 14 days after the purchase thereof, (f) mutual funds investing in obligations of the type described in CLAUSES (E) AND (F) and this SECTION 7.9, and (g) direct obligations of the United States Government maturing within one year from the date of acquisition thereof. 7.10 PENSION PLAN. (a) Allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plans established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan, or (b) permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) from which termination proceedings there may result a liability of Borrower to the PBGC which, in the opinion of the Majority Banks, will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of Borrower. 7.11 MISREPRESENTATION. Furnish the Agent or any Bank with any certificate or other document that contains any untrue statement of a material fact or omits to state a material fact necessary to make such certificate or document not misleading in light of the circumstances under which it was furnished. 7.12 MARGIN STOCK. Apply any of the proceeds of any Advance or Letter of Credit Exposure to the purchase or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder. 7.13 PURCHASE OR ACQUIRE CERTAIN PROPERTIES. Purchase or acquire (a)_any property(ies) or leasehold interest(s) in a single transaction or series of related transactions having an aggregate cost to Borrower in excess of $10,000,000 without the prior written consent of the Majority Banks (with consent or notification of non-consent from the Majority Banks to be communicated to Borrower within ten (10) Business Days following Borrower's written request therefor to the Agent and each of the Banks), unless each of the same at the time of such purchase or acquisition are occupied by a tenant operating a "Top Twenty Restaurant Chain" (as determined by the then most recent annual ranking of Nation's Restaurant News) commercial restaurant thereon; or (b) any leasehold interest(s) in a single transaction or a series of related transactions in which all rent and obligations of any Loan Party under the leasehold interest(s) acquired in such transaction(s) are greater than twenty percent (20%) of the lease rental income of such Loan Party from the tenant lease(s) of the restaurants located on such leasehold interests. 43 7.14 LEASE TERMS AND RENEWALS. Enter into, renew, modify or otherwise become obligated under any present or future lease (as lessor or lessee) except on such terms as are made on an arm's length basis, in good faith, and do not and would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the business or operations (financial or otherwise) of any Loan Party. 7.15 AMENDMENT OF PARTNERSHIP AGREEMENT; REMOVAL OF THE GENERAL PARTNER. Allow or permit (a) any amendment or modification of Borrower's Partnership Agreement or Guarantor's Partnership Agreement in any respect or (b) any removal, addition or substitution of a general partner in Borrower or Guarantor. SECTION 8. PROVISIONS REGARDING ENVIRONMENTAL LAWS 8.1 COVENANTS REGARDING ENVIRONMENTAL COMPLIANCE. Borrower hereby covenants and agrees with the Agent and each of the Banks as follows: 8.1.1 HAZARDOUS SUBSTANCE USE, MANUFACTURE. Borrower shall not use, generate, manufacture, produce, store, release, discharge, or dispose of on, under, or about the Real Property or transport to or from the Real Property any Hazardous Substance, or allow any other person or entity to do so on the Real Property, except in strict compliance with all applicable laws (including all applicable Environmental Laws). 8.1.2 COMPLIANCE WITH ENVIRONMENTAL LAWS. Borrower shall keep and maintain the Real Property in compliance with, and shall not cause the Real Property to be in violation of, any applicable Environmental Law. 8.1.3 NOTICES. Borrower shall give prompt written notice to the Agent of: (a) any proceeding or written inquiry by any governmental authority with respect to the presence of any Hazardous Substance on the Real Property or the migration thereof from or to other property; (b) all written claims made or threatened by any third party against Borrower or the Real Property relating to any loss or injury resulting from any Hazardous Substance; (c) Borrower's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Real Property that would reasonably be expected to cause the Real Property or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use of the Real Property under any applicable Environmental Law, or to be otherwise subject to any material restrictions on the ownership, occupancy, transferability or use of the Real Property under any applicable Environmental Law; (d) any written notice of violation or complaint from a governmental authority and relating to an applicable Environmental Law; 44 (e) any written notices or reports Borrower provides to a governmental authority relating to instances of non-compliance with an applicable Environmental Law; and (f) any written application Borrower provides to a governmental authority to obtain or amend a permit or approval relating to the generation, storage, treatment, or disposal of a Hazardous Substance or air contaminant. 8.1.4 DELIVERY OF PREMISES TO THE BANK. In the event any Lease Assignment or any mortgage securing the Indebtedness is foreclosed or Borrower tenders a deed in lieu of foreclosure with respect to any Real Property, Borrower shall deliver such Real Property to the Agent for the benefit of itself and each of the Banks free of any and all Hazardous Substances so that the condition of such Real Property shall not be a violation of any Environmental Laws. 8.1.5 INDEMNITY. Borrower shall defend, indemnify and hold harmless the Agent and each of the Banks, its employees, agents, officers, directors, successors and assigns from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature, including, without limitation, attorney's and consultant's fees (said attorneys and consultants to be selected by the Majority Banks), investigation and laboratory fees, environmental studies required by the Majority Banks (whether prior to foreclosure or otherwise), court costs and litigation expenses, any of which arise out of or are related to: (a) the use, generation, manufacture, production, storage, presence, disposal, release or threatened release of any Hazardous Substance on, from or affecting the Real Property or the soil, water, vegetation, buildings, personal property, persons or animals thereon, (b) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Substance, (c) any lawsuit brought or threatened, settlement reached, or governmental order relating to such Hazardous Substances, (d) the cost of removal of all such Hazardous Substances from all or any portions of the Real Property, (e) taking necessary precautions to protect against the release of Hazardous Substances on or affecting the Real Property, (f) complying with all Environmental Laws, (g) any violation of Environmental Laws or requirements of the Agent which are based upon or in any way related to such Hazardous Substances, and/or (h) the costs of any repair, cleanup or remediation of the Real Property and the preparation and implementation of any closure, remedial or other plans required to be undertaken by applicable Environmental Laws. Upon the Majority Banks' request, Borrower shall execute a separate indemnity covering the foregoing matters. 8.1.6 REMEDIAL WORK. In the event that any investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (the "REMEDIAL WORK") is required to be undertaken under any applicable local, state or federal law or regulation, any judicial order, or by any governmental entity because of, or in connection with, the current or reasonably threatened future presence or release of a Hazardous Substance in or into the air, soil, ground water, surface water or soil vapor at, on, about, under or within the Real Property (or any portion thereof), Borrower shall promptly after written demand for performance thereof by appropriate governmental authorities (or such shorter period of time as may be required under any applicable law, regulation, order or agreement), commence and thereafter diligently prosecute to completion, all such Remedial Work. All Remedial Work shall be performed by contractors selected by Borrower and approved in advance by the Majority 45 Banks, and under the supervision of a consulting engineer selected by Borrower and approved by the Agent (which approval the Agent shall not unreasonably withhold). All costs and expenses of such Remedial Work shall be paid by Borrower including, but not limited to, the Agent's reasonable attorneys' fees and reasonable costs incurred in connection with its monitoring or review of such Remedial Work. Notwithstanding the foregoing, Borrower shall not be deemed to have breached this SECTION 8.1.6 if (a) Borrower's noncompliance hereunder resulted from good faith error or innocent omission, (b) Borrower after obtaining knowledge of such noncompliance commences and diligently pursues a cure of such breach, and (c) such noncompliance is cured within ninety (90) Business Days following Borrower's receipt of notice of such noncompliance from the Agent, any appropriate governmental authorities or otherwise and such noncompliance has not resulted in a material adverse effect on the Collateral or Borrower's business, financial condition or operation. 8.1.7 CERTAIN RIGHTS OF THE BANK. Upon the Agent's or any Bank's receipt of notice from any source concerning the existence of any Hazardous Substance or the noncompliance by Borrower or any Real Property with any Environmental Law, which matter, if true, could result in an order, suit or other action against Borrower and/or any Real Property and which could, in the Majority Banks' commercially reasonable discretion, jeopardize Borrower's ability to repay the Indebtedness or impair the value of any material portion of the Collateral, the Majority Banks shall have the right (but not the obligation) to require a repayment of all or any portion of the Indebtedness (and a corresponding pro tanto reduction of the Overall Commitment Amount) as the Majority Banks shall determine, in their sole and absolute discretion, irrespective of the existence or non-existence of any Default or Event of Default at such time. The foregoing sentence shall not be deemed to limit any other rights the Agent may have under this Agreement, any other document, or at law or in equity. All reasonable costs and expenses incurred by the Agent in the exercise of any such rights shall become part of the Indebtedness, shall be secured by the collateral contemplated hereunder, and shall be payable by Borrower upon demand. 8.2 REPRESENTATIONS AND WARRANTIES RELATING TO ENVIRONMENTAL MATTERS. Borrower represents and warrants to the Agent and each of the Banks that, except as disclosed on SCHEDULE 8.2 hereto: 8.2.1 NO EXISTING VIOLATION. Neither the Real Property nor Borrower is in violation of or subject to any existing, pending or, to the knowledge of Borrower, threatened investigation by any governmental authority under any Environmental Law. 8.2.2 NO PERMITS REQUIRED. Borrower has not acquired and is not required by any applicable Environmental Law to obtain any permits or license to construct or use any improvements, fixtures or equipment forming a part of the Real Property except such permits or licenses as have been obtained. 8.2.3 PREVIOUS USES. Borrower or its environmental advisors has made diligent inquiry into previous uses and ownership of the Real Property, and based upon such inquiry has no knowledge of any Hazardous Substance disposed of or released on or to the Real Property. 46 8.2.4 USE BY BORROWER. Borrower's prior, present and intended use of the Real Property will not result in the disposal or release of any Hazardous Substance on or to the Real Property except in material compliance with applicable law. 8.2.5 UNDERGROUND STORAGE. No underground storage tanks, whether or not containing any Hazardous Substances, are located on or under the Real Property. 8.3 ENVIRONMENTAL RISK ASSESSMENT. Within 30 days after a written request therefor by the Agent or the Majority Banks, Borrower shall deliver to the Agent and each of the Banks a report prepared at Borrower's cost and expense by an environmental consultant acceptable to the Majority Banks, detailing the results of an environmental investigation concerning the Real Property or any portion thereof designated in such notice, including results of any soil and ground water samples that may have been taken in connection with such investigation. 8.4 SURVIVAL OF OBLIGATIONS. The provisions of this SECTION 8 shall be in addition to any and all other obligations and liabilities Borrower may have to the Agent and each of the Banks at common law or pursuant to any other agreement and, notwithstanding anything in SECTION 11.13 hereof to the contrary, shall survive (a) the repayment of the Revolving Credit Notes and all other Indebtedness, (b) the satisfaction of all of Borrower's other obligations hereunder and under the other loan documents, (c) the discharge of any mortgage which has been or is hereafter granted to the Agent and any of the Banks, and (d) the foreclosure or acceptance of a deed in lieu of foreclosure of any mortgage which has been or is hereafter granted to the Agent or any of the Banks. SECTION 9. EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS 9.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an Event of Default hereunder: 9.1.1 FAILURE TO PAY MONIES DUE. If Borrower shall fail to pay, within three (3) days of the date when such payment is due, any of the Indebtedness, including, without limitation, any principal or interest under the Revolving Credit Note or any taxes, insurance or other amount payable by Borrower under this Agreement or under any document executed in connection herewith, or if General Partner and/or Guarantor shall fail to pay, when due, any indebtedness, obligation or liability whatsoever of such Person to the Agent and/or any of the Banks. 9.1.2 MISREPRESENTATION. If any warranty or representation of Borrower in connection with or contained in this Agreement, or if any financial data or other information now or hereafter furnished to the Agent and/or any of the Banks by or on behalf of Borrower, shall prove to be false or misleading in any material respect. 9.1.3 NONCOMPLIANCE WITH THE BANK AGREEMENTS. If Borrower, General Partner and/or Guarantor shall fail to perform in the time and manner required any of its obligations or covenants under, or shall fail to comply with any of the provisions of, this Agreement, the Lease Assignment, the Guaranty, which does not involve the failure to make a payment when due (be 47 it principal, interest, taxes, insurance or otherwise) and which is not cured by Borrower within 20 days after the earlier of the date of notice to Borrower by the Agent and/or any of the Banks of such Default or the date the Agent and/or any of the Banks is notified, or should have been notified pursuant to Borrower's obligation under SECTION 6.1.7 hereof, of such Default, provided that with respect to any noncompliance with SECTION 8 hereof which requires Remedial Work, such 20 day period shall be extended to such time as is required under SECTION 8.1.6 hereof. 9.1.4 OTHER DEFAULTS. (a) If Borrower, General Partner or Guarantor shall default in the payment when due of any of its indebtedness (other than indebtedness owing to the Agent and/or any of the Banks and Qualifying Non-Recourse Debt covered by SECTION 9.1.4(b) below) or in the observance or performance of any term, covenant or condition in any agreement or instrument evidencing, securing or relating to such indebtedness, and such default be continued for a period sufficient to permit acceleration of the indebtedness, irrespective of whether any such default shall be forgiven or waived or there has been acceleration by the holder thereof (provided however, if the Borrower, General Partner or Guarantor shall give prompt notice of such default to the Agent and the Banks under SECTION 6.1.7 hereof, together with evidence of the bona fide contest of the same by appropriate and lawful proceedings and the Agent and the Banks shall be provided with reasonable assurances or collateral such that such default will not have a material adverse effect on the business or operations (financial or otherwise) of the Borrower, General Partner or Guarantor or the value of any material portion of the Collateral then, in that event there shall be no Event of Default until such time as an adverse final judgment has been entered in the matter, subject, however, to the provisions of SECTION 9.1.5 below); or (b) if Borrower, General Partner or Guarantor shall default in the payment when due of any of its Qualifying Non-Recourse Debt or in the observance or performance of any term, covenant or condition in any agreement or instrument evidencing, securing or relating to such indebtedness, and such default be continued for a period sufficient to permit acceleration of the Qualifying Non-Recourse Debt, irrespective of whether any such default shall be forgiven or waived or there has been acceleration by the holder thereof where the occurrence or existence of such default would have a material adverse effect on the business or operations (financial or otherwise) of Borrower, General Partner and/or Guarantor (provided however, if the Borrower, General Partner or Grantor shall give prompt notice of such default to the Agent and the Banks under SECTION 6.1.7 hereof, together with evidence of the bona fide contest of the same by appropriate and lawful proceedings and the Agent and Banks shall be provided with reasonable assurances or collateral such that such default will not have a material adverse effect on the business or operations (financial o otherwise) of the Borrower, General Partner or Guarantor or the value of any material portion of the Collateral then, in that event there shall be no Event of Default until such time as an adverse final judgment has been entered in the matter, subject, however, to the provisions of SECTION 9.1.5 below). 9.1.5 JUDGMENTS. If there shall be rendered against Borrower, General Partner and/or Guarantor one or more judgments or decrees involving an aggregate liability of $250,000 or more, which has or have become nonappealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than 30 days, whether or not consecutive; or if a writ of 48 attachment or garnishment against the property of Borrower, General Partner and/or Guarantor shall be issued and levied in an action claiming $250,000 or more and not released or appealed and bonded/secured in an amount and manner reasonably satisfactory to the Agent and each of the Banks within 30 days after such issuance and levy. 9.1.6 BUSINESS SUSPENSION, THE BANKRUPTCY, ETC. If Borrower, General Partner and/or Guarantor shall voluntarily suspend transaction of its business; or if Borrower, General Partner and/or Guarantor shall not pay its debts as they mature or shall make a general assignment for the benefit of creditors; or proceedings in the Bankruptcy, or for reorganization or liquidation of Borrower, General Partner or Guarantor under the Bankruptcy Code or under any other state or federal law for the relief of debtors shall be commenced or shall be commenced against Borrower, General Partner or Guarantor and shall not be discharged within 30 days of commencement; or a receiver, trustee or custodian shall be appointed for Borrower, General Partner or Guarantor or for any substantial portion of its respective properties or assets. 9.1.7 CHANGE OF MANAGEMENT OR OWNERSHIP. If (a) General Partner or a controlling portion of its voting stock or a substantial portion of its assets comes under the practical, beneficial or effective control of one or more Persons other than the existing shareholders of General Partner set forth on SCHEDULE 5.16, whether by reason of death, merger, consolidation, sale or purchase of stock or assets or otherwise, (b) General Partner and/or Guarantor transfers, assigns or pledges any interest, legal or beneficial, in the interest of such partner in Borrower to any Person other than the Agent for the benefit of itself and the Banks, (c) a change in Borrower's senior management occurs which in the Agent's or any of the Bank's sole judgment could be expected to adversely affect Borrower's ability to carry on its business as conducted before such change, (d) General Partner at any time ceases to be or no longer is the sole general partner of Borrower for any reason whatsoever, (e) General Partner at any time ceases to be or no longer is the sole General Partner of Guarantor for any reason whatsoever, or (f) there exists any general partner in Borrower or Guarantor other than General Partner. 9.1.8 INADEQUATE FUNDING OR TERMINATION OF EMPLOYEE BENEFIT PLAN(S) OR OCCURRENCE OF CERTAIN REPORTABLE EVENTS. If (a) Borrower, General Partner or Guarantor shall fail to meet its minimum funding requirements under ERISA with respect to any employee benefit plan established or maintained by it, or if any such plan shall be subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of Borrower, General Partner or Guarantor to the PBGC which in the reasonable opinion of the Agent will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of Borrower, General Partner or Guarantor or (b) there shall occur, with respect to any pension plan maintained by Borrower, General Partner or Guarantor any reportable event (within the meaning of Section 4043(b) of ERISA) which the Agent shall determine constitutes a ground for the termination of any such plan, and if such event continues for 30 days after the Agent gives written notice to Borrower, provided that termination of such plan or appointment of such trustee would, in the opinion of the Agent, have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of Borrower, General Partner or Guarantor. 9.2 ACCELERATION OF INDEBTEDNESS; REMEDIES. (a) Upon the occurrence of an Event of Default, all Indebtedness shall be due and payable in full immediately at the option of the 49 Majority Banks without presentation, demand, protest, notice of dishonor or other notice of any kind, all of which are hereby expressly waived. Unless all of the Indebtedness is then immediately fully paid, the Agent, at the direction of the Majority Banks, and each of the Banks shall have and may exercise any one or more of the rights and remedies for which provision is made for a secured party under the UCC, any or all Lease Assignments or other Loan Document or under any other document contemplated hereby or for which provision is provided by law or in equity, including, without limitation, the right to take possession and sell, lease or otherwise dispose of any or all of the Collateral (subject, in regards to any Burger King Restaurant Location, to any applicable limitations contained in SECTION 9.2(b) of this Agreement) and to set off against the Indebtedness any amount owing by the Agent and/or any Bank to Borrower and/or any property of Borrower in its possession. Borrower agrees, upon request of the Agent or any Bank, to assemble the Collateral and make it available to the Agent or any Bank at any place designated by the Agent or such Bank, as the case may be, which is reasonably convenient to the Agent or such Bank, as the case may be, and Borrower. In addition to and not in limitation of the other provisions of this SECTION 9.2, upon the occurrence of an Event of Default, the Agent and each of the Banks may, at its option, terminate its commitment under this Agreement to make Advances. (b) Except as may otherwise be agreed to or consented to by BKC from time to time, and only to the extent that such a requirement may exist under the Borrower's Partnership Agreement, before any foreclosure on any Burger King Restaurant Location (or other transfer of any Burger King Restaurant Location occurring in connection with enforcement proceedings by the Agent and/or any Bank against such Burger King Restaurant Location) may be had under any Lease Assignment covering the same the Agent or such Bank shall first notify BKC in writing of its intent to foreclose or effect another transfer and shall first offer such property to BKC at the price and on the other terms and conditions specified in a written offer from a prospective purchaser (which may be the Agent and/or any such Bank) in connection with such foreclosure or other transfer. The terms of this SECTION 9.2(b) shall be deemed to be effective as of the date of the Original Agreement. In accordance with the Borrower's Partnership Agreement, Borrower warrants and represents to the Agent and the Banks that the credit facility contemplated under this Agreement and secured by the Collateral (which includes without limitation Burger King Restaurant Locations) is a bona fide transaction and that the Agent and the Banks are unrelated to and unaffiliated with BKC, the Managing General Partner (as such term is defined in Borrower's Partnership Agreement) or any Affiliate (as such term is defined in Borrower's Partnership Agreement) thereof. 9.3 ONE OBLIGATION; APPLICATION OF PROCEEDS. All of the Indebtedness, including the Advances, shall constitute one loan and obligation, secured by the Agent's and each Bank's lien or security interest in the Collateral and by all other security interests, mortgages, liens, claims, and encumbrances now and from time to time hereafter granted from Borrower to the Agent for the benefit of itself and the Banks, or to any of the Banks. Upon the occurrence of an Event of Default, the Agent or any Bank, as the case may be, may in its sole discretion apply the Collateral to any portion of the Indebtedness. The proceeds of any sale or other disposition of the Collateral authorized by this Agreement shall be applied by the Agent or any Bank as the case may be, first upon all expenses authorized by the UCC or other applicable law or Loan Document or otherwise in connection with the sale and all reasonable attorneys' fees and legal expenses incurred by the Agent or such Bank, as the case may be. The balance of the proceeds 50 of such sale or other disposition shall be applied in the payment of the Indebtedness, first to the costs and expenses of the Agent or such Bank, as the case may be, then to interest, then to principal, and then to other Indebtedness. The surplus, if any, shall be paid over to Borrower or to such other Person or Persons as may be entitled thereto under applicable law. Borrower shall remain liable for any deficiency, which Borrower shall pay to the Agent and each Bank immediately upon demand. 9.4 CUMULATIVE REMEDIES. The remedies provided for herein are cumulative to the remedies for collection of the Indebtedness as provided by law, in equity or by any mortgage, security agreement or other document contemplated hereby. Nothing herein contained is intended, nor shall it be construed, to preclude the Agent or any Bank from pursuing any other remedy for the recovery of any other sum to which it may be or become entitled for the breach of this Agreement by Borrower. 9.5 PAYABLE UPON DEMAND. To the extent that any of the Indebtedness is payable upon demand, nothing contained in this Agreement or any document contemplated hereby shall be construed to prevent the Agent or any Bank from making demand, with or without reason, for immediate payment of all or any part of such Indebtedness at any time or times, whether or not a Default or an Event of Default has occurred. SECTION 10. THE AGENT 10.1 AUTHORIZATION AND ACTION. Each Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Revolving Credit Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks pursuant to the terms of the Bank Intercreditor Agreement; PROVIDED, HOWEVER, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. In addition to and not in limitation of the foregoing, each Bank hereby specifically appoints and authorizes Agent to act as agent for and on behalf of such Bank as the Beneficiary under the Lease Assignments. 10.2 DUTIES AND OBLIGATIONS. The Agent agrees to execute the same degree of care in handling its duties under this Agreement as it would normally do with respect to credits of a comparable size, amount and nature held entirely for its own account. Neither the Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent (i) may treat the payee of any Bank as the holder of such Bank's Pro Rata Share of the Indebtedness unless and until the Agent receives written notice of the assignment thereof signed by such Bank and the Agent receives the written agreement of the assignee that such assignee is bound hereby as it would have been if it had been an original Bank party hereto, in each case in form reasonably satisfactory to the Agent, (ii) may consult with legal counsel 51 (including counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, and (iii) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable, telex or facsimile) believed by it to be genuine and signed or sent by the proper party or parties or by acting upon any representation or warranty of Borrower made or deemed to be made hereunder. Further, the Agent (A) makes no warranty or representation to any Bank and shall not be responsible or have any liability to any Bank for the accuracy or completeness of any statements, warranties or representations (whether written or oral) made by Borrower in or in connection with this Agreement the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto, the existence, validity, enforceability, effectiveness or priority of any lien or security interest in the Collateral granted or proposed to be granted under this Agreement, the Lease Agreement, or any other document, or the value, adequacy or existence of any Collateral, (B) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of Borrower or to inspect the property (including the books and records) of Borrower. 10.3 AGENT AND AFFILIATES. With respect to its commitment, the Advances made by it, the Letters of Credit issued by it, and its Pro Rata Share of the Indebtedness, the Agent shall have the same rights and powers under this Agreement as the other Banks and may exercise the same as though it were not the Agent; and the term "BANK" or "BANKS" shall, unless otherwise expressly indicated, include the Agent in its capacity as Bank. Comerica and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Borrower, all as if Comerica were not the Agent hereunder and without any duty to account therefor to the Banks, but in the event of such engagement, additional funds advanced by Comerica under such business outside of the contemplation of the Advances, Letters of Credit and other credit accommodations described in this Agreement and the Loan Documents shall not be deemed to be part of the Indebtedness. 10.4 BANK CREDIT DECISION. It is understood and agreed by each Bank that it has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of Borrower. Accordingly, each Bank confirms to the Agent that such Bank has not relied, and will not hereafter rely, on the Agent (i) to check or inquire on its behalf into the adequacy, accuracy or completeness of any information provided by Borrower under or in connection with this Agreement or the transactions herein contemplated (whether or not such information has been or is hereafter distributed to such Bank by the Agent), or (ii) to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of Borrower. Each Bank acknowledges that a copy of this Agreement and a copy of the Exhibits hereto have been made available to it and to its individual legal counsel for review and such Bank acknowledges that it is satisfied with the form and substance of this Agreement and the Exhibits hereto. 10.5 INDEMNIFICATION. The Banks agree to indemnify the Agent (to the extent not reimbursed by Borrower), ratably according to their respective Pro Rata Share, from and against 52 any and all liabilities, obligations, losses, damages, penalties, actions, judgment, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limiting the generality of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any reasonable out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preservation of any rights of the Agent or the Banks under, or the enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by Borrower. 10.6 SUCCESSOR AGENT. The Agent may resign at any time by giving 60 days prior written notice thereof to the Banks and Borrower. If no successor Agent shall have been appointed by the Majority Banks, and shall have accepted such appointment, within 60 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint Compass as successor Agent (or if Compass does not accept such appointment, another successor Agent, which shall be either a Bank or a bank organized under the laws of the United States or of any state thereof, or any affiliate of such bank, and having a combined capital and surplus of at least $50,000,000). Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement arising after the date of such acceptance. After any retiring Agent's resignation hereunder as Agent, the provision of this SECTION 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 10.7 EXCHANGE OF INFORMATION. Each Bank and the Agent shall freely exchange with the other(s) of them any information relating to the condition, financial or otherwise, of any Loan Party, and Borrower hereby consents any and all prior, present or future such exchanges. 10.8 BENEFIT OF THE AGENT AND THE BANKS ONLY. The terms and provisions of this SECTION 10 are for the sole and exclusive benefit of the Agent and the Banks, and not for the benefit of the any Loan Party or any other person. The provisions of this SECTION 10 may be modified and amended by the unanimous consent of the Agent and the Banks and the consent of Borrower shall not be required for any such modification or amendment. SECTION 11. MISCELLANEOUS 11.1 CERTAIN RELEASES OF SPECIFIC REAL PROPERTY COLLATERAL. Upon the request of Borrower, the Agent and each of the Banks will, so long as there exists no Default or Event of Default, execute in connection with Borrower's sales of real property permitted under SECTION 7.8(a) of this Agreement releases of such property from the lien and encumbrance of the Lease Agreement covering such property, PROVIDED THAT (a) each such property to be released is being sold in the ordinary course of business by Borrower to BONA FIDE unrelated third parties, (b) either (i) such property is being replaced with substantially equivalent Real Property with 53 a substantially equivalent stream of rent payments of similar credit quality or (ii) the sale of such property is for cash and the proceeds of the sale, net only of reasonable seller's closing costs, are applied by Borrower as a payment on the Advances, (c) the property to be released consists of the entire parcel or parcels of property acquired and is not a mere portion thereof, and (d)_has submitted to the Agent and each of the Banks properly prepared release documents in a form satisfactory to the Agent and each of the Banks, and with respect to any new parcel described in clause (b)(i) hereof, properly prepared Lease Assignments (or other agreements, documents and instruments satisfactory to the Agent and each of the Banks in its sole discretion) for such parcel, the warranty deed and closing statement for such property or properties, and such other information as the Bank shall reasonably request. 11.2 INDEPENDENT RIGHTS. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise thereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 11.3 COVENANT INDEPENDENCE. Each covenant in this Agreement shall be deemed to be independent of any other covenant, and an exception or illegality in one covenant shall not create an exception or illegality in another covenant. 11.4 WAIVERS AND AMENDMENTS. No forbearance on the part of the Agent or any of the Banks in enforcing any of its rights under this Agreement, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by Borrower hereunder, shall constitute a waiver of any of the terms of this Agreement or of any such right. No amendment or waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that any modification of, or waiver of compliance with any of the provisions of, this SECTION 11.4 or the Indebtedness or any terms affecting the maturity of or any other dates for payment of the amounts of any Indebtedness, the Advances, interest on the Advances, or the release of any Collateral (except to the extent contemplated hereunder), the Revolving Credit Notes or the Indebtedness shall require the written agreement of the Agent and each of the Banks. 11.5 GOVERNING LAW. This Agreement, and each and every term and provision hereof, shall be governed by and construed in accordance with the internal law of the State of Texas. If any provisions of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or unenforceable provisions had never been contained herein. 11.6 SURVIVAL OF WARRANTIES, ETC. All of Borrower's covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing and the delivery of the Revolving Credit Notes hereunder and shall be deemed to have been relied upon by the Agent and each of the Banks, notwithstanding any investigation heretofore or hereafter made by the Agent or any of the Banks. All statements contained in any certificate or other document delivered to the Agent or any of 54 the Banks at any time by or on behalf of Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by Borrower in connection with this Agreement. 11.7 FURTHER ASSURANCES. Borrower agrees, at its cost and expense, to execute and deliver, and to cause each of its Subsidiaries and Affiliates to execute and deliver, all further instruments and documents (including without limitation any security agreement or fee or leasehold mortgage or deed of trust or assignment of leases or rents or any modifications to any existing mortgages and Lease Assignments as are necessary to reflect that the Indebtedness under this Agreement is a modification and extension of the indebtedness, liabilities and obligations arising under and contemplated by the Original Agreement in form and substance satisfactory to the Agent or the Majority Banks), and take all further action, that may be necessary or appropriate, or that the Agent or any of the Banks may request, in order to perfect or protect any lien or security interest granted or purported to be granted under the Lease Assignment or any other Loan Documents or with respect to any other Collateral and any other remove property (whether real, personal or mixed) owned or leased by Borrower or any of its Subsidiaries or Affiliates, now or in the future, that the Agent or the Majority Banks may specify. 11.8 COSTS AND EXPENSES. Borrower agrees that it will reimburse the Agent and each of the Banks, upon demand, for all costs and expenses incurred by any of them in connection with (a) collecting or attempting to collect the Indebtedness or any part thereof; (b) maintaining or defending the Bank's security interests or liens (or the priority thereof); (c) the enforcement of any of their rights or remedies under this Agreement or the other documents contemplated hereby; (d) the preparation or making of this Agreement, the other Loan Documents and the other documents contemplated hereby, and of any amendments, modifications, waivers or consents with respect to this Agreement, the other Loan Documents or the other documents contemplated hereby; and/or (e) any other matters or proceedings arising out of or in connection with any lending arrangement between the Agent and/or any of the banks and Borrower, which costs and expenses include, without limitation, payments made by the Agent and/or any of the Banks for taxes, insurance, assessments, or other costs or expenses which Borrower is required to pay under this Agreement, any of the other Loan Documents or any of the other documents contemplated hereby; reasonable expenses related to the examination and appraisal of the Collateral; reasonable audit expenses; court costs and reasonable attorneys' fees (whether in-house or outside counsel is used, whether legal assistants are used, and whether such costs are incurred in formal or informal collection actions, federal the Bankruptcy proceedings, probate proceedings, on appeal or otherwise); and all other costs and expenses of the Agent or any of the Banks incurred in connection with any of the foregoing. All the costs and expenses of the Agent and each of the Banks shall become part of the Indebtedness and shall be secured by the Collateral. Without limiting any of the foregoing, the Agent or any of the Banks may, at any time or times, in its sole discretion (without any obligation to do so), without waiving or releasing any obligations, liability or duty of Borrower under this Agreement or the other Loan Documents, or any Event of Default, (i) make any payment for taxes, insurance, assessments, or other costs or expenses which Borrower or any Loan Party is required to pay under this Agreement, any of the other Loan Documents or any of the other documents contemplated hereby, (ii) pay when due, acquire or accept an assignment of any Lien or claim asserted by any Person against any of the Collateral and/or (iii) receive, and require the right to receive, notice 55 and an opportunity to cure any default under any document or instrument securing any Qualifying Non-Recourse Debt (and Borrower, Guarantor, General Partner and each other Loan Party shall execute and provide, and shall cause to be executed and provided, documentation reasonably acceptable to the Agent and the Banks creating such rights to notice and opportunity to cure). All sums paid by the Agent or any such Bank in respect thereof and all costs, fees and expenses, including, without limitation, attorney's fees and court costs, which are incurred by the Agent or any such Bank on account thereof, shall be payable upon demand, by Borrower to the Agent for the ratable benefit of itself and such Banks, as the case may be, together with interest accruing at the Default Rate from the date of demand until paid and shall be secured by the Collateral. Neither the Agent nor any Bank shall be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, or other person whomsoever, but the same shall be at Borrower's sole risk. 11.9 PAYMENTS ON SATURDAYS, ETC. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or any other day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension, if any, shall be included in computing interest in connection with such payment. 11.10 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default the Agent and each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Agent and/or such Bank to or for the credit or the account of Borrower against any and all of the obligations of Borrower now or hereafter existing under any Loan Document, irrespective of whether or not the Agent or such Bank shall have made any demand under such Loan Document and although such deposits, indebtedness or obligations may be unmatured or contingent. Agent and such Bank agree promptly to notify Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Agent and Banks under this SECTION 11.10 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Agent and the Banks may have. In the event of any such set-off the Bank or the Agent setting-off such amount shall promptly remit the proportionate share of such sum to the other Banks in accordance with their respective Pro Rata Share. 11.11 BINDING EFFECT; SUCCESSORS AND ASSIGNS; PARTICIPATIONS. (a) This Agreement shall be binding upon and inure to the benefit of Borrower, the Agent and the Banks and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Agent and the Majority Banks. (b) Each Bank shall have the right at any time, without the consent of Borrower or any other person, to assign, negotiate, hypothecate, or grant participations in this Agreement or in any of its commitments, Advances, rights and security under this Agreement and any of the other Loan Documents to either one or more of its affiliates which is a commercial banking or financial institution or to one or more of the Banks, 56 and in the event of the exercise of such right shall promptly notify the Agent and the other Banks thereof. (c) Each Bank shall have the right at any time, with the written consent of each of the other Banks, to assign, negotiate, or hypothecate this Agreement or any of its commitments, Advances, rights and security under this Agreement and any of the other Loan Documents to any other commercial banking or financial institution, and each Bank so assigning, negotiating, or hypothecating this Agreement shall promptly notify the Agent and the other Banks thereof. (d) Each Bank assigning or transferring any of its commitments, Advances, rights and security under this Agreement or any of the other Loan Documents shall, promptly upon request by the Agent, execute and deliver such documents and instruments reasonably requested by the Agent (collectively, a "BANK SUPPLEMENT") to evidence such assignment or transfer and to substitute the assignee or transferee as a Bank on all of the Loan Documents. Borrower hereby acknowledges and agrees that any assignment or transfer described in this SECTION 11.11 will give rise to a direct obligation of Borrower to the buyer, assignee, or transferee, as the case may be, and such person shall be considered a Bank and rely on, and possess all rights under, all opinions, certificates or other instruments delivered under or in connection with this Agreement or any other Loan Document. Borrower shall accord full recognition to any such assignment or transfer, and all rights and remedies of such Bank in connection with the interest so assigned shall be as fully enforceable by such assignee as they were by the assignor Bank thereof before such assignment. (e) The Agent shall receive, in connection with each such agreement or transfer, a $2,500 processing and recordation fee payable by the assignee or transferee, as the case may be. (f) Additionally, each Bank shall have the right to sell or otherwise grant participations in the Agreement or in any of its commitments, Advances, Revolving Credit Notes, rights and security under this Agreement and any of the other Loan Documents to any other commercial banking or financial institution, PROVIDED THAT: (i) such transferor Bank shall promptly notify Agent of the sale or grant of such participation and of the identity of such participant, (ii) such transferor Bank's obligations under this Agreement (including, without limitation, its commitments hereunder) shall remain unchanged, (iii) such transferor Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iv) such transferor Bank shall remain the holder of its Pro Rata Share of the Revolving Credit Note for all purposes of this Agreement, (v) Borrower, the Agent and the other Banks shall continue to deal solely and directly with such transferor Bank in connection with such transferor Bank's rights and obligations under this Agreement, and (vi) such participant under any such participation shall not be in privity of contract with Borrower, the Agent and the Banks (other than the Bank from whom the participant obtained such participation) and shall not have any right to deal directly with Borrower, the Agent or such other Banks in connection with any approval of any amendment or waiver of any provision of this 57 Agreement or any other Loan Document or approval of any consent to any departure therefrom by any party. (g) Without limiting the foregoing, Compass agrees that, in connection with the addition of a third Bank acceptable to Comerica and Compass under this Agreement, Compass shall reduce its Pro Rata Share to as low as forty percent (40%) concurrently with a corresponding equal reduction of Comerica's Pro Rata Share, provided that such concurrent reductions are accompanied by a contemporaneous ratable adjustment of Compass and Comerica's respective Pro Rata Share of the Overall Commitment Amount and the commitment of the third Bank for its assumption of the balance of the Overall Commitment Amount. (h) In connection with any proposed assignment, negotiation, hypothecation or granting of a participation, the Agent and any such Bank or Banks, as the case may be, may disclose to the proposed assignee or participant any information that Borrower is required to deliver to the Agent and/or the Banks pursuant to this Agreement or the other Loan Documents, and Borrower hereby agrees to cooperate fully with the Agent and the Banks, as the case may be, in providing any such information to any proposed assignee or participant. 11.12 MAINTENANCE OF RECORDS. Borrower will keep all of its records concerning its business operations and accounting at its principal place of business. Borrower will give the Bank prompt written notice of any change in its principal place of business, or in the location of its records. 11.13 NOTICES. All notices and communications provided for herein or in any document contemplated hereby or required by law to be given shall be in writing (unless expressly provided to the contrary) and, if personally delivered, effective when delivered at the address below or, in the case of mailing, effective two days after sending by first class mail, postage prepaid, addressed as follows, or to such other address as a party shall have designated to the other in writing in accordance with this section, except that notices to the Agent and/or the Banks pursuant to the provisions of SECTION 2 shall not be effective until received by the Agent and/or Banks, as the case may be: If to Borrower: U.S. Restaurant Properties Operating L.P. 5310 Harvest Hill Road Suite 270, L.B. 168 Dallas, Texas 75230 Attn: Robert J. Stetson and Fred H. Margolin with a copy to: Middleberg Riddle & Gianna, L.L.P. 2323 Bryan Street, Suite 1600 Dallas, Texas 75201 Attn: Richard S. Wilensky, Esq. 58 If to the Agent or Comerica:Comerica Bank-Texas P. O. Box 650282 Dallas, Texas 75262-0282 Attn: Gary L. Emery with a copy to: Hughes & Luce, L.L.P. 1717 Main Street, Suite 2800 Dallas, Texas 75201 Attn: James C. Chadwick, Esq. if to Compass: Compass Bank - Dallas 8080 N. Central Expressway, Suite 370 Dallas, Texas 75206 Attn: John H. Reichenbach with a copy to: Kuntz & Bonesio, L.L.P. 1717 Main Street, Suite 4050 Dallas, Texas 75201 Attn: Walter N. Kuntz, III, P.C. and, if to a Bank other than Comerica or Compass, at the address of such Bank set forth on the most recent Bank Supplement to which such Bank is a party, or, as to each party, at such other address as shall be designated by such party in a written notice to the other party.The giving of at least five days notice before the Agent or any Bank shall take any action described in any notice shall conclusively be deemed reasonable for all purposes; provided, that this shall not be deemed to require the Agent or any Bank to give five days notice or any notice if not specifically required in this Agreement. 11.14 COUNTERPARTS. This Agreement may be signed in any number of counterparts with the same effect as if the signatures were upon the same instrument. 11.15 HEADINGS. Article and section headings in this Agreement are included for the convenience of reference only and shall not constitute a part of this Agreement for any purpose. 11.16 RELEASE AND DISCHARGE. Upon full payment of the Indebtedness (including without limitation all Advances and all Letter of Credit Exposure), performance by Borrower of all its other obligations hereunder and all commitments and other obligations of the Agent and the Banks under the Loan Documents having terminated, except as otherwise expressly provided herein, the parties shall thereupon automatically each be fully, finally and forever released and discharged from any claim, liability or obligation in connection with this Agreement and the other documents contemplated hereby. 11.17 INCONSISTENCY WITH OTHER AGREEMENTS. To the extent any term or provision contained in this Agreement shall be inconsistent with any provision in any other document or instrument executed in connection herewith, this Agreement shall control. 59 11.18 RELEASE. BORROWER AND GUARANTOR HEREBY VOLUNTARILY AND KNOWINGLY RELEASE AND FOREVER DISCHARGE THE AGENT AND EACH OF THE BANKS, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS SECOND AMENDMENT IS EXECUTED, WHICH BORROWER AND GUARANTOR, INDIVIDUALLY OR COLLECTIVELY, MAY NOW OR HEREAFTER HAVE AGAINST THE AGENT AND EACH OF THE BANKS, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY ADVANCES, ADVANCES, LETTERS OF CREDIT OR OTHER INDEBTEDNESS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE AGREEMENT OR OTHER TRANSACTION DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AGREEMENT. 11.19 DTPA WAIVER. BORROWER HEREBY WAIVES ALL OF ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., TEXAS BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF BORROWER'S OWN SELECTION, BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER. BORROWER EXPRESSLY WARRANTS AND REPRESENTS TO THE AGENT AND EACH OF THE BANKS THAT BORROWER (A)_IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO THE AGENT AND EACH OF THE BANKS AND (B)_HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. 11.20 WAIVER OF JURY TRIAL. BORROWER, THE AGENT AND EACH OF THE BANKS HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH BORROWER AND THE AGENT OR ANY OF THE BANKS ARE PARTIES ARISING OUT OF THIS AGREEMENT OR THE OTHER DOCUMENTS CONTEMPLATED HEREBY. BORROWER HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 11.21 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER "LOAN AGREEMENTS" (AS DEFINED IN SECTION 26.02(a)(2) OF THE TEXAS BUSINESS & COMMERCE CODE, AS AMENDED) REPRESENT THE FINAL 60 AGREEMENT BETWEEN THE PARTIES, AND THIS AGREEMENT AND THE OTHER WRITTEN LOAN AGREEMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 11.22 AMENDMENT AND RESTATEMENT. This Agreement and the financing commitments set forth herein constitute an amendment, modification and restatement, but not an extinguishment or novation, of the Original Agreement and the financing commitments set forth therein, the interest in the Original Agreement of Comerica thereunder having assigned to Comerica and Compass without recourse or warranty of any kind pursuant to the Assignment Agreement. This Agreement and the other Documents are not intended as, and shall not be construed as, a release, impairment or novation of the indebtedness, liabilities and obligations of Borrower or any of the other Loan Parties under the Original Agreement and the other agreements, documents and instruments executed in connection therewith or relating thereto or the liens and security interests granted therein, all of which liens and security interests are hereby modified and affirmed. With respect to matters relating to the period of this Agreement prior to the date hereof, all of the provisions of the Original Agreement are hereby ratified and confirmed, and shall remain in full force and effect; PROVIDED, HOWEVER, that with respect to the period prior to the date hereof, all parties hereto waive all prior defaults under the Original Agreement as to which Borrower has notified Comerica in writing prior to the date hereof. The Original Agreement, as modified by the provisions of this Agreement, shall be construed as one agreement. [REMAINDER OF PAGE INTENTIONALLY BLANK] 61 IN WITNESS WHEREOF, Borrower and the Banks have caused this Agreement to be executed in Dallas, Texas by their duly authorized officers as of the day and year first written above. BORROWER: U.S. RESTAURANT PROPERTIES OPERATING L.P. By: U.S. Restaurant Properties, Inc., its general partner By: _____________________________ Fred H. Margolin Secretary COMERICA: Commitment Amount $20,000,000 COMERICA BANK -TEXAS By: _____________________________ Gary L. Emery Vice President COMPASS: Commitment Amount: $20,000,000 COMPASS BANK -DALLAS By: _____________________________ John H. Reichenbach Senior Vice President AGENT: COMERICA BANK-TEXAS, as Agent By: _____________________________ Gary L. Emery Vice President 62 LIST OF EXHIBITS EXHIBIT A-1- Form of Advance Compliance Certificate (Acquisition Advance) EXHIBIT A-2- Form of Advance Compliance Certificate (Letter of Credit Advance) EXHIBIT A-3- Form of Advance Compliance Certificate (Working Capital Advance) EXHIBIT B-1- Form of Borrowing Notice (Acquisition Advance) EXHIBIT B-2- Form of Borrowing Notice (Letter of Credit Advance) EXHIBIT B-3- Form of Borrowing Notice (Working Capital Advance) EXHIBIT C - Form of Revolving Credit Note EXHIBIT D - Form of Lease Assignment EXHIBIT E - Form of Opinion of Counsel EXHIBIT F - Form of Guaranty EXHIBIT G - Form of General Compliance Certificate LIST OF SCHEDULES SCHEDULE 1.1- List of Real Property SCHEDULE 5.2- UCC Records and Property Records SCHEDULE 5.5- Permitted Liens SCHEDULE 5.11- Existing Indebtedness SCHEDULE 5.12- Material Agreements SCHEDULE 5.16- Subsidiaries SCHEDULE 5.19- Outstanding Principal Balance of Indebtedness Under Original Agreement SCHEDULE 7.4- Permitted Indebtedness SCHEDULE 8.2- Environmental Disclosures EX-27 3 EXHIBIT 27 - FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 7,127 0 1,067,986 116,891 20,000 3,326,620 9,113,747 2,632,820 71,482,739 1,365,373 0 0 0 0 0 71,482,739 0 9,780,289 0 1,405,380 0 0 262,403 5,270,565 47,977 0 0 0 0 5,222,588 1.126 1.106
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